BUDGET HOTELS: Cheap frills

05 May 2006

You can't keep a good man down. And it was perhaps inevitable that the booming economies of the Gulf should attract one of the world's most renowned entrepreneurs. Stelios Haji-Ioannou, founder of easyGroup, is famous for setting up no-frills airlines, cinemas and internet services. Now, he has turned his attention to the Middle East budget hotel market.

'We signed a master franchising agreement with [Dubai-based investment firm] Istithmar, whereby it will develop 38 easyHotels in the region over five years,' says Haji-Ioannou. 'Things came together at the right time. Dubai has 5.5 million tourists and is growing by about 10 per cent [a year]. Half of them are from Europe and know the easy brand. Istithmar was looking at investing in the hotel sector, analysed the demand and saw that there was a shortage in the budget sector.'

EasyHotel will join a string of other operators keen to bring their brand of cheap, reliable hotels to the region. The pioneers of branded three-star accommodation were France's Accor, which in 2003 opened the region's first Ibis at Dubai's World Trade Centre. Since then, a growing list of global and regional players has joined the fray, including the InterContinental Hotels Group (IHG) three-star brand Express by Holiday Inn, Millennium Hotels & Resorts, with its Kingsgate product and Radisson SAS, with its Park Inn brand. Regional players have also entered the market. Abu Dhabi-based Rotana Group has created the three-star Centro brand, while Dubai-based airline Emirates has joined forces with the UK's Premier Travel Inn. Another entrepreneur in the shape of Yo Sushi! founder Simon Woodruffe, in conjunction with Kuwait's IFA Hotels & Resorts, will develop the Yotel brand, a mix of first-class British Airways cabin and Japanese capsule hotel.

According to hospitality consultant the RSP Group, 75 per cent of GCC hotels are already three-star or below. However, most are priced beyond their category and are of low quality in terms of service and safety. Moreover, nearly all of them are unbranded. 'The concept has to be economically justifiable and meet the demands of the market,' says Elie Younes, director at hospitality firm HVS International. 'If it's done properly, there could be demand for as many as 10 budget hotels in the region each year, but they have to be careful not to overdo it.'

The rationale for building low-cost or 'limited service' hotels - as the industry likes to call them - is evident. The number of visitors to the Middle East, excluding North Africa, grew by 7 per cent year on year to 38.4 million in 2005. The World Tourism Organisation (WTO) forecasts a further rise of about 8 per cent this year and expects visitor numbers to double by 2020. The Middle East has become the fourth most visited area in the world, ahead of Africa.

This growth has in turn fuelled record revenues for hoteliers. According to Deloitte & Touche's most recent Hotel Benchmark Survey, the region's hotels were the best performers globally in 2005. Average room rates for the six GCC nations reached $117 last year, compared with $94 in 2004. That resulted in the industry's key performance indicator, revenue per available room (revpar), rising by 21 per cent in 2005 to $81. The Gulf has become the most lucrative area in the region. Revpar for the GCC states also averaged $117, as opposed to $53 for the Levant and Egypt. Looking at particular hotspots, Dubai's revpar figure of $174 was just below Venice as the world's best performer. Occupancy rates in the region are among the highest in the world, averaging 70 per cent and in Abu Dhabi, as high as 84 per cent.

While the upward trend can be seen across the region, the GCC's unprecedented economic growth is attracting not only high-rolling tourists and businessmen, but expatriates and travellers from all walks of life. According to a survey carried out by RSP at the recent Arabian Hotel Investment Confere

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