UAE’s largest hotel operator Marriott looks east to offset Brexit effect

The JW Marriott Marquis Hotel in Dubai. The Marriott says it will more than double its UAE portfolio from 38 hotels to 80 over four years. Jeffrey E Biteng / The National

The strength of the US dollar, to which the dirham is pegged, and the UK’s decision to leave the European Union has had an effect on guest nights at Marriott hotels in the UAE, a hotel official said on Tuesday.

“Clearly the strength of the dollar has had an impact,” said Alex Kyriakidis, the president and managing director for the Middle East and Africa at Marriott International. “But we have successfully offset that by attracting new source markets. Today Gulf nationals account for nearly 55 to 60 per cent of room nights and new markets are opening up with visitors from China, India and Iran.”

He said that the proportion of British visitors staying in Marriott hotels in the UAE had fallen from 12 per cent five years ago to just 7 per cent this year.

In September, Nasdaq-listed Marriott announced plans to more than double its UAE portfolio from 38 hotels to 80 over the next four years, increasing its room numbers to 23,000 rooms, up from 9,616.

Marriott, which earlier this year became the largest hotel operator by rooms in the UAE after it merged with Starwood Hotels and Resorts, still expects hotels to eke out a profit in Abu Dhabi, despite lower occupancy levels, falling room rates and new supply.

The capital remained “an extremely exciting and profitable market despite the new supply”. He was speaking ahead of the opening of the Marriott Hotel Downtown Abu Dhabi, the first Marriott branded hotel in the emirate.

Marriott is far from alone in pursuing ambitious hotel expansion plans in the capital. the property broker JLL estimates that by the end of the year, 2,400 hotel rooms will have opened in Abu Dhabi, increasing the total number of available rooms in the city by about 10 per cent.

To win market share, hotels have had little option but to engage in a price war, cutting room rates aggressively.

“Hotels are slashing their prices in response to the new supply in the market – and we react to that as well,” Mr Kyriakidis said. “You can’t go to a hotel that has just opened to a full market share. We have to go through a ramp up period.”

According to research firm STR Global, occupancy rates in Abu Dhabi in September this year stood at 70.2 per cent, down by about 3 per cent from the same period last year.

Average room rates also dipped, falling from Dh488 per room per night in September last year to Dh440 per room per night in September this year. Lower occupancy rates and the continued softening of room rates have pushed down revenue per available room by close to 12 per cent, as rates fell from Dh352 per room per night in September last year to Dh310 in September this year.

“But the cost structure of this industry is such that profitability continues to be much more acceptable than if we were sitting in Europe and having occupancies in the mid to late 60s,” Mr Kyriakidis said. “Certain costs here are considerably lower than they are in Europe and the United States so if you take payroll costs for example the labour cost is significant, which means it erodes a large part of the owners bottom line. Here there is no taxation and so one is able to pass that benefit on.”

Besides the Marriott, new hotel openings in the emirate this year include the 428-room Grand Hyatt Abu Dhabi Hotel and Residences, Emirates Pearl and Bab Al Qasr. The 200-room Four Seasons on Al Maryah Island opened in May and the 156-room Gloria Downtown Hotel opened in April.

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