IS BIGGER BETTER?

Outside of Middle East specific issues, another factor market players will have to navigate in the coming years is the formation of ever larger hotel groups through mergers and acquisitions as shown by two major deals in 2016.

Marriott International Middle East and Africa has revealed plans to increase its combined regional portfolio from 52 hotels to 80 within the next four years after its $13bn acquisition of Starwood Hotels and Resorts.

French rival AccorHotels has plans to more than double its regional footprint to over 150 hotels by 2020 after completing its $2.9bn acquisition of Fairmont, Raffles and Swissôtel brands owner FRHI Hotels and Resorts in July.

For the likes of Marriott, whose president and CEO Arne Sorenson was in Dubai in April, the emphasis has been on the synergies and scale the merger has offered the firm, including a combined member base of 85 million customers. Sorenson has also emphasised the increased clout the combined group now has when negotiating deals amid expectations it will receive better commission terms with online travel agents. Among large operators there appears to be some agreement with this argument.

“Scale matters, and scale combined with broad geographic diversity, with good product service is really powerful,” noted Hilton president and CEO Christopher Nassetta at the Arabian Hotel Investment Conference in April, while insisting the firm was not “bounty hunting” for deals itself. However, others argue bigger is not necessarily better when it comes to brand portfolio, customer experience and owner satisfaction. “I question whether you can sustain 30 brands in the long run and how many people recognise those brands,” said Jumeirah Group CEO Stefan Leser in a panel featuring representatives from both Marriott and Accor at the conference.

“If you look at other big companies and how many brands they sustain, it's not 30 it's five – they go down and consolidate.” Some also suggested that larger groups risk prioritising shareholder interests over those of their property owners.

“Size will matter, it does matter, but do not forget that when you talk to an owner he wants that small size mind-set also,” said Ani Bhardwaj, director of A.A. Al Moosa Enterprises and a hotel owner. Rotana’s Hutchinson echoed similar sentiment.

“We think there is opportunity in that because the larger the multinational become the more the value system around those companies shifts and performance values shift,” he said.

“A lot of investors are wanting to know they’ve got a partner who is going to be at the end of the phone when you talk to them about business.

“If you’re operating 1,000 hotels it's not manageable anymore and the value of the company is not necessarily measured by performance, it's measured by share price performance which is a different thing, We make our money from the hotel.” Despite this argument, almost every hotel operator we spoke to forecast that the consolidation trend was likely to continue in the coming years, meaning bigger may become the new norm.