Whitbread has announced an agreement to brand four Action Hotels sites under its Premier Inn flag in the Middle East.
The deal is another step in Whitbread’s attempts to expand the brand outside its UK stronghold, with a target of 50 hotels outside the UK by 2018.
At present the company has five hotels in the Middle East in a joint venture with Emirates and three in India.
The new hotels will include a 166-room Premier Inn Sharjah King Faisal Road (opening late 2014), a 100 bedroom Premier Inn Jeddah in the Modon Industrial area (opening 2015), a 119-room Premier Inn in Bahrain’s Diplomatic area (opening 2015)and a 245-room Premier Inn Dubai Healthcare City (opening 2016).
Action Hotels plans to invest c. AED 378m (GBP63m) over the course of the next two years as it builds and develop the new hotels. Premier Inn will undertake long-term management contracts on the hotels, which are due to open between now and 2016.
Alain Debare, CEO of Action Hotels, said: “We have established a strong hotel business which is well-placed to take advantage of the significant growth opportunities for branded economy and midscale hotels across the Middle East.”
Action Hotels has identified the branded economy and midscale hotel market in the region as a likely source of growth, attributing their decision to the rising volumes of middle class travellers, who are not being served by the current luxury-heavy hotel market in the region.
Action Hotels raised GBP10.5m through a listing on AIM last month, money which it said would be used to fund its growth in the Middle East. The group does not favour any one brand, with its current portfolio of six hotels operated under long-term management agreements with Accor, InterContinental Hotels Group and Whitbread, using the Ibis, Holiday Inn, Staybridge Suites and Premier Inn brands.
At the time of the IPO, Katie Shelton, director, corporate broking at Sanlam Securities, Action Hotels’ broker, told Hotel Analyst: “You can get over-dependent if you’re attached to just one brand. You can get better terms from some that others – they will offer you exclusivity, for example. We’ve found that you can drive the operators’ competitive natures as well as cutting reliance on one operator.”
She added: “The main source of revenue comes from inter-regional business travellers, we’re not targeting leisure travellers. There’s the growing emergence of the middle class in the Middle East and with only 22% of hotels three or four star, there is an opportunity there.” Shelton said that the group was looking at rates of around USD100 a night “and the next step up [for travellers] is USD200-plus. There isn’t much choice at under USD100, it’s mostly unbranded, family-run”.
The group’s objective is to become a leading owner, developer and asset manager of branded economy and midscale hotels in key Middle East markets and Australia.
For Whitbread, the deal is the latest in a series of agreements outside the UK through which it is slowly expanding globally. Managing director of Premier Inn Middle East & Africa, Darroch Crawford, said of this latest agreement: “Premier Inn already has five hotels operating in Dubai and Abu Dhabi and the brand is proving very popular with customers who are looking for great value accommodation and a great quality product.”
In 2011 Whitbread announced that it would invest GBP75m in India by 2020 to fund its hotels business in the country, with a plan to operate over 80 properties. The company had previously formed a joint venture with real estate developer Emaar MGF, which was later called off in 2010.
Under the terms of that agreement, the pair, which had a 50:50 share of the venture, were due to make a total equity investment of up to GBP300m over 10 years to create 80 hotels.
With two hotels currently open in India, there is some way to go.
HA Perspective [by Katherine Doggrell]: It is a little unfair to focus on India when there have been wider issues at play in the country’s failure to live up to its BRIC potential, but it is currently the land of disappointments for Premier Inn, as the potential which seems to be screaming from it continues to go unfulfilled.
The company currently has over 650 hotels in the UK and is expanding through every which way it can imagine – the most recent move being its Hub hotel, its compact city centre brand on which weighs much of its expansion targets.
Outside the UK it is more reliant on local partners and, in recent years, no-one has the pockets deep enough to open 650 hotels in India. Unlike the market in the UK, which is clearly visible, the demand in the Middle East and India is largely theoretical and theories don’t sell rooms.
The company is also coming up against developers who have realised that they command a significant amount of power and can afford to make the brands dance for them before signing. They are earnest scholars of the idea of not putting all theirs eggs in one basket. So, while Action Hotels may appear to present an opportunity for Premier Inn in Australia, Premier Inn will have to compete with Accor’s Ibis, with which it has a site in the country. Given the current state of competition, Ibis should not count its chickens either.
Outside brands’ domestic markets, the opportunities to take bites have been reduced from chunks to nibbles.