The fortunes of Beirut’s Phoenicia InterContinental are a chronicle of the ups and downs that Lebanon has experienced since the hotel’s construction in the 1950s. Shuttered during the civil war, the building was restored in the late 1990s, only to have the façade and parts of the interior wrecked again in the 2005 assassination of former Prime Minister Rafiq Hariri. Just a year later, the July war also took its toll on the country’s tourism.
Running the hotel between its reopening in 2000 and today has been a “rollercoaster experience”, says Mazen Salha, chairman of Societe des Grands Hotels Du Liban (SGHL), which owns the Phoenicia and Le Vendome, a boutique luxury hotel.
Related article: Mazen Salha Q&A
He adds that the last 12 months made up the most difficult business year in his memory. “Other upheavals that we went through lasted for three or four months. The period that we passed through from May 2012 until today was one of the toughest because it was long.”
He told Executive that visitor numbers were so weak that they reversed SGHL’s revenue mix.
Rooming usually contributes around 70 percent of gross income, but since April or May of 2012, rooming revenues dropped to a point that the ratio flipped to 60 percent of revenues coming from the food and beverage (F&B) stream.
Strong banqueting capacities were part of the business concept when the Phoenicia was restored with a multi-purpose grand ballroom. The investment has paid off very well throughout the past 12 years but especially in the recent crisis period as banqueting contributed to about half of the F&B turnover that helped the hotel meet survival targets.
Describing recent business as being more one of a large restaurant and banqueting operation rather than a hotel, Salha says these capabilities “luckily made us survive”, but he adds that this revenue stream needs very careful management because of great differences in profitability margins between staying the night and staying for dinner.
The partnership between the Salha family as owners and InterContinental Hotels Group (IHG) as operators of the Phoenicia has its roots in the 1950s. Mazen’s father, Najib, got together with InterContinental, which at that time was based in the United States and affiliated with Pan Am, the dominant US global airline of the 1950s and 1960s.
One cannot discuss SGHL without touching upon the company’s history and remarkably robust partnership with the InterContinental brand.
The Phoenicia was created as the second hotel in the chain, and the linkage endured through various ownership and business concept changes on the InterContinental side, thanks in part to SGHL’s experience in Lebanon’s adverse tourism climate.
Most industry leaders would agree that the Gulf countries’ travel warnings cut the flow of tourism’s lifeblood in the 2012 season, as Lebanon depends heavily on Arabs as a source market for visitors. Even while the two SGHL properties were under the specter of Saudi Arabia’s travel ban in the first quarter of 2013, Saudi visitors comprised the largest single guest segment by nationality, Salha says.
While the resilient affection of their Arab clientele meant that the SGHL properties could in the past recover quickly from the intense but short disruptive shocks, such as what Salha calls the “2006 episode”, the latest experience of sustained disruption is a different thing. It shows how heavy reliance on one visitor group makes Lebanese luxury hotels particularly vulnerable to external political shocks.
This vulnerability is not just a concern because of political trauma but also because of changes in the Arab clientele. The burgeoning young generation of Saudi Arabia and other Gulf countries “does not know Lebanon in the way that the previous generations did,” Salha says, pointing to other destinations that are becoming more attractive — and more culturally compatible for the Gulf’s Islamic tastes — such as Turkey and Morocco, as well as the Far East and Oceania.
But the difficulties do not end there. The Lebanese hospitality industry is not all it can be because the expansionary global tourism patterns are not adequately reflected in the market, Salha believes. “We have good business but are not seeing the numbers that Lebanon has the potential to attract. Whatever we are seeing is only a drop.”
At the same time, he is skeptical that the country could draw visitors from Russia and China, two leading markets of growing tourism to Mediterranean and Arabian Gulf destinations. “We are hoping to attract Russians and other nationalities but I don’t see this as a Russian market,” Salha opines. “They want nice clean beaches and want to be able to come and go with ease, [but] what are the beaches that we can offer them?”
He cites infrastructure and security deficiencies, such as the regular demonstrations that block Beirut’s Airport Road as issues that need to be addressed.
Before the severe drop in guest numbers that gave rooming rates at luxury hotels a good beating, SGHL in 2010 and 2011 was implementing an improvement and renewal plan for the Phoenicia and Le Vendome. The latest upgrade to be completed was the addition of the award-winning Petit Maison restaurant to Le Vendome this spring, but other investment ideas have been put on hold.
SGHL’s plans to upgrade existing properties and to expand both domestically and abroad are currently suspended. At home, Salha pointed to opportunities to expand into the serviced apartments market, where IHG runs the Staybridge and Candlewood brands, and to branching into the under-supplied market of branded budget hotels.
Here, SGHL already signed agreements with IHG to roll out hotels under the Holiday Inn Express brand, which has been a success story in several Arab markets. “We thought this is a good market segment to enter and entered an agreement with [IHG] that we will develop their Holiday Inn Express brand here and in Syria,” Salha explains. The plans were disrupted by the Arab uprisings across the region, especially now that Syria is in civil war.
Expansion abroad involves taking the legacy regional. This idea already provided the underpinning of a brand refocus about two years ago when the Phoenicia part of the hotel’s name was put to the front, and the InterContinental was reset to be more of a supporting attribute rather than the dominant identity. IHG understood SGHL’s desire to realign the brand with the actual perception of the hotel, Salha says. “When people refer to us, they always say ‘we are going to the Phoenicia’, not to the [InterContinental], and the brand is now more in line with this reality.”
According to Salha, SGHL then registered Phoenicia International as a hospitality trademark and was working on a program to tap into regional and African markets, but this all came to a halt with the recent crises.
The name Phoenicia for a hotel is not exclusive to Lebanon — a hotel in Malta has carried the name since the 1940s, as well as several hotels in the Gulf region and a small string of properties in Romania. But, as Salha tells Executive, SGHL could leverage the reputation and mystique of the Lebanese hotel with the large Lebanese communities in Africa and build up the Phoenicia International brand in collaboration with partners such as IHG or other operators.
Dare to dream
As these long-term plans for regional growth are pending an improvement of the revenue climate, other questions also await solutions.
However, SGHL is presently not of a size where going public would make sense, Salha tells Executive. While the company does not release its results and financial positions or the size of its war chest to the public, one can deduce from his remarks that any expansion will come with substantial capital requirements. Whether buying land plots to develop budget hotels in the Beirut periphery or expanding into Africa, many avenues to growth appear costly.
While certainly not impossible, expensive growth will be a risky and audacious task to achieve for a Lebanon-based hospitality company that is family owned. Although regional tourism meetings such as the Arabian Travel Market in Dubai last month reported entire bonanzas of new tourism demand in the Middle East and adjacent markets, the Travel Market event logs equally testify to the massive investments that highly-capitalized holdings and big operators are pushing into these same markets. With major hotel expansions unfolding across the Middle East and Africa, SGHL’s dream of making their mark abroad seems daring.