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.
