Al Habtoor Group CEO eyeing fresh challenges after split with Marriott

Illustration: (Luis Granena)
Updated 05 August 2018
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Al Habtoor Group CEO eyeing fresh challenges after split with Marriott

DUBAI: Sitting down in the majlis room at Al Habtoor Group headquarters last Thursday, CEO Mohammed Al-Habtoor had time to reflect on the events that led him to end a relationship with Marriott International, the largest hotel operator in the world.
The move was described a couple of days earlier as a “mutual decision reached amicably between the parties,” but Al-Habtoor was in a forensic mood when asked to explain what had happened at Al Habtoor City, the group’s prestigious development in the heart of Dubai.
The relationship with Marriott has been a significant one for Al Habtoor, mutually beneficial in both Dubai and Europe, where the business partnership will continue despite the Al Habtoor City breakup.
Opened in November 2015 to much fanfare, Al Habtoor City was designed as a new “go to” destination on the Dubai tourism circuit, with three top hotels — the St. Regis, the W and the Westin — managed by Marriott as part of a 20-year contract with Al Habtoor.
But in a highly competitive market in a part of the city with no shortage of upmarket hotel accommodation, the relationship struggled to work. “I think it was something new to them to have three hotels in one complex in a relatively small area. It was confusing to have three hotels offering different levels of service and pricing in one area,” Al-Habtoor said.
He described the contract with Marriott as a “close” one, which explains why the announcement last week took some time to prepare, after speculation swirled for a few months that all was not right at Al Habtoor City.
Al-Habtoor refused the blame the location, which some industry observers said had made the commercial challenge more difficult. “It’s a great location, a lifestyle location, with the best restaurants and entertainment in the city. Now it has good access, with four main roads leading there, and later this year we will be opening more retail and residential facilities, right next to the Water Canal,” he said.

 

 
The site is a historic one for Al Habtoor, since it was the location of the Metropolitan hotel in 1978, the brainchild of his father Khalaf, the group chairman.
Regarded by many as Dubai’s first “modern” hotel, it symbolized the southward growth of the city and sparked Al-Habtoor’s fascination with the hotels and leisure business. The Metropolitan and its adjoining leisure complex was demolished to build Al Habtoor City, and has been rebuilt further down Sheikh Zayed Road.
The three properties are now renamed as upmarket brands of the Hilton Group — Habtoor Palace LXR Hotels & Resorts, V Hotel Curio Collection by Hilton, and Hilton Dubai Al Habtoor City — but, crucially, will be managed by
Al Habtoor itself. Eight of Al Habtoor’s 14 hotel properties worldwide will now run in partnership with Hilton.
“We will take their name on the brands, and their software and systems, but the management will be Al Habtoor Hospitality. It will be our responsibility to maintain staff and service standards to the highest levels. We will also be responsible for the financials — we will control expenditure and costs,” he said.
Getting the numbers right at Habtoor City is the immediate challenge. Al-Habtoor conceded that the project had lost money during the dispute with Marriott, when business relations became strained. However, he said that Habtoor continues to partner with Marriott in other hotels in Dubai and in Europe, and insisted that the cost of the dispute had been provided for in Habtoor financial accounts, and could be made up imminently.


“We’re expecting to double business over the next few months with Hilton and under our own management infrastructure,” he said.
He sees La Perle as a big draw in Al Habtoor City. The Cirque du Soleil-style extravaganza, in a 1,300-seat theater in the heart of the development, is an allegory for the story of Dubai’s transformation from pearl village to global tourist hub, and Habtoor says it is adding synergy to the hotel, restaurants and bars of the City.
“It averages 600 people per show and 10 shows per week. From Tuesday to Saturday, we estimate 65 percent of the people in the bars and restaurants in the City have been to see La Perle. It was all a big investment in Al Habtoor City, but taken all together it is a good investment.
“Tourists come to Dubai, stay in Al Habtoor City hotels, go to La Perle and eat in the restaurants in the complex. We will be launching a big marketing campaign across the GCC to attract Saudis and Kuwaitis to the show,” he said.
The Dubai hotel industry needs a boost. Figures for tourism released recently showed a flat performance for the first half of 2018, as new hotels and other types of accommodation add rooms to an already well-served market.
With new accommodation increasing the size of the market, Habtoor said that it was “logical” that revenue per available room (revpar, the key hotel metric) has slowed. But he insisted that occupancy — outside Habtoor City — had risen in the past year.
The Al Habtoor Group is not just a hotel and hospitality company, and its interests in the car business, education and real estate make it a barometer for the wider economy of the emirate. Some analysts recently have asked whether the Dubai economy needs a further round of government stimulus if it is to match the high growth rates of the past, especially with the build-up to Expo 2020 well underway.
“On the broader economy, there is no chaos or crisis, but neither is there much growth. At least there is stability. Maybe we were spoiled in the past because of the very high rates of growth Dubai experienced,” Al-Habtoor said.
“Maybe now it is time to kickstart the economic cycle again. We are expecting more growth by the final quarter, with more projects and government initiatives,” he said, pointing out that there were financial resources currently locked up in government funds that could be injected into the economy.
The motor retail and leasing business has been problematic, he conceded, with big drops in some sectors. Al Habtoor Group has the dealerships for luxury brands such as Bentley, McLaren and Bugatti, which are to some degree resilient to economic cycles, but it also has mass-market brands such as Mitsubishi and Chery, which are more dependent on fleet purchases, reflecting underlying trends in real estate, contracting and construction.
“There has been a big drop in the car business in general in the UAE. It is not just a fall-off in individual buyers, not just Mohammed, Ahmed, John and George who have stopped buying a new car, but also the big fleet contractors. A lot of that business depends on the general state of the economy, and we expect that to pick up later this year,” he said.
Traditional real estate business — outside the hotel and leisure industry — is not a big part of Al Habtoor’s business, but it does own and operate villas and compounds in some of Dubai’s more desirable areas, which he said are “99 percent” occupied. There are also apartments in a residential tower in Al Habtoor City, which he said was half sold and was progressing well.
In education, there has also been a surge in investment in new build in Dubai to cater for projected growth in the expatriate population. The government recently capped school fees for the coming year. Al Habtoor has been in the education business since 1991, and its two schools in Jumeirah and Emirates Hills are doing well, Al-Habtoor said.
Al Habtoor began as a Dubai-focused company, and that remains its main center of attention. But Al-Habtoor also spoke of bigger strategic moves ahead: A big push into Saudi Arabia to take advantage of the changes in lifestyle and entertainment in the Kingdom; and possible plans to revive the initial public offering (IPO) seriously considered three years ago, but eventually abandoned.
Now that the “divorce” in Al Habtoor City has been finalized, it is time for Al-Habtoor to move on to bigger things.

FASTFACTS

BORN: Dubai 1968 EDUCATION: Dubai Al Ittihad School, Al Mamzar, Dubai, ATI Career Institute, US, Professional qualifications from Universities of Surrey and Slough (UK) and Cornell (US) CAREER: CEO and deputy chairman, Al Habtoor Group, Founder of Dubai Polo Gold Cup


Why oil’s ‘big three’ just got bigger: Saudi Arabia, Russia and the US are still calling the shots

Power play: The US influence on OPEC’s Vienna summit was all-pervasive as delegates from member states grappled with the question of substantial output cuts in pursuit of stable crude prices. (AFP)
Updated 10 December 2018
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Why oil’s ‘big three’ just got bigger: Saudi Arabia, Russia and the US are still calling the shots

  • Events at the OPEC meeting in Vienna two years ago constituted a profound shift in oil policy.
  • The eternal triangle — Saudi Arabia, Russia and the US — will continue to dominate the global energy business for the foreseeable future

DUBAI: The meeting of the Organization of Oil Exporting Countries (OPEC) in Vienna last week confirmed what some in the oil industry have been saying for a while: A new global energy dynamic is being created by the three-way relationship between Saudi Arabia, Russia and the US.
After a first day of deadlock over the output reduction needed to stabilize global crude prices, it took a second-day intervention by Russia to back up Saudi calls for a substantial cut, which was duly delivered.
That brought to a conclusion probably the most controversial OPEC meeting of recent times, with a crop of geopolitical factors — Qatar’s planned withdrawal from the organization, sanctions on Iran and the threat of global trade wars — all in evidence.
Although the Americans were not formally in attendance at Vienna — being neither members of OPEC nor the amorphous “OPEC+” that includes Russia and some other oil producers — their influence was all-pervasive. As the new holders of the title of “biggest producers in the world,” the US reaction was on everybody’s mind in Vienna as they calculated the output reduction needed to halt a worrying slide in prices.
Dubai-based energy expert David Hodson, managing director of Blue Pearl Management, said: “Saudi Arabia dominates OPEC, but without Russia, OPEC is not nearly as relevant. And the US industry has proved it is getting better and better. Those three producers are calling the shots worldwide.”
But in many ways, it is simply the modern oil industry’s eternal triangle. Imperial Russia was the first to develop the industrial use of oil as a fuel resource, drilling what is recognized as the first oil well in the 1840s in the Caspian region.
The Americans followed soon after, first in the eastern US and, later, in Texas and California, as oil fueled the transport revolution of the early 20th century, especially with advent of the internal combustion engine.
Saudi Arabia came along relatively late, with the first serious discovery in 1938 by what would become Saudi Aramco. But by the 1970s, the Kingdom was the biggest producer in the world and able to dominate the global industry via OPEC.
However, the dynamic of that three-way relationship has been radically altered in recent years by the emergence of the US shale industry. From mega-fields such as the Permian Basin in Texas, American technological know-how and financial resources have combined to extract oil in high numbers from areas previously deemed uneconomic.
That has made the US the current biggest oil producer in the world, and a net exporter of oil for the first time in 75 years. As a result, the US has a vital interest in what happens in global energy markets, especially under a president like Donald Trump, who is keen to keep US voters happy with cheap fuel for their cars.
Now those three produce more oil between them than the rest of OPEC combined, and are able to decide the price of oil by opening or closing the taps at will. The challenge, however, is that the will of three independent sovereign states rarely acts in unison. Each has the interests of their populations to consider, as well as the role they play in the “great game” of global politics.
Events at the OPEC meeting in Vienna two years ago constituted a profound shift in oil policy. There, for the first time, Russia and Saudi Arabia masterminded the “declaration of cooperation” aimed at halting the fall in oil prices that had begun in 2014. Khalid Al-Falih, the Saudi energy minister, developed a close working relationship with his Russian counterpart, Alexander Novak.
That relationship was endorsed at the highest level in March this year when Saudi Crown Prince Mohammed bin Salman took time out from a tour of the US to further strengthen “cooperation” with Russia over oil.
“We are working to shift from a year-to-year agreement to a 10- or 20-year agreement,” the crown prince said. “We have agreement on the big picture, but not yet on the detail.”
In Vienna last week, that detail was becoming clearer. OPEC members and their non-OPEC allies agreed to cut 1.2 million barrels of oil per day from their total output, with OPEC cutting the lion’s share of 800,000 barrels, Saudi Arabia taking the lead role in those reductions, and Russia expected to account for most of the balance.
The cuts deal proved there is plenty of market power in the Saudi-Russia alliance. Ellen Wald, US academic, consultant and author of recent book “Saudi, Inc.,” tweeted: “OPEC is still relevant, though not without Russia.”
The price of benchmark Brent oil jumped 5 percent on the news, well back above the $60 mark, with some experts forecasting a steady climb up to $70 in coming weeks. It lost some of those gains later, but at about $62 per barrel, the apparently inexorable decline of recent weeks has been reversed.
If the oil price continues to rise, that would appear to have accomplished the goals of the Saudi-Russian move. Both countries rely on crude exports for a large part of their foreign earnings, though Russia’s more diversified economy means that it has a lower “break-even” level than Saudi Arabia, where oil makes up a bigger proportion of state revenues.
Higher oil prices are good for the Saudi economy, of course, but it is not a clear-cut equation. Policymakers have to calculate the overall financial effect of a reduction in volume of output, even if at a higher price. Selling less at a higher price is not always straightforward mathematics, and some experts think the oil-dependent economies of the Gulf might lose out in aggregate because of the cuts agreed in Vienna.
Capital Economics, a London consultancy, said: “The OPEC deal means weaker growth in the Gulf in 2019,” and reduced its forecast for growth in gross domestic product next year, which would affect the ability of regional governments, including Saudi Arabia, to provide stimulus to the non-oil economy.
Whatever the domestic economic effects, the Kingdom and Russia have struck their deal, for at least the next six months. But perhaps the most intriguing questions are now in the third point of the triangle — the US, the newly crowned oil pumping kings of the world.
Complicating the US response is the relationship between the Trump administration and Saudi Arabia’s leadership. The US president was quick to thank the Kingdom when oil prices fell recently. How will he react if they begin to creep back to or above $70 a barrel?
American oil is being pulled by different economic and political forces. The president wants to keep gasoline prices as low as possible to woo consumers, but the US oil industry wants to maximize profits. Oil at $70 per barrel will be an incentive for US shale producers to boost the all-important “rig count” in places such as Texas and New Mexico.
David Hodson said: “Trump will continue tweeting about the need for lower gas prices, but the US shale industry is driven by commercial considerations, not elections. At the end of the day, rising prices will just be a bigger incentive for them to get on the rigs and pump it out.”
The eternal triangle — Saudi Arabia, Russia and the US — will continue to dominate the global energy business for the foreseeable future. But it may not always be an equilateral affair.