It has been no magical mystery tour for Lebanon’s hospitality sector this summer. In advance of the year’s main vacation season, optimistic voices such as Phoenicia Hotel owner Mazen Salha had dared to hope for good tidings, political blessings and the enthusiastic return of Saudi guests after Ramadan observances. Instead, the resounding summary in August was as ominous as can be: coffin nails.
Uttered by caretaker Tourism Minister Fady Abboud to describe the impact on tourism of the abduction of two Turkish pilots in Beirut, the phrase all too soon had reason to resurface. Whether foreign or domestic, any incident of terrorism was the last thing that Lebanon’s tourism sector wanted to see but as hate not fate had it, terrorist attacks against civilians struck Shiite quarters near Beirut on August 15. A week later, twin bombings that targeted worshippers in Tripoli constituted the vilest single act of shedding civilian blood in the country since the 1996 Grapes of Wrath bombing of a United Nations shelter in Qana.
No wonder that Pierre Achkar, head of the hotel owners’ association, feels that this is a time when he could do “nothing” to improve the situation of a hotel sector with income in the year to date described as less than half of the peak tourism year of 2010.
The magnitude of the revenue contraction jibes with the trends reported by the Ministry of Tourism. According to its latest data the first seven months of 2013 saw around 750,000 visitor arrivals, down by 43 percent when compared with the same period in 2010 and 13.5 percent lower than between January and July of last year.
According to Achkar, hotels outside of Beirut have a few positive occupancy surges generated by Syrian and Iraqi customers while hotels in the capital benefit from the basic visitor volume that the city draws at all times for business or leisure. During the Eid al Fitr holidays in early August, some luxury hotels in Beirut filled to capacity but stays were shorter and room rentals were overall closer to 75 percent than to full occupancy.
The occupancies at the same luxury hotels dropped back to around 30 percent at the end of August and the reservations outlook for September was no better, said industry sources on condition of anonymity because they were not authorized to disclose the information at the time.
Other factors
As other fluctuation factors may have come into play, the drop in rates cannot wholly be attributed to last month’s security incidents and bombings. But conventional wisdom and professional data universally see a strong correlation between security and visitor flows; it would be foolhardy to expect anything other than further waning of visitor inflows in September and sector debility that may well last through to the religious holiday season of Eid Al Adha in mid-October.
Lebanon is not alone in the Middle East in suffering from tourism impairments this year. Egypt, where tourism is one of two hard currency providers along with Suez Canal receipts, is looking at a vanished summer resulting from the recent military coup overthrowing Mohammad Morsi and the violent clashes that followed. Some alternative destinations, such as Abu Dhabi, anticipate seeing above-average visitor numbers in October amid the expected extension of security risks in the Levant, but all this is of no comfort to the Lebanese hospitality industry.
With so few customers, why not have a nap?
The developments of the past eight months make it highly unlikely that Lebanon will perform according to predictions for year-on-year growth of 1.8 percent to $4.2 billion in direct tourism receipts and of 2.3 percent to $11.4 billion in combined direct and indirect receipts. But even if it is overstated, this forecast for 2013 by the World Travel and Tourism Council (WTTC) signifies the importance to the national economy of what the WTTC calls the tourism industry and tourism economy.
Tourism industry under this definition entails all direct contributions of travel and tourism to gross domestic product, which in the WTTC assessment amounted to $4.1 billion in 2012, representing 9.3 percent of Lebanon’s GDP. The multiplier of direct tourism receipts into the fluffy tourism economy, adding all indirect and induced economic effects to the direct results, is usually a factor of two to three. This means that by WTTC reckoning, Lebanon has a 24.5 percent “total” contribution of tourism to the economy and is among very few countries at the high end of tourism contributions to GDP along with island nations such as the Seychelles, Cape Verde and Barbados.
Such numbers cannot be accepted blindly, commented Garrick Aird, a tourism consultant and entrepreneur based in Beirut. “I don’t believe most of the numbers. The contribution of tourism to GDP is not reliable. It is a best guess,” he said, using the example that a Lebanese expatriate on a home visit will often already bank some of his income in Lebanon and thus will be spending money that is already in the country, meaning that it is an error to just multiply visitor numbers by average spend to reach a view on the contribution of tourism to the economy.
Recent explosions in Beirut have further damaged tourism
Whether the WTTC assumptions about the Lebanese tourism industry and tourism economy hold true or not, the hospitality industry is vital to society here beyond the various avenues in which visitor numbers and their expenditures can be extrapolated into GDP contributions. Plus, given the probabilities for new expansion of hostilities in Syria and further spillovers into Lebanon, lamenting further about how bad tourism in 2013 has been would be pointless.
Coping mechanisms
Executive therefore ventured to search for hospitality cases that work and for strategies by which tourism businesses and entrepreneurs cope with the situation. Venturing into the nooks and crannies of the Lebanese rural landscape, we found how entrepreneurial operators are creating success stories in boutique hotels and inns, achieving practically complete occupancies in the niche of small, quality-minded hospitality ventures.
Combining innovativeness with coping strategies, restaurant operators this year are capitalizing on their nature loving patrons to enjoy the outdoors. Summer venues have seen a renaissance and have allowed operators to divert traffic from their conventional “winter venues” — bars, pubs, and restaurants. Together with the resilient festival scene, these hospitality offerings and attractions all have in common that they address the domestic tourism market.
Banking on the local market was also the coping strategy employed by Ziad Kamel, hospitality operator and chief executive of The Alleyway Group. After growing his company together with business partner Patrick Cochrane, Kamel ventured into a restaurant focused on the segment of high-spending tourists.
Assuming that there could be no better place to start such an operation “than a luxury marina that is surrounded by thousands of luxury hotel rooms, which at the time were always at 90 percent occupancy,” The Alleyway Group invested $1 million into Amarres, a French eatery in the Zaitunay Bay development in the Beirut hotel district. Opening at the start of 2012, the venue initially performed according to expectations but then was hit heavily in May of the same year by advisories which Arab countries issued against travel to Lebanon.
Bittersweet investments
Hanging on for another 12 months, Kamel decided to close the restaurant and write off $1.5 million in investment and operating losses. The coping strategy was the expansion of the group’s other French restaurant brand, Couqley, into a second location. It was a “bittersweet moment” to shut down one venue and open another at almost the same time in May of this year, Kamel said, but it was a strategic decision to cut losses in a location that is dependent on tourism and that is in a situation of no demand without prospect to be resolved in the short or medium term.
Instead of throwing good money after bad in the Zaitunay Bay locale, Kamel allocated about $1.15 million in total for investing into the second Couqley and toward redeveloping two pub concepts in Beirut’s Gemmayzeh quarter, plus some innovations. This is all based on the resilience of the domestic market, he said. “We target Lebanese who work and live in Lebanon. These Lebanese don’t stop going out when the situation deteriorates — when there is an incident, business goes down only on the day or the following day but then it resumes.” In the wider context of the restaurant sector, Kamel, who is also the treasurer of the restaurant owners’ association, characterized the current time as a struggle for survival by three out of four venues. This, however, is a result not only of the dearth of foreign visitors.
Strong years of economic growth and good tourism in the second half of the past decade resulted in many restaurant investments and bar openings which today are not sustainable, especially if they target tourists. However, the sector is also fundamentally plagued by absence of standards and infrequent enforcement of regulations, he admitted, attracting countless operators who anticipate glamour and quick profits but have zero appetite to collaborate with or seek consulting help from the Syndicate of Restaurants, Cafes, Night Clubs and Pastries. Among the restaurants, Kamel sees “many losers and few winners”.
Those best positioned to survive are the operators that offer good value for money and have their own identity, ideally one developed over considerable time. “Generally the establishments that have been around for generations with top-of-mind awareness seem to be weathering the storm.”
Deeply embedded into the Lebanese hospitality sector’s struggle for survival appears to be the disorganization of the tourism industry. For Aird, the dominant impairment today is not the absence of Gulf visitors per se but the fact that access to Lebanon has not been developed because of the complacency of sector players.
Inherent contradictions
“If, rather than assuming that the flow of revenues is going to carry on forever, the market had been correctly diversified over the years that would have been good, I think this situation wouldn’t have occurred,” he said, citing airline structures whereby business travelers from Europe are discouraged from flying to Beirut and companies like his own will not bring clients to Beirut in the summer because available seat capacity is taken up by long-haul Lebanese expatriate travelers who in economic terms do not represent the average spend on hotels, restaurants etcetera that a business traveler represents.
There is an inner contradiction in the Lebanese tourism industry whereby the national openness to visitors clashes with long-standing deficiencies in the structure of the hospitality sector and the factors that determine success or failure of tourism.
For example, the World Economic Forum’s rankings on competitiveness in travel and tourism show Lebanon as the globally leading country, number one, for affinity to tourism in 2013. This is a measure of the attitude of a country’s population to visitors and the size of tourism in national GDP, among other points.
At the same time, Lebanon was among the worst-ranked countries when it came to environmental legislation and preserving nature as a tourism resource. It also ranked far below its station in the quality of tourism policies and regulations, ground transport infrastructure and security. According to the WEF study, the most competitive countries in tourism are not at all the cheapest countries. All global insights and studies on tourism today point to the importance of developing the sector strategically to be able to compete in a future where the contribution of tourism to global GDP will be only going up further.
The Lebanese affinity for tourism has potential that points outside of Lebanon’s borders, in many different ways. Kamel is an example of an entrepreneur who is now preparing to transplant his restaurant concept to other markets in the region. Aird on the other hand has leveraged his company’s expertise in tourism consulting into the creation of a hotel feasibility software package that was developed in Beirut and is serviced from there. The product, called Xiscope, was launched last March and surpassed first-year sales targets within four months of operations.
Coping strategies and methods to successfully leverage the tourism potential of the Lebanese into growth businesses may be found in many niches and often these opportunities seem to lead beyond Lebanon’s borders. That provides a strong note of well-warranted optimism at a time when the road to a flourishing tourism market and industry in Lebanon is long and winding.
