‘Demand will need to catch up with supply’

Vos: rolling out more hotels

THE deal everyone in hotels is still talking about is Starwood’s acquisition of Le Méridien, and what it means for the industry.

Roeland Vos, president, Starwood Europe, Africa & Middle East, whose role includes directly overseeing the operation for around 270 hotels and resorts in 60 countries, tells TTN how the deal plays out in the Middle East. Excerpts:

So what prompted the decision to take over Le Méridien and how will Starwood leverage that?
Starwood is a global multi-branded lifestyle company and adding a new brand to our portfolio presents tremendous opportunities for growth. It is an excellent strategic match and Le Méridien becomes the eighth brand in our portfolio alongside W, Sheraton, Westin, Four Points, St Regis, The Luxury Collection and the recently announced aloft brand. The strength of the Le Méridien brand has great potential for the future, especially in markets such as the Americas, China and India. We plan to invest in this brand and grow it globally. Le Méridien has a portfolio of more than 120 luxury and upscale hotels in about 50 countries worldwide, mostly in the world’s top cities and resorts throughout Europe, Asia Pacific, Africa and the Middle East. This provides a complementary footprint to Starwood’s existing brands as well as a new presence in several key markets, especially Europe, Africa and the Middle East. This adds nearly 90 hotels, giving us a total of around 270 hotels in this division. Additionally, Le Méridien’s strong European customer base complements Starwood’s depth in North America.

So how has the integration worked? I believe all the systems are in place?
The success of any integration of this scale is determined by leveraging scale to create operating efficiencies. After a quick and successful system integration, as of the end of March the Le Méridien reservations, sales, and loyalty programme functions are now fully integrated into the Starwood systems and operate with the same functionality as our other hotel brands. Our primary goal is continued a high-quality service to all Starwood’s customers.

What is Starwood’s development strategy in the region? How will this be affected by the acquisition?
Starwood’s objective in the region is to expand the diversity of our portfolio in key growth locations using our already strong market presence. That’s about 50 hotels in the Middle East, making us the largest operator here. Our development philosophy is to grow smart with strategic partners to add brand value and enhance return on investment. The Middle East is currently one of our strongest growth markets, representing nearly 20 per cent of our EAME deal pipeline and with strong activity in the UAE and specifically Dubai. On the African continent, Starwood is one of the strongest global hotel operators with about 40 existing properties. We are working hard to bring all of our brands here including W hotels, Westin, St Regis and also our new aloft brand. The Four Points by Sheraton brand is also on a rapid path of development and we are in advanced discussions for this brand in key cities in the Gulf. Last year we signed our first Four Points in Africa, in Port Harcourt, Nigeria, opening 2008.

So what expansions can we expect? Us journalists always want numbers!
Le Méridien we anticipate 14 new openings in 11 countries in the next 12 to 18 months. In fact, all of our brands have very robust development pipelines. Regionally, the Sheraton Aleppo Hotel & Resort opens this summer in Syria, and the W Dubai Festival City opens 2008. We have many other exciting projects and properties, both signed and in the pipeline – too many to mention them all!

OK. So what challenges does the Middle East market need to ready for?
In the Middle East, significant growth in occupancy has been accompanied by a strong rise in the average room rates. However, 80 new hotels on the Arabian Peninsula by 2008 will undoubtedly impact rates and occupancies going forward. As major brands saturate the market, this could be a catalyst to establish local brands. Along with these, it is likely that the market will stratify and a host of mid-scale products will appear. The region’s success will ultimately depend on the ability to differentiate the product offer so that the appeal of the various emerging markets is sustainable in the long term.
The Middle East (and more specifically, the Gulf) will benefit from substantial upgrades to its tourism infrastructure, coupled with continued improvements in regional stability.
All this, however, will be accompanied by various growing pains. As hotel supply expands, demand will need to catch up. This is unlikely to occur in perfect synchrony, so some imbalances will likely trigger corrections in pricing and occupancy levels. A tightening of the labour market should also be expected – qualified staff will become even scarcer, and these escalating costs will probably impact profit expectations.

Talking Mergers
by Keith J Fernandez