Residents in the United Arab Emirates can often take things for granted. For example, when they walk into a hotel there are two things they expect to happen, which, elsewhere in the world, are not always commonplace.

The first, and most obvious, is that there is usually someone standing in the doorway ready to greet you and direct you to wherever it is in the hotel that you want to go. The second is that the public areas - be it the lobby, restaurants or the toilets – are spotless.

However, as Tim Cordon, the senior vice president for the Middle East, Turkey and Africa for Radisson Hotels Group explains, this comes at a cost.

"If you take a typical hotel in Europe, we would probably have fewer staff operating our hotel (than in the Middle East)," he told Zawya during an interview at the Arabian Travel Market conference and exhibition on Monday.

"So you would argue that it's a more efficient operation. And maybe you would also argue that certain standards of service here are demonstrably higher - and we could have that debate - but there's a balance to achieve."
Radisson Hotel Group is currently in the midst of a significant expansion in the region - the company opened 17 new hotels in the Middle East last year, and 23 in the wider Middle East, Turkey and Africa region in what Cordon described as “a record year for our organisation in this part of the world”.

The company has already opened a further six hotels in the region so far this year - five in the Middle East – adding more than 1,000 new rooms in 2018 to the 8,200 brought forward last year. It now has about 13,500 rooms in operation in 44 hotels across the Middle East, with another 34 hotels under development.

"The engine room for us is the Middle East," Cordon said. "We've grown explosively in sub-Saharan Africa over the last three to four years - we're now the biggest operator in sub-Saharan Africa. And that's a great story, but we need to consolidate some of that. For the foreseeable future, the predominant growth is in the Middle East and North Africa."

New name, new owners
Globally, the group is also undergoing a transformation, having rebranded last month following a deal in December 2016 which saw Chinese conglomerate HNA Group acquire a majority stake in parent group Carlson Rezidor from the United States-based Carlson family.

The company is now known as Radisson Hotels Group, and has consolidated the number of brands it operates.

"No-one understands what Carlson Rezidor is. So changing the name of our organisation to something that people recognise, and instantly recognise as a hotel company, made perfect sense," Cordon said.

"Creating a company called Radisson Hospitality was a pretty logical step when the Carlson family were no longer involved," he added.

The group's 2017 annual report published earlier this month shows that its net profit for 2017 dropped by 83 percent to €4.4 million ($5.4 million) as revenue edged up by less than 1 percent to €967.3 million.

The segmental result for the Middle East and Africa region does not give a net profit figure, but shows that earnings before interest and tax declined by 18 percent to €14.2 million on largely flat revenue of €30.7 million, which was blamed on falling revenues per available room (RevPAR) in Saudi Arabia and the United Arab Emirates. The decline in Saudi was blamed on the impact of the continued low oil price, whereas the fall in the UAE was attributed to the increased amount of hotel supply.

"I was actually pretty comfortable with our profitability last year, certainly compared to some of our developed markets," said Cordon.

"What I would say is that if we look at particular markets around MENA - Dubai being a good example, Saudi being another - they're developing at different paces. That definitely asks a big question of us as operators in terms of how we react to that and how quickly can the market allow us to move to a more developed model?"

He argued that hotel operators in the region face increased costs on a number of fronts - from increased visa costs, housing costs and energy bills to the work involved in fulfilling nationalisation quotas for staff. However, there are some markets that are better able to absorb costs these costs than others.

"There are markets in the Middle East where we still have cartel pricing in place, which artificially keeps the average rate to a certain point," he said.

He said that in these markets, some owners were happy with the fact that there is “a level of profitability which can be achieved with the legacy manning models and the legacy levels of efficiency we have”.

Yet in more developed markets, such as Dubai and Saudi Arabia, there is a more pressing need to tackle costs, he argued.

"There's pressure on margins, which forces businesses to deliver maximum profitability to the owners. So that's what we're focussing on in 2018 and beyond - to how do we move our businesses to a more efficient model.

As well as more efficient levels of staffing, this also entails driving efficiencies through creating centralised services and combined procurement, as well as a proposed company-wide overhaul of its IT systems.

"There's various different levers we can pull to make sure that we are protecting the bottom line for the owner," he added.

Revenue drop
According to accountancy firm EY's Hotel Benchmark survey published last month, RevPAR dropped by 6.2 percent in Dubai during 2017 and by 2.6 percent in Abu Dhabi. Saudi witnessed much steeper declines, with RevPAR in both Riyadh and Jeddah declining by 14.5 percent.

The survey also found that despite declining prices, Dubai continued to attract the highest average room rate, at $189 per night.

Despite the issues it creates for hotel owners, Cordon argued that falling room rates in Dubai were a healthy sign, as it shows the mix of accommodation types is changing, with more mid-market hotels being built to cater for a broader spectrum of the market than the typical luxury hotels.

"What I would say is I am encouraged by some of those numbers. Because what that shows to me is Dubai becoming more competitive on an international stage.

"The fact that revenue in a particular hotel might have gone down slightly is unfortunate, I understand, but in the big scheme of things hotels are a long-term investment. I think the strategy is sound and right. You're able to attract a far greater number of tourists if you have a breadth of offering."

He also said that having more, mid-market hotels would increase the city's appeal among convention organisers.

"If you're the head of a large company and you want to have a convention for your global team of people, Dubai would probably not have been on your list of available options previously, because of the expense.

"Now, we're getting to a point where we're getting internationally competitive with other cities that have the ability to host conventions of that size, which to me is only good news for the future."

Kingdom expansion
Even Saudi Arabia, a market which has proved more challenging since 2014 as a decline in oil prices hit business travel, is seen as a major opportunity, given the kingdom's decision to extend tourism visas to leisure groups (as opposed to only religious tourists and business travellers) as part of its Vision 2030 plan.

The company already has 11 hotels in Saudi Arabia in key markets including Makkah, Jeddah, Riyadh, Dammam, Yanbu and Al Khobar, among others, but Cordon said that "we've still got a lot to do in Saudi".

"KSA is an underserved market. It obviously has structural change that's happening at the moment, which is bringing with it many opportunities as well as many challenges."

The company has two significant openings in the kingdom due later this year, with a 180-room Radisson Blu hotel set to open in Riyadh's Diplomatic Quarter in September this year, and a "very exciting" new resort hotel known as Nofa due to open in the summer. This is a luxury resort containing 57 villas being built on top of an underground lake about an hour southwest of Riyadh.

"It's a one-of-a-kind," Cordon said. "It's an African resort in the middle of the desert. The gates open and it’s like you're entering Jurassic Park," he said.

Although exciting, this is perhaps less typical of the company's future plans than the 450-room Radisson Blu it opened in Dubai's Business Bay district on the banks of the city's extended canal last month.

The company is also opening its first Radisson Red - a limited service hotel offering targeting millennial customers - in the Dubai Silicon Oasis district later this year.

Cordon said that in key markets such as Dubai where it enjoys "critical mass", it is able to be more selective in terms of the hotels it takes on.

"We look now for larger hotels in great destinations - something that's really going to represent the brand very strongly indeed," he said, highlighting the new waterfront property as an example.

"That's exactly the kind of hotel that we are able to start targeting now," he said. "We have another couple of very exciting projects in the pipeline."

(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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