15 June 2017
As Saudi Arabia pushes ahead with reforms to its leisure and entertainment sector, hoteliers see vast opportunities in the kingdom’s hotel mid-scale segment, despite a squeeze on government spending and corporate travel budgets. A rise in offerings for domestic tourists, along with an increase in religious tourists, has created more demand for affordably priced hotels in the kingdom, industry experts said.

“It is obviously a very vibrant market dominated by religious tourism and that will definitely grow,” Dr. Martin Berlin, Middle East partner and global deals real estate leader at consultancy firm PwC told Zawya in an interview at a conference in Dubai in late April.

Saudi Arabia is expected to open a record number of 68 new hotels and 29,033 rooms in 2017, according to a report by TOPHOTELPROJECTS, a specialised data provider on the hotel industry.

“In Saudi, we see two great opportunities to grow: one in religious pilgrimage and we are in negotiations with developers in Makkah and Mahinah. Another one is in developing our brands in all of those primary and secondary cities in the kingdom, particularly in the select segment, which is more affordable for families and friends to travel across the kingdom to visit each other,” Alex Kyriakidis, president and managing director, Middle East & Africa, Marriott International, told Zawya in late April at a conference in Dubai.

“The Saudi government is re-focusing on the future development of the holy cities, because they recognised that there is huge demand from the Muslim population around the world for the pilgrimage,” Kyriakidis added.

Marriott is currently operating 23 hotels in Saudi Arabia, has 25 hotels scheduled for opening in 2017, and has 27 hotels in the pipeline up to 2022, the company told Zawya by an email statement.

Leisure and entertainment reforms

In April this year, Saudi launched a mega cultural, sports and entertainment city near Riyadh, scheduled to open in 2022. The city is set to become “a prominent cultural landmark and an important centre for meeting the future generation’s recreational, cultural and social needs in the kingdom”, according to Deputy Crown Prince Mohammed bin Salman, a prominent government official heralding the kingdom’s Vision 2030 reform plans.

One of the goals of the Saudi roadmap to 2030 is to increase household spending on entertainment and cultural activities inside the kingdom, from 2.9 percent in 2016 to 6 percent in 2030. The vision also aims to boost domestic tourism by doubling the number of UNESCO heritage sites in the kingdom by 2030.

“With the Vision 2030, Saudi Arabia takes a step towards building leisure and entertainment in their tourist offering, so they try to provide an offering for the domestic tourists segment, as well as for religious tourists, and in particular those on Umrah,” PwC’s Berlin said.

“Travellers for Hajj are mostly focused on the religious experience, and they are less likely to divert into other activities, like Umrah tourists,” he added.

By 2026, travel and tourism is set to contribute more than $81 billion to Saudi’s gross domestic product (GDP), according to World Travel and Tourism Council.

“I am a strong believer in Saudi Arabia because, at the moment, this is a market asking itself a lot of questions about the future, and there is a new leadership developing a lot of ambitious plans,” Francois Baudin, senior vice president, Europe, the Middle East and Africa, AccorHotels told Zawya in an interview at a conference in Dubai in April.

Blooming mid-scale segment

Lower government spending on the back of shrinking oil revenues caused a downfall in Saudi hotel occupancy levels, dropping 4.8 percent to an average of 59.5 percent in 2016, according to global data benchmarking company STR. Yet, industry experts expect that 2017 will be more positive, with a focus on domestic and religious tourism.

“Saudi is still an undersupplied market that needs hotels. A long time back, the luxury segment came first to the market due to demand, but today, economy and mid-scale present a big opportunity. We were one of the first to go into this market in Saudi in this business type of brands with ibis hotels,” AccorHotels’ Baudin said.

AccorHotels is now the largest hotel operator in the kingdom, with 23 operational hotels representing close to 9,700 rooms across the economy, mid-scale, upscale and luxury brands, the company told Zawya in a statement.

There are currently a total of three Ibis properties in operation in the kingdom, including the recently opened 286-room Ibis Styles Makkah. The hotel  has 37 hotels under development representing over 10,200 additional rooms and branded residences.

Belgium’s Carlson Rezidor Hotel Group is also expanding in the kingdom and earlier this month it announced opening the world’s largest Radisson Blu hotel In Makkah, featuring over 1,250 rooms. It also announced plans for a Park Inn by Radisson, meaning it will be soon be one of the largest hotel operators in the holy city.

The country also has a lot to offer for hotel developers in terms of its logistics, geographical area, and economy, according to Amine E. Moukarzel, president, Louvre Hotels Group – MENA.

“Today, there are 50 airports in the kingdom. But in Saudi, you cannot go into areas like Jazan, Yanbu, Unaiza, Jubail and put 5-star hotels there with 500 or 400 rooms and six restaurants for example. You need to know how to attract the customers who are traveling to such cities for two or three days for national tourism or national business,” Moukarzel told Zawya in late April.

Demographic advantage

“Yes, Saudi is suffering from the impact of low price of oil, the economy has taken a shock, and GDP is predicted to be down 20 percent compared to last year. But here is the interesting thing about Saudi: you have 35 million people in Saudi; it is the second largest Arabic speaking country in the Middle East after Egypt,” Marriott International’s Kyriakidis said.

This population has a huge demand for travel, and they love to travel domestically, regionally and internationally, Kyriakidis added. “If you look at the demographics, the majority is the Saudi population is really young, tech savvy, and getting increasingly more educated.”

But in Saudi, it is very important to employ and train locals, according to AccorHotels’ Baudin, who notes that they have put the “Accord Academy” in place to train Saudis.

“I don’t see Saudization in the hotel industry as an obstacle as it allows you to monitor your costs properly. Expatriates are expensive and you have to pay a lot of benefits. You need to start with expatriates in some key positions to transfer the knowledge, but today there are more and more examples of Saudi nationals who are taking key executive positions in our hotels. Saudization is a challenge that we have embraced, and that has added benefit for the country as well,”

Potential slow social shift

However, plans to reform the kingdom’s leisure and entertainment sector faces strong opposition from powerful religious figures who want to maintain the kingdom’s conservative social norms that ban gender mix in public places, alcohol and cinemas.

But in April last year, the Saudi cabinet passed legislation curbing the powers of the religious police to enforce the strict morality rules, in a further sign of a social shift in the ultra-conservative kingdom.

Saudi spending on entertainment will triple to 8 or 9 percent by 2030, according to Ahmed Al Khatib, chairman of the General Entertainment Authority (GEA), who told Reuters in late April that most Saudis, with the majority below 30, want the cultural reform.

“They travel, they go to cinemas, and they go to concerts. I am counting on the middle segment, which is about 80 percent of the population," he told Reuters in April.

The kingdom has also started to host concerts this year, but cinemas are still banned, yet Al Khatib said cinemas will open eventually in Saudi.

So would the potential social change in the kingdom lead to a new influx of tourists to the Saudi kingdom?

“That is certainly a long shot,” PwC’s Berlin said. “The answer would be yes, but it is a long term perspective that needs a lot of regulatory changes as well as changes in the tourist offerings.”

© Zawya 2017