Dubais hotel industry could do with a tweak

Dubai -The business environment for the hospitality industry in Dubai in evolving at a very fast pace. The pace of change is directly impacting the very business model that most operators and developers have been accustomed to over the past decade and a half.

The traditional business model has yielded impressive and consistent profitability during this run. However, it is now essential to recognise this ongoing business model evolution. It is clear that businesses that are able to embrace this change — and adapt accordingly — will succeed.

Most mature hotel markets around the world have experienced and dealt with such evolution. Below are some of the key challenges that hotel operators will face. These business realities are here to stay and need to be comprehensively addressed via strategic and well thought through solutions.

Pressure on profit

This is one of the most critical challenges. The operating margins have already corrected in a big way. While the occupancies have largely held up, it’s the rate that’s been under pressure. This has impacted RevPAR (revenue per available room).

Compounded with the below factors are directly impacting cost of doing business, the break even curve and profitability index of the hotel model needs to be viewed through an entirely new prism.

Increased build cost

The cost of sourcing quality material and building has been going up. While the cost has been going up in recent years, this parameter is becoming more and more visible, compounded by some of the other factors below.

Increased cost of human capital

As the market matures, payroll as a percentage to overall business revenues would surely go further up.

Sourcing quality human capital

In a fast paced environment growth environment with consistent addition of new inventory, the human capital talent pool has been under pressure. Hospitality is becoming more and more experiential, and the entire attribute of making it so can only be attained through high quality service oriented human resources.

The industry here needs to commit itself to investing in developing and training such pedigree of human capital. This will go a long way in servicing the growing appetite of hotel industry in the region.

Differentiating one’s brand story in a busy market place

Picking up from the above mention about hospitality becoming more experiential, another key challenge is to be able to create a clear and compelling brand story and connect well with the consumer’s mind. In past, given the high demand business environment, this aspect hasn’t been given its due weightage in many establishments.

They will now start to find it hard to resonate with the consumers.

Getting out there and getting business

The tide is clearly shifted to Dubai becoming a buyer’s market. Over the past few business cycles, hotels didn’t actually have to go out and source business. The dynamic combination of DTCM, Emirates airline, evolution of Dubai as a destination, and the busy MICE calendar ensured a growth in arrivals across market segments.

While the overall arrival numbers are still holding up, the key challenge for hotels is to source the right kind of patron, keeping the profile and overall spending ability in mind

The writer is Executive Vice-President for Preferred Hotels & Resorts South-Asia, Middle East, Africa and Australasia.

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