News for the Hospitality Executive
|by Barry Napier, April 2007
The owners of the Burj Al Arab are doing exactly what the free market allows – getting into an under-developed segment of industry and hoping for big returns.
Hotels can open many four star establishments in the usual areas and expect reasonable success. Going that one stage farther, into the rare atmosphere of ultra-rich, is a risk, no matter who takes it.
Executive Chairman of Jumeirah, Gerald Lawless, is more than wiling to take that extra risk, to gain the greater prize. Irritatingly, Lawless, an Irishman, is six years younger than me, but I can’t deny his boundless enthusiasm. 23 years at Forte and 16 years in the Gulf area prepared him well for Jumeirah.
Lawless is more than aware of the risks and admits that Jumeirah “has to punch above our weight.” (‘Watch This Space’, Hotels, Dec 2005).
Many years after Mohammed Ali fought Sonny Liston, he admitted that Liston absolutely scared him witless. The ex-mob champ was heavier, bigger, stronger, and had a killer punch that could have dropped Ali in a split second. But Ali followed Liston around for months just to see how he reacted to a huge variety of different situations.
Armed with his psychological profile, Ali gambled his whole future by fighting Liston. And it paid off… he won not by brute force, but by being agile, young and full of confidence (outwardly, at least. He ‘stung’ rather than delivered knockout punches). Many commentators have since said that Ali fought above his weight. But his list of successes kept coming! And those he beat admitted that Ali’s seemingly untiring physical presence and the constant ‘stinging’ wore them down. The business analogy is obvious.
Will the Jumeirah gamble succeed, or will the constant punching above their weight seriously weaken their position? They want 40 hotels by about 2010, all at seriously luxurious levels, and the portfolio has spread worldwide. Always, when a group aims so high as to always be taking a gamble, there is the very real risk of someone even bigger coming along and striking it down.
Already a number of heavyweights are planning their own multi-star chains, and we can be left in no doubt that the ultimate strategy of a competitor is not just to co-exist, but to completely obliterate those who pose a threat. Therefore, Jumeirah is set to acquire as much luxury property as possible, to enable them to gain weight and punch in their own class.
It is the law of the financial jungle that when someone is seen to reap
big money, others will want to take a chunk of the action. And, as so often
happens, if their cash-flow and capital are greater, they can afford to
run at a loss for quite some time just to prove their superiority and win
the battle. On the other hand, if the newcomer builds a great brand quickly
enough, he might just stay in the running. But, can the Burj Al Arab idea
transfer to the West, or, like Las Vegas, does it only work as a mirage
in the desert?
Lawless is no amateur, though. He is a seasoned hotelier with plenty of ideas, and the guts to carry them out. And he knows that any big corporation must be quick to take on competition and to turn around on the spot to make immediate changes. Part of his strategy is to spread Jumeirah’s portfolio worldwide, and he is actively on the look-out for suitable deals, not necessarily in the hotel line. How much money is behind this? No idea, and my Jumeirah contact would not tell. But it has to be a vast amount.
The Dubai government wants to increase its share of tourism from 12% to 20% by 2010, and this means Jumeirah will be supported by its home team, if not somehow rewarded, just as happens in any emerging tourism destination. And, as Lawless says, Emirates Airlines plays a major part in the success of Dubai. (Feb 23rd, 2006, www.unitedworld-usa.com). Without access, no country will get very far financially.
Lawless is joined by a solid board, including Bill Walshe as Chief Marketing and Business Innovation officer. Also Irish, he joined Jumeirah after being with Kempinski in the UK. This is significant, because Kempinski is itself in the luxury class and loves to expand. So, he knows which way the luxury wind blows and can take advantage of it.
The CEO, Guy Crawford, was also with Forte for 23 years, but has worked for other hotel chains, giving him formidable experience. It will be interesting to see how he fares, having joined Jumeirah as CEO as recently as February this year (2007).
London operations are run by Derek Picot, who has worked with fine hotels around the world. Dutchman, Frank Van Der Post, is in charge of the American side, as Senior Vice President. These two, like the other members of the board, are well qualified for their tasks and roles. Maybe, then, Lawless is being shy when he says Jumeirah punches above its weight? It is sometimes a ploy for someone to say he is weak, to put competitors off the scent, and then to deliver a fatal blow.
Will Jumeirah ‘mop up’ a variety of hotels and enterprises just to build up its financial strength, or to maintain a presence around the world? It seems that way, in which case, part of its risk may be to operate possible ‘loss leaders’ just to put on a show of immense power. This, of course, is only my opinion, but it is a valid muse.
Jumeirah will open a luxury beachfront development in the Jordan, with five star hotels and a waterpark. It already has a similar resort in Dubai. A plan is already underway to build a prestigious hotel opposite the Burj Al Arab, across the bay, on an exclusive plot. It will be developed by Dubai-based Al Fattan Properties, with many luxury features.
Other up-and-coming establishments are also appearing in Bermuda (Jumeirah Southlands Resort), Thailand (Phuket Private Island Resort), London (Beetham Tower), Dubai (Aqua Dunya theme park), China (the Hantang Jumeirah in Shanghai), and in many other locations. (info at www.jumeirah.com).
The internal structure of Jumeirah is impressive, at least on paper. All businesses have policies and declarations of honesty, integrity, etc., and all claim to be the best people on earth to work for. Very often, these claims are empty and turn out to be shams. Is this the case with Jumeirah?
Taking in a broad spectrum study of Jumeirah, I have a hunch it wishes to be all that it says it is. But how do we square this with the accusations of using immigrants as cheap labour (charges made against all Dubai activities, not just those of Jumeirah)? One commentator asks, if the accusations are true, will Jumeirah survive in countries where labour demands are far more exacting and more expensive? I suspect they will survive, but it is still early days… there is still time for the bubble to burst. But hey – that’s what risks are all about, and that is the difference between genuine entrepreneurs and those who like to remain safe and mundane!
Jumeirah also hold the Emirates Academy of Hospitality Management. This offers degree-level training and covers tourism and hotel skills for the Middle East as well as abroad. Degree students can spend a year at the Ecole Hôtelière de Lausanne, Switzerland, enhancing pro-luxury skills. The Academy also has an e-learning package. It seems to be a cut above most other training facilities and suggests a top-end commitment to hotel management. So maybe their claims on paper are genuine after all. (www.emiratesacademy.edu/)
In Dubai, near the Burj Al Arab, Jumeirah owns the stunning five-star Jumeirah Beach Hotel. Styling itself as ‘Dubai’s premier lifestyle destination’, its exterior architecture is stunning. On the shore, it has a private beach and is next door to the Wild Wadi Water Park (owned by guess-who?). (For portfolio: www.jumeirah.com/portfolio/)
In the business district of Dubai is the Jumeirah Emirates Towers, a business hotel with offices and mall. It was voted Best Business Hotel in the Middle East, and was runner-up for the best in the world (2006). But, who determines the best? If you look at the results of a poll by actual businessmen who use hotels, none of the Jumeirah hotels are listed. (www.travelandleisure.com).
Nor did the Jumeirah UK establishments come into the 2006 ‘Best Business Hotel Brand’ awards. The Five Star Alliance awards for best business hotels voted the Jumeirah Emirates as best in the Middle East. Swings and roundabouts, eh? What one group thinks is best hotel, is someone else’s non-runner.
Jumeirah is currently running fast and true, but will the hidden Russian nouveau riche suddenly emerge as hotel-grabbers in the near future? After all, Moscow has the biggest number of oil-billionaires in any capital city in the world, and Russia as a whole produced 17% more millionaires last year, and their number now totals over 103,000! (‘Planet Startup’, Sept 29th 2006, money.cnn.com). And they’ve got money burning in their pockets.
Because of very low taxes and subsidised housing their disposable incomes are said to ‘dwarf those of Westerners’ (and Arabs??). Their methods (likened to those of ‘the wild west’) and hunger for status will surely drive Russians to eagerly spend the cash in their back pockets to buy-up top hotels, or to build newer and better ones, without it making a dent in their capital. Russian wealth is already making its mark in the UK… Dubai had better watch out.
Will Jumeirah have the stamina and resources to make it long term? Bear in mind that whilst all hotel companies market themselves as in it for the long term, few would resist a massive take-over deal that gives all senior personnel enough to live on for life, and help to pay for stays in the very luxury hotels they have just sold off! That’s business.
Yes, a rapid buy-up of a wide range of assets can mean a genuine desire to form a huge conglomerate with a solid financial base It can also be the prelude to building a portfolio for sale. Or, dare we say it, it can also be a smoke-screen for financial collapse. Which is it for Jumeirah?
Obviously, this is guess-work, but all the scenarios can be found in previous take-overs, sell-outs and disasters around the world. And that does not even take into account the possibility of another South Sea Bubble. The rich are getting richer, and more are becoming rich every day, but this does not mean they are all financial wizards and can see the mugger with a cosh around the corner.
Personally, from what I have researched, I think Jumeirah is genuine and I wish them success. However, fast growth in any industry tends to make the supply line weak. Move too fast and even the biggest wadi of banknotes can run out. I just hope Jumeirah’s finance director has his hand on the wheel, and has eyes in the back of his head, because the big bad beasties of competition are already out there, snapping at their heels!
© 2007 Barry Napier
|Also See:||What is the Difference Between a Five-star and a Six or Seven-star Hotel? / Barry Napier / April 2007|
|Bermuda Developers Sign Jumeirah to Operate the First New Luxury Resort to be Built in Bermuda in 35 years / February 2007|
|Dubai Boasts 22 Five-star Hotels / June 2006|
|British Hoteliers Voice Concerns Over the New Hotel Rating System; Diamonds Aren’t Forever! / Barry Napier / May 2006|
|The New UK Hotel Grading System Explained / Barry Napier / May 2006|
|Burj Al Arab in Dubai Prompts New Best Hotel in Asia Pacific Category / May 2001|
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