It has been a long five years for Lebanon’s hotel industry, marked by an ever-dwindling tourism market. With the election of a president in October 2016, however, that period may soon be over.
Just like one would get ready to meet a loved one after a long period apart, Lebanon’s hotel industry is getting ready for the return of tourists. The sense of excitement mixed with cautious anticipation that usually accompanies such reunions is palpable.
After making do with mainly business travelers or local banquets, Beirut’s four and five star hotels can’t wait for the Gulf Cooperation Council (GCC)nationals to once again fill their rooms.
Yet, these hoteliers remain somewhat anxious. Not only has a lot changed in the past five years both domestically and regionally, but internal stability in Lebanon, as a result of regional insecurity, is still fragile and there is the sense that Lebanon’s hospitality sector won’t be able to bounce back as easily as it did before.
A broken record
By now the story of how the onset of the war on Syria in 2011 resulted in travel advisories warning GCC nationals against visiting Lebanon has been recounted many times. Couple this with the internal insecurity that has plagued Lebanon for the past five years – manifesting in countless examples including the assassination of former Minister Mohamad Chatah in 2013, the Duroy Hotel suicide bombing in 2014, the 2015 suicide bombings in Dahieh and most recently the wave of suicide bombers in the Bekaa town of Al Qaa in May 2016 – all of which have taken a huge toll on Lebanon’s tourism market. According to Pierre Achkar, head of the Lebanese Hotel Owners Association, Lebanon lost a huge market of visitors who used to travel by land. “When the war in Syria started, the roads between the Arab countries and Lebanon shut down, and so the first year alone we lost 360,000 tourists who used to come to Lebanon by land, 200,000 of which are Jordanians,” laments Achkar.
The decrease in this revenue stream was coupled with the significant drop in visitors from GCC countries, the largest share of which came from Saudi Arabia, due to “political reasons,” according to Achkar.
A market shift
The decrease in tourists from GCC countries coincided with a significant increase in visitors to Lebanon from Jordan, Iraq and Egypt (see data, page 178). Nevertheless, this increase has not compensated for the loss of tourists from the Arab Gulf, according to a number of hotel operators interviewed.
Four and five star hotels in Lebanon mainly cater to GCC nationals and are therefore the most impacted by their absence. “Hotels in Hamra, with their $110 or so rooms, depend on the Egyptians, Iraqis, and small-time business people. The five star hotels in Downtown depend on more high-end guests and they are not coming,” says Peter Edholm, cluster director of sales and marketing at Le Vendome and Phoenicia Intercontinental Hotels & Resorts.
Edholm goes on to explain that while they welcome any client at the hotel, suite guests – who tend to be GCC nationals – generate much more revenue than standard room guests, not only because of the higher room rate, but also because these guests tend to consume more in the hotel itself through the minibar and dining at the hotels’ various F&B outlets.
Achkar explains that although tourists from Jordan, Iraq and Egypt are positively affecting the sector to some extent, they cannot be compared to GCC nationals when it comes to length of stay and spending power. “The Egyptians, Jordanians and Iraqis who come to Lebanon stay a maximum of five days and an average of three days. The GCC nationals stay a minimum of ten days and take more rooms and suites, and have a higher purchasing power than nationals of every other Arab country,” says Achkar.
Facing such circumstances, many hotels began decreasing their room rates, forcing other hotels to do the same in order to remain competitive. “When the occupancy percentage goes down, price competition is elevated and hotels are forced to decrease prices to such an extent where even if your hotel is full, you are not getting the same room rates that you were getting in the good days,” says Achkar. He explains how some hotels have been gradually dropping their rates over the past five years, so that today they are at an average of 30 percent lower than they were in 2010, and even 50 percent lower in some cases.
In terms of profit margins, maintaining numbers despite circumstances was the goal
More of the same
Despite the continuing negative circumstances, the hotels interviewed for this article reported a stable 2016 when compared to 2015, with no significant drop in occupancy or profits.
The internal security situation in the country was somewhat stable this year, meaning a slight positive impact on the sector. “For the first time in years, Lebanon has seen stability within its hotel industry. Year-on-year Lebanon neither improved nor worsened, which actually gave a sense of optimism,” explains Michel Boulad, director of sales and marketing at O Monot luxury boutique hotel.
In terms of profit margins, maintaining numbers despite circumstances was the goal. “We are slightly below last year in terms of revenue, but I think we managed the hotel here very carefully in order to achieve the same profits that we had in previous years. The ban that was imposed on GCC nationals and the local uncertainty before the election of the president made 2016 a very challenging year, so if you look at our results, personally as a general manager, I am very pleased because it was a tough year,” says Rami Sayess, regional vice president and general manager at the Four Seasons Hotel Beirut.
Wearing different hats
This stability in terms of profits was largely achieved through a diversification of revenue streams, which all hotels tried to identify and benefit from. “It was not about cutting costs, but about finding new ways to generate profit. We thought of ways to introduce new revenue streams such as opening a new F&B outlet on the third floor and opening the roof again in a different style,” says Sayess, giving the opening up of their spa to non-hotel guests as another example of diversification.
With a decrease in leisure travelers, business conferences and events – and the travelers they bring with them – became of added importance to hotel operators. “The corporate market has contributed significantly to our business,” says Boulad, giving an example how O Monot’s location in close proximity to the Beirut Digital District has benefited them in attracting global visitors to the area.
Sayess also discussed the importance of business travelers, explaining how in 2016 Four Seasons Beirut became more open to conferences and group business travelers. “This year, and for the first time, we opened up to groups of business [travelers], which we were a bit hesitant and not very flexible about before since we used to target individual travelers more. But there are some quality groups looking for hotels like Four Seasons,” he explains.
Hotels go all out for private events
Banquets, weddings and private social events also became of bigger value to hotels over the past five years, with the Phoenicia citing close to one hundred weddings and large social events held at their hotel in 2016. Both the Four Seasons Beirut and the Kempinski Summerland Hotel and Resort say their banquet and reception halls are almost fully booked throughout December 2016.
“We are aiming to host 70 weddings. More and more people are coming to Kempinski Summerland and we are fast becoming one of the major players in terms of events such as corporate meetings and dinners, especially considering that we have only been open since September 2016,” says Maha Bourachi, director of sales and marketing at Kempinski Summerland. Bourachi explains how in summer 2017 they plan to target outdoor weddings and social dinners, taking advantage of their outdoor venue which can accommodate up to 1,000 guests, while in winter their goal is to be considered “the retreat or getaway for corporate executives within Beirut.”
As such, F&B outlets and banquet halls are fast becoming a main revenue stream for hotels in Lebanon, which Sayess says is not necessarily a bad thing. “I would say around 45 percent of our current business is coming from F&B while traditionally it should be 40 percent F&B, 60 percent [room bookings]. In F&B and the spa, you really cater to the local market and this is how you make your name in any market. When you look at our corporate business, a lot of it is booked by agencies in Lebanon, so your name, in the local market, is very important for you to make sure you don’t only depend on foreign business,” explains Sayess.
Boulad also speaks of the importance of F&B in attracting corporate business: “We are aware that one of the most important aspect[s] for any hotel in Lebanon is its cuisine, as it increases the hotel’s visibility to local companies and their business travelers, which is why we launched the O Monot Business Lunch.”
GCC nationals love Lebanon: the country, the food, the language and the weather all play a factor and they have been missing it
A foreign affair
In the almost total absence of the GCC market, hotel operators became proactive not only in developing alternative revenue sources, but also in identifying potential previously untapped tourism markets. “We have to start somewhere, so we are tapping into the Russian, Chinese and other markets. It’s all about creating trends or tapping into them. If we had just stopped trying and waited for the president to come, we might as well just have shut down,” says Phoenicia’s Edholm.
Kempinski Summerland also speaks of opening up to the Russian market. “We are looking at the Russian market because we believe that with the luxurious resort we have, we can offer them a lot. It’s only a three and a half hour direct flight which is available three days a week and does not require a visa,” says Bourachi.
Meanwhile, O Monot leverages its membership in the “Small Luxury Hotels of the World” group to attract French and English visitors, according to Boulad.
But it seems that not a lot can replace the revenue which tourists from the Arab Gulf regions have brought to Lebanon, because with the first whiff of hope that the election of a president in Lebanon and the imminent formation of a government might bring them back, Lebanese hoteliers hopped into planes to visit those countries and remind them of Lebanon as a tourism destination.
Despite this rush, some hoteliers hesitate to expect too much from Gulf nationals, given how much the region has changed in the past few years. “With the last boom in Lebanon, you had no war in Syria, no war in Yemen, no big refugee issue and most of all you didn’t have an oil price of $40. You now have saving schemes through the Gulf, the Gulf consumer is no longer one who will throw money left and right,” says Edholm.
Hotel operators Executive spoke to say they are promoting Lebanon as a destination on their trips to the region, the logic being that doing so will bring more business to their individual properties. “For me it is more important to promote the destination than my own hotel because when the destination is doing well, everybody will do well. So it’s not really about us alone. We have a lot of work to do,” enthuses Sayess.
As a destination, Lebanon has several advantages over international cities which are currently being frequented by Arab Gulf tourists and which deserve to be promoted. “GCC nationals love Lebanon: the country, the food, the language and the weather all play a factor and they have been missing it. I know this from my regional capacity,” says Sayess explaining that he is counting on the popularity of the Four Seasons brand in the region to attract Gulf tourists to the Beirut property.
Achkar cites price, cultural similarities and proximity factors as added advantages Lebanon has over international cities in attracting GCC nationals. “Prices in general are a lot higher in Europe than they are in Lebanon. Also, today there is hostility in Europe towards veiled women, and this has an impact; we don’t have this problem in Lebanon. We have something to suit every lifestyle here from religious, to leisure, to cultural tourism,” explains Achkar, adding that the GCC countries’ geographical proximity to Lebanon is another advantage.
While GCC nationals who know Lebanon may be eagerly waiting to come visit again with no restrictions, Edholm is worried that the young generation of those nationals are not as acquainted with Lebanon, and that travel agencies there may not know enough to tell them differently. “Those who have been with the same travel agency for many years are very fond of Lebanon of course, but people who have worked in the GCC area for just a few years have no idea what Lebanon is because they never sold it during their time of work there. You have a huge percentage of people in travel agencies who will take the call from clients without having any clue about Lebanon as a destination,” warns Edholm.
The price wars
The past few years led many hotels to decrease their room rates to remain competitive, according to Achkar, and raising them back to their original value once tourism picks up again will take time. “Even if the situation in the country dramatically improves overnight, you can’t automatically go back to your pre-2011 prices, you have to gradually go up with the rates. The hotel guest who has been staying at the hotel with the lower rates in the difficult time will expect to be rewarded for their loyalty by having the same low rates now that the situation has improved,” explains Achkar.
Room rates have been decreasing globally as well, which will make it twice as hard to go back to the original rates. “The pricing we have will grow a little bit, but will not go too high. Cairo and Turkey are still great destinations despite the issues [there this year], so you cannot charge $400 for a room in Beirut when it is $200 in these countries. Dubai has also gone down, and we are conditioned by the market in terms of price. They won’t go back to the prices that existed before the oil crisis,” says Edholm.
A positive future?
Despite all of this, hoteliers maintain a positive outlook for 2017, with expectations that even if a smaller number of Gulf nationals visit Lebanon, it will still add some much needed dynamism to the sector and help on its road to recovery from the slump of the last five years – which will not be easy.
“If tourists come back to the country in droves, we will need six months to a year to start making profits again. And we need at least three to four years to make up for the five years that were lost. And even then, the profits that will be generated will be used to pay off the accumulated hotel debts to the banks, delayed payments, etc.,” explains Achkar.
So while the future may not yet be rosy for Lebanon’s four and five star hotels, there are hopes that the first few steps have been taken to point Lebanon, and consequently tourism, in the right direction once again.