Ali Hamad Lakhraim Alzaabi, President and CEO of UK-based Millennium & Copthorne Hotels (MEA), explains the importance of using local knowledge and market understanding in gaining an edge in the hospitality sector, especially in expanding segments such as religious tourism in Makkah and Madinah.
The tourism sector is forecast to contribute 5.4% to the kingdom’s non-oil GDP in 2015. This number is slated to rise to 5.7% in 2020. Saudi officials are upbeat that the kingdom’s economic diversification strategy will pay off and maintain growth in the non-oil sector. How would you evaluate the importance of an industrialized and diversified economy for Saudi’s future growth?
Diversification is mandatory for countries these days but also very necessary for the private sector. Depending on one source of income is the wrong thing to do, whether it’s a country or an organization, you have to always diversify and weight your risks. Saudi started this process many years ago by investing in different industrial areas with well-planned programs by the government. Several industries have been subsidized in the last years and now we are starting to see the positive results. We now find that different industries in Saudi Arabia are experiencing great growth compared to the rest of the countries in the GCC region. Saudi has created the world’s largest petrochemical company, which is SABIC, taking advantage of its position as the largest producer of oil in the world. They have been very smart finding synergies between their main industry and source of income and they have understood the need to develop the downstream sector.
There are other clear examples of diversification that are not linked to the petrochemical sector. Almarai, for instance, has become the largest integrated dairy foods company in the world operating across the Gulf region. Therefore, I am not worried about the kingdom’s abilities to grow in terms of diversification. It’s a big country, so the change will take longer than in smaller countries such as Qatar, the Emirates, or Kuwait. On the other hand the kingdom has an economic strength, due to its powerful oil industry. That will allow it to foster the growth of several industries at the same time, balancing the process and creating jobs for people with all kinds of backgrounds and expertise.
Tourism, of course, is one of the industries helping the kingdom in its diversification journey. We have seen a lot of progress in developing more tourism destinations within Saudi, fuelled by the local demand, because once you have proper and developed tourism destinations, a population of about 30 million will drive the sector to the next level. The government is investing in this aspect by building railroads, roads and airports to connect the different cities and facilitate the growth of our industry. The outlook as you said is very positive, but in my opinion, the growth of this industry will be much higher than analysts have predicted.
What do you consider the main challenges for the tourism industry within the kingdom looking ahead?
The main challenge will be know-how, getting the right people with the right skills. On a global basis, getting the right talent is very difficult but it’s becoming even more difficult because the growth of the industry is faster than the professionals available.
Filling this gap will be an issue and the market will continue to import talent from elsewhere for some time. Having said that, Saudi has done better than any other country in the region to attract nationals into this sector. Young Saudis have been very active in the hospitality sector in the last few years and previously it was never like this. In the past they were avoiding this industry because culturally the region and the kingdom were not prepared for the service industry. Now we see bright youngsters getting involved, they want to be in this sector and they understand the opportunity for growth within.
Millennium & Copthorne is meeting the Saudization requirements established by the kingdom, but we will not stop there, we will exceed the mandatory percentages, because there are huge benefits in having local people working for the company instead of foreigners. Saudis get things done faster, they get it done easier, since they have the local knowledge and the desire to promote the image of their country.
Millennium & Copthorne has signed 10 hotels in the kingdom within the past six months, reinforcing its position as the fastest growing operator in the region. Could you share with us your objectives for the Saudi market? What are the reasons behind such an aggressive growth in the kingdom?
Today, the number of hotels and the number of rooms being developed in Saudi is the largest in the region. It is worth focusing on the opportunities that the kingdom offers for the growth of our hotel group.
Saudi is the largest GCC country, but we believe it is under-developed when it comes to the hospitality sector. Therefore, they have a lot of catching up to do in relative terms. The government, for the last 10 or 12 years, has done a great deal to grow the sector. They’ve realized that hospitality will create more jobs for the locals; they’ve realized that hospitality will uplift their image and foster quality within the service industry. In order to uncap their potential they have created the Saudi Tourism and Culture Organization headed by Prince Sultan bin Salman, in order to improve the availability of information and transparency. This will benefit not only the travelers but also prospective investors, since they will have all the necessary data to decide whether or not this is an industry worth investing in.
The main driver for growth will be religious tourism. Currently it is a little restricted because of infrastructure limitations in Makkah and Madinah, but the government and the private sector are working hand in hand to upgrade it. There are new highways being built, metros, rail connections between Makkah, Jeddah and Madinah.
Another key factor for growth will be the expansion that the Saudi airline industry is experiencing nowadays. Saudi Airlines has announced big investments to increase the number of aircrafts and consequently their flight frequency. Some other big carriers in the GCC have entered the Saudi market or plan to do it in the coming years and that will have a huge impact in the tourism sector of the kingdom. As an example, flying from Riyadh to Jeddah is no easy task at the present. You need to book your flight weeks in advance to find available seats and you can even end up having to do a stop over in Dubai in order to get to your final destination. The demand for more connecting flight between the main cities is growing at a high pace. Saudi authorities have realized this, and have understood the need and the untapped potential for the hospitality sector.
Visitors to Makkah and Madinah are expected to reach an average of 30 million by 2025, an increase of 42% compared to 17.5 million in 2014. Could you tell us a bit more about Millennium’s recently signed projects in the holy cities? Do you consider the seasonal nature of the hotel market in the cities of Makkah and Madinah a risk?
There is no seasonality anymore in the religious tourism. The authorities are limiting the number of visas because of the current limited infrastructure and number of services available. Seasonality is something from the past; today the Umrah takes place continuously all around the year. There is only one and a half months break after Hajj where no visas are issued to visit the cities; the reason behind this measure is to give the cities a rest and let them breathe and be “fixed” if needed. Just imagine, after 2 or 2.5 million visitors there is maintenance needs to be taken care of. There is a lot of projected growth and that’s why we are expanding our operations with four hotels in Makkah and four more in Madinah. There is no issue at all in increasing the number of rooms, it is a sound approach and a profitable business model.
What about the competition? There are some other big groups such as Ascott, Elaf Group, AccorHotels and Hilton expanding their operations in the kingdom. Taking into account that Millennium is a young player in the region, how is Millennium building its brand name and a high-profile reputation in an increasingly competitive market?
First of all competition is good; It’s good for the kingdom because you have more brands promoting the country abroad as a destination, and that benefits all the stakeholders in the sector. Yes, we are considered the newcomers compared to other traditional operators in the kingdom, but we have a strong local knowledge about the market and that gives us a competitive advantage. We understand the people, we understand the requirements of the different segments of the market. In contrast, many other operators find it hard to understand how things work in Makkah. For example, we know what a religious worshiper needs. You need to be flexible with the number of rooms and sizes, since many of these pilgrims travel in groups of 2-4 people. You need to develop and implement a different combination of showers and rooms than the traditional ones. You need to add other services such as multiple safe boxes, you need to take into account the different prayer times… in a nutshell, you really need to understand the peculiarity of the tourism in these two cities. We have that know-how and it gives us a huge advantage: we understand the region, we understand the people, we know their needs, and we can meet their expectations better than rest.
According to Saudi Arabia’s embassy in London, Britain’s Muslim population is expected to reach 4.9 million by 2021. How is Millennium & Copthorne planning to capitalize on this opportunity and become the preferred operator for British Muslims traveling to the kingdom?
We will definitely target this segment. We are a British company and one of the largest players in the UK. We have the largest number of keys in the city of London, from the West End to Mayfair and beyond, and our brand recognition is very strong. We will utilize our local knowledge and heritage to keep growing within the UK and take advantage of the current synergies to become the operator of choice for the Muslim community there.
Coming from an engineering background, what is it that attracted you to this sector and why are you so passionate about this industry?
If you are an engineer your horizon is different, engineering enlightens the mind. I believe this background gives you the chance to see what others can’t see; understanding science makes everything else so much easier. My background is telecom engineering, which is one of the most difficult areas, but when I came back to the Emirates I got exposed to the investment world, so I decided to give it a chance and started to work for the Abu Dhabi Investment Authority. Whilst there, I had the chance to work in different investment areas, and it was here that for the first time I got exposed to the real estate sector: retail, commercial and hospitality. My background as an engineer helped me to dig deeper into the industry and gave me an edge in problem solving. As I see it, every single day in the hospitality sector is an equation, where you need to combine different elements in order to find the suitable and best solution.
You have been presented the title of Middle East’s Leading Personality for Outstanding Services to Tourism at the recent World Travel Awards. How do you think your role as CEO will impact the results of the company and what is your personal vision for the company looking ahead?
Our first priority is to grow in our region, this is our base and we want to become the strongest operator here. We will continue to invest in the GCC countries and once we have our “home” secured we will continue our expansion plans in other areas of the Middle East such as Jordan or Egypt. The situation in these countries is a little bit volatile these days but they have great potential for growth and Millennium & Copthorne plans to be there when the right time to invest comes. We also plan to enhance our company by diversifying our operations into the food and beverage sector, we will became a more integrated company since you can not separate food and beverage from our hotel activities. I am very proud of our growth story and of the fantastic team helping me to achieve our goals. I am honored with the above-mentioned award but it is just the result of teamwork; my role is very limited now, I have a strong and reliable team leading the company under my supervision. As I said before I am passionate about this industry and that passion will keep driving our growth in Saudi Arabia and the region.