Managent contracs

HOTELS
Running to Stand Still?
Having to work harder to make less money, hotel chains are left
with two options: take on more contracts, or invest equity in a bid
for better fees. TRI Managing Director Peter Goddard examines
hotel management contract trends in the Middle East.

When the international hotel chains
first established a significant presence in the Middle East in the 1970s
and 1980s,it was a developing region, their skills were at a premium,
and they could effectively name
their own management contract
terms. As markets matured in the
1990s, owners took more control
over their properties in a bid to increase operating profits, and competition increased among a larger pool
of operators. Facing an increasing
emphasis on incentive fees, shorter
contract periods, fewer renewaloptions and demanding performance
clauses, the chains are now working
harder to make less money, and are
left only two options: take on more
contracts, or invest equity in a bid
for better fees.
Introduction
The Middle East as defined by most
international hotel management
chains may be said to comprise the
Gulf Cooperation Council (GCC)
states (Saudi Arabia, Kuwait, Bahrain, Qatar, the United ArabEmirates and Oman), Yemen, the Levant
(Syria, Jordan, Lebanon and Palestine) and Egypt. Operators typically
keep Israel as part of a separate administrative region to avoid political
difficulties. African Arabic-speaking
countries like Sudan and those of
the Maghreb (Libya, Algeria, Tunisia
and Morocco) may also be linked to
the above countries, as well as the
rest of Africa, and West Asia/thesubcontinent of India, Pakistan,
Bangladesh and Sri Lanka.
In economic terms, this vast region
has traditionally been viewed as either developing or under-developed.
Nevertheless, when the major international hotel chains first ventured
into international markets in the
1950s and 1960s, the capital cities of
the Middle East were attractive
management contract targets, precisely because of the localmarkets’
lack of expertise.
The first international chain hotel in
the Middle East was the Nile Hilton, opened in Cairo in 1959 and
still going strong. The Gulf’s first
luxury hotels appeared in the late
1970s and during the 1980s a reliable infrastructure of luxury properties was established in all its major
cities.

International
experts
in
hotels, tourism, leisure, and
real estate.
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Chains like Hilton, InterContinental,
Sheraton, Hyatt and Marriott typically operated the top tier ofhotels,
while at the next level down (some
nominally five-star but actually fourstar hotels) there was Holiday Inn,
Ramada, Novotel, Le Meridien and
a host of independents.
Management contract territory
Until now, management contracts
have been the preferred business
structure for the international
operators, for several reasons. Most
importantly, operators can make
attractive profits without capitalPeter Goddard
Managing Director
peter.goddard@trimideast.com
Gavin Samson
Managing Consultant
gavin.samson@ trimideast.com
P. O. Box 31933, Dubai
United Arab Emirates
TEL: +971-4-345 4241
FAX: +971-4-345 8502
Email: tri@trimideast.com
Web: www.trimideast.com

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