Hospitality industry: Rethinking and reinforcing the strategy

Updated 14 February 2016

Hospitality industry: Rethinking and reinforcing the strategy

It is not the most exciting of times, economically speaking. Crude prices are spiraling down, hitting the lowest ‘per barrel’ price since 2003. Last year ended with clocking a deficit of $96 billion.
This year too is set to match it, with an estimated $85 billion deficit.
However, like our ministers and experts rightly say, Saudi Arabia is well positioned to brace the economic head winds.
As one of the visiting Saudi dignitaries also said during the recent Global Economic Forum in Davos, Saudi Arabia has, over the years, built very strong guard rails for its socio-economic growth and sustainability which can carry it through the current era of weak crude futures.
Ample foreign reserves, low debt, healthy investment climate, diversification of economy, robust economic policies and, above all, the firm resolve and vision of the Saudi leadership bode well for Saudi Arabia.
It will weather the storm comfortably and come out more strong and seasoned.
Similarly, the hospitality industry in Riyadh, currently in a challenge mode, can be buoyed with some innovative strategy and policy.
With revenue and occupancy dropping year on year, and new supply entering the market, it looks like a rough road ahead for some time to come.
As per the STR Global, year on year, the market penetration index has gone south from +11.1 percent in 2014 to -7.8 percent in year ended 2015 and the revenue growth Index, a key benchmark to assess the health of the business, has moved from +6.3 percent in 2014 to -8 percent in 2015.
A report published by Jones Lang LaSalle (JLL) last year revealed that Riyadh and Jeddah are forecast to see an increase of 16,000 new hotel rooms by 2018.
Of these, more than 50 percent will be new 5-star hotel developments, as international hotel brands put in place ambitious expansion plans.
This year alone, around 4,171 new rooms (4 and 5 star) are planned to come on stream; give or take a few 100s.
Furnished apartments of all hue and colors are flooding the hospitality space.
Like the International Energy Agency recently said, the oil market could drown in oversupply, the hotel industry too could experience a similar situation here if further new supply continues to stream in.
With the supply increasing unilaterally, occupancy levels decline translating to receding revenues.
In such situations, there is a danger of hotels undercutting each other, kicking off a price war to grab the market share.
Therefore it is critical that we rethink our strategy and engineer social and cultural innovations, within the framework of Saudi laws of course, that could bridge the supply and demand gap.
Firstly, for the near term, additional investments in hotels and furnished apartments within Riyadh could perhaps be rethought and redirected.
Funneled into, maybe, residential townships, libraries, museums, theme parks, science parks, aquariums, public parks, sport arenas etc.
Secondly, it is time people embrace the initiatives and strategies laid out by the Saudi Commission for Tourism and Heritage.
Domestic tourism needs to blossom in all its potential, distributing its bounty through the year, particularly during the ‘need periods’.
Riyadh, of course, should be the focal point due its size and stature — mercury levels notwithstanding.
This, however, wouldn’t be possible without the people’s participation.
Tourism authorities and service providers can only ‘take the horse to the pond’ as the saying goes.
With world-class hospitals and medical facilities, health tourism is another potential source of commerce. And, of course, another source of employment for the young Saudi nationals entering job market.
This was yet another smart program devised by the Saudi Commission for Tourism and National Heritage years ago that needs to be taken forward by the people and private sector — specially the hotel, airline and tour operators.
It’s vital that they participate, offering attractive and affordable packages and promotions in order to nourish this initiative, support the public and garner goodwill and business along the way.
The recent announcement by tourism authorities about Haj and Umrah Plus visas is a shot in the arm for the VFR segment and throws open yet more possibilities for the growth of in-Kingdom tourism.
With existing and soon debuting airlines, airport expansion programs, low fuel prices and excellent airports connectivity and facility, airlines are in a position to create special RBD’s offering competitive airfares to the common man.
Hotels can then pitch in with special room rates to package hotel beds with airline seats at affordable prices.
Even during peak months, the sudden exodus of business tourists from Riyadh before the end of week creates a big vacuum during the weekends. Edu-social and civic bodies could step in to fill this vacuum.
Organizing literary and cultural festival, career guidance workshops, science exhibitions, conducting historical and geographical tours, educational symposia and seminars etc will not only add to the commerce but will also enrich the intellect of the people, especially the youth.
We can promote programs on weekends that will reinforce civic sense and traffic safety rules; we can bring together the bright minds we have in the society to enhance environment awareness among us!?
We can conduct workshops wherein we bring experts from different business verticals like health care, telecom and media, construction, aviation etc to address how their respective areas are progressing and impacting our lives.
During the lean periods, cookery contests — bringing out the culinary creativity of the people and food festivals to promote culture and cuisines of friendly nations — would be another great activity enriching and entertaining one and all.
For a change, we can give our wives a ‘Kitchen Holiday’ on weekends and indulge them to partake themselves from these events. Imagine the richness of mind and money these constructive and creative endeavors could bestow.
And at the heart of this all will be the hotels as they have the facility, appetite and capability to host all above activities with finesse.
To make it financially viable, organizers could invite Corporates to sponsor these activities as part of their ‘Corporate Social Responsibility’ portfolio.
With above initiatives and strategies, among others, taking root, we will likely see hotel occupancies and revenues moving up, especially during need periods.
Riyadh doesn’t need to have beaches, night clubs and casinos to attract tourists and grow its hospitality business.
It has the people, the potential, the public infrastructure and the political will and wisdom to enrich, empower and educate its residents, guests and businesses.

Feroz Khan is a veteran in the hotel industry, currently working as director of sales and marketing for upscale Riyadh Palace Hotel.


Powell: No clear hint on rates but says Fed will aid economy

Updated 23 August 2019

Powell: No clear hint on rates but says Fed will aid economy

  • The outlook for the US economy, Powell said, remains favorable but continues to face risks
  • Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter

WASHINGTON: Federal Reserve Chairman Jerome Powell sent no clear signal Friday that the Fed will further cut interest rates this year but said it would “act as appropriate” to sustain the expansion — phrasing that analysts see as suggesting rate cuts.
Powell said President Donald Trump’s trade wars have complicated the Fed’s ability to set interest rates and have contributed to a global economic slowdown.
Speaking to a gathering of central bankers in Jackson Hole, Wyoming, Powell didn’t give financial markets explicit guidance on whether or how many rate cuts might be coming the rest of the year. The Fed cut rates last month for the first time in a decade, and financial markets have baked in the likelihood of more rate cuts this year.
The outlook for the US economy, Powell said, remains favorable but continues to face risks. He pointed to increasing evidence of a global economic slowdown and suggested that uncertainty from Trump’s trade wars has contributed to it.
Reacting to the speech Friday, Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter:
“As usual, the Fed did NOTHING!” Trump tweeted. “It is incredible that they can ‘speak’without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the US will do great.”
Trump added:
“My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?“
Powell’s speech comes against the backdrop of a vulnerable economy, with the financial world seeking clarity on whether last month’s rate decision likely marked the start of a period of easier credit.
The confusion only heightened in the days leading to the Jackson Hole conference, at which Powell gave the keynote address. Minutes of the Fed’s July meeting released Wednesday showed that although officials voted 8-2 to cut their benchmark rate by a quarter-point, there was a wider divergence of opinion on the committee than the two dissenting votes against the rate cut had indicated.
The minutes showed that two Fed officials favored a more aggressive half-point rate cut, while some others adopted the polar opposite view: They felt the Fed shouldn’t cut rates at all.
The minutes depicted the rate cut as a “mid-cycle adjustment,” the phrase Powell had used at his news conference after the rate cut. That wording upset traders who interpreted the remark as suggesting that the Fed might not be preparing for a series of rate cuts to support an economy that’s struggling with a global slowdown and escalating uncertainty from President Donald Trump’s trade war with China.
There was even a difference of opinion among the Fed members who favored a rate cut, the minutes showed, with some concerned most about subpar inflation and others worried more about the threats to economic growth.
Comments Thursday from Fed officials gathering in Jackson Hole reflected the committee’s sharp divisions, including some reluctance to cut rates at least until the economic picture changes.
“I think we should stay here for a while and see how things play out,” said Patrick Harker, the president of the Fed’s Philadelphia regional bank.
Esther George, president of the Fed’s Kansas City regional bank and one of the dissenting votes in July, said, “While I see downside risk, I wasn’t ready to act on that relative to the performance of the economy.”
George said she saw some areas of strength, including very low unemployment and inflation now closer to the Fed’s target level. She said her decision on a possible future rate cut would depend on forthcoming data releases.
Robert Kaplan, president of the Fed’s Dallas branch indicated that he might be prepared to support further rate cuts.
If “we are seeing some weakness in manufacturing and global growth, then it may be good to take some action,” Kaplan said.
George was interviewed on Fox Business Network; Harker and Kaplan spoke on CNBC.
The CME Group, which tracks investor bets on central bank policy, is projecting the likelihood that the Fed will cut rates at least twice more before year’s end.
Adding to the pressures on the Fed, Trump has kept up his attacks on the central bank and on Powell personally, arguing that Fed officials have kept rates too high and should be cutting them aggressively.
Trump has argued that a full percentage-point rate reduction in coming months would be appropriate — a suggestion that most economists consider extravagantly excessive as well as an improper intrusion on the Fed’s political independence.
The president contends that lower rates in other countries have caused the dollar to rise in value and thereby hurt US export sales.
“Our Federal Reserve does not allow us to do what we must do,” Trump tweeted Thursday. “They put us at a disadvantage against our competition.”
Earlier in the week, he had told reporters, “If the Fed would do its job, you would see a burst of growth like you have never seen before.”
Powell has insisted that the White House criticism has had no effect on the Fed’s deliberations over interest rate policy.