Indian Ocean hotel specialization keeps wolves at bay
 
Indian Ocean hotel specialization keeps wolves at bay
05 FEBRUARY 2018 8:43 AM

New low-cost flights, specialization, high ADR in some markets, recent moratoriums on new construction and other unique facets bode well for hotel owners in the Indian Ocean region. 

ABU DHABI, United Arab Emirates—Hotel performance in Indian Ocean countries and destinations largely points to continued growth, and a host of regional laws and developments have kept mergers-and-acquisitions activity at very low levels, according to sources at the recent Gulf & Indian Ocean Hotel Investors’ Summit in Abu Dhabi.

In terms of average daily rate, The Maldives’ hotel industry, with its focus on one-resort islands and high F&B and leisure spend, remains the region’s runaway champion. But other markets also are benefiting from overall growth in travel numbers, sources said.

Things always could be better, but a great part of current success can be attributed to the advantages of being among the first to open hotels in the region, sources added.

David Anderson, CEO of hotel owner and operator Sun Resorts—which has four properties in Mauritius and one in The Maldives, Kanuhura, which opened in December 2016—bemoaned the continued strength of third parties in his company’s markets.

“Eight percent of all arrivals come through tour operators. Even with a strong brand, they still are very dominant,” he said.

At the end of last year, Mauritius ended its moratorium on new hotels, which while it lasted obviously benefitted hoteliers with existing product, Anderson said.

John Flood, president and CEO of Jakarta-based hotel-management firm Archipelago International Hotels, Resorts & Residences, said Indonesia has greatly benefitted from new developments.

“(The Indonesian government) got rid of fiscal tax, which was around $100 per person, payable when visitors left the country,” he said. “Then when the low-fare airlines came in, that’s when it really started to ramp up.”

Flood also is looking at possibilities stemming from Indonesians traveling.

“Outbound tourism is only 7.5 million out of 250 million, so that is an opportunity (for growth),” Flood said.

Bill Barnett, managing director of business and real estate consultancy C9 Hotelworks, said the entire region will see huge impetus from continued developments in China.

“China’s One Belt, One Road initiatives will undoubtedly change the tourism mix,” he said.

But growth from that source will come with pain points.

“The Chinese market already is the No. 1 source market to Indonesia, but the spend on their travel arrangements is one-quarter of that of Europeans, which itself is down from five years ago,” Flood said. “The government expects big numbers, up to 20 million, but length of stay is not where you want it be.”

He added that Archipelago began its history in Hawaii and grew via pure management contracts.

“We are still the biggest condo-hotel firm in Indonesia, and then we started into franchises and (managed and franchised properties),” Flood said. “Now we’re looking to expand overseas but within flying distance from Indonesia, which is also the biggest overseas market for Makkah. We’re looking at the (United Arab Emirates).”

Anderson said airlift in Mauritius is now up to some 195 flights a week in high season.

“That has certainly helped us diversify our market strategy, and the government want to continue encouraging this. The Maldives is seeing more private jets,” he said.

Anderson added he hopes Sun, which has its origins in another firm, Kerzner International Resorts, will continue to concentrate on the Indian Ocean region.

“Zanzibar is interesting,” he said.

Considering consolidation
Panelists agreed regional economics and the specialization inherent in some markets act as a buffer to widespread consolidation.

“The majority of hotels (in Mauritius) and coastal sites are Mauritian-owned, and they do extremely well. Brands are few, and families are very keen to retain the real estate,” Anderson said.

He added the new push is for a focus on health and wellness and authentic local experiences.

“Plus, anyone who comes to Mauritius for that five-star experience wants something very much Mauritian,” he said.

Flood said consumer knowledge—or the lack of it—in Indonesia adds up to another barrier for new brand entrants, and even relatively established ones.

“Our biggest competitor is (AccorHotels), and as we are more midscale ourselves, we go head to head with them a lot,” he said. “But our advantage is that have more flexibility. We can negotiate contracts in a day, maybe two.”

Flood added that of the 10,000 hotels in Indonesia, only 4% are branded.

“(AccorHotels comes) in with Ibis, Ibis Budget and Ibis Styles, and they cannot put three of those in a row, and no one really understands the difference between them anyway,” he said.

Anderson said Sun’s plans include gearing down on debt secured to fund renovations.

“Economics are looking good,” he said.

Flood agreed with that optimistic outlook.

“The future is very rosy for a management company like ours,” he said. “The Asian Games are coming to Indonesia, which is getting better at hosting these large events.”

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