The exit of Sheraton Hotel (Karachi) from Pakistan’s hospitality industry, primarily due to the city’s poor security situation, has raised an obvious question: is Karachi still an attractive market for international luxury hotel chains?
The answer to this question, according to sources in the hotel industry, depends on how the present government, which is about to launch a clean-up operation against criminals, tackles the law and order situation in the city.
“Shortly after the news of the Karachi operation broke, we received numerous ‘calculations’ from international visitors, expected this month, that they won’t be travelling now,” said an official working for one of the upscale hotels in the city.
“September is generally the best business month of the year but it may not be the case this time with the operation due to start in a couple of days,” said the official who wished not to be named.
The deteriorating law and order situation in Karachi, the country’s financial hub and the largest contributor to the national economy, has hurt the hotel business that saw the number of international guests – an important revenue source for luxury hotels – decline significantly over the past five years or so.
The latest victim of the violence-stricken metropolis is Sheraton Hotel Karachi, the American hotel chain run by Starwood Hotel and Resorts Worldwide Inc, also an American company.
A city icon, the majestic Sheraton Hotel will exit the country in January next year, The News reported in its September 4 edition. Arabian Sea Enterprises Limited, the Kuwait-based owner of Sheraton Karachi, has decided not to renew its contract with Starwood that manages Sheraton hotels worldwide.
In response to The Express Tribune queries, Starwood confirmed the development.
The News reported that ASE has entered into a deal with Mövenpick Hotels and Resorts, an international hotel chain based in Switzerland. The property will be renamed as Mövenpick Hotel Karachi.
The Kuwaiti owner of the country’s only Sheraton Hotel cited the poor security situation and adverse government policies, which dented its revenues, as reasons for its decision, according to the report.
“Sheraton, being an American hotel chain, is vulnerable to terrorist attacks. This could be one of the reasons the property owners switched to a non-American hotel chain,” said MA Bawany, Executive Director at Pakistan Services Limited which owns and operates the country’s largest upscale hotel chain – Pearl Continental.
These luxury hotels, he said, charge less than $100 per night, the margin of recovery is very low. Under these conditions, he said, it can be difficult to pay royalty fee for a brand like Sheraton.
The rising number of terrorist attacks and poor law and order situation are severely hurting the hotel business in general, which is mainly running on local traffic, Bawany said.
“This increases insurance costs of foreign visitors,” he said. “Foreign advisory services also warn their citizens about visiting Pakistan because of our security situation.”
According to industry sources, international guests don’t even make up 5% of the total guest occupancy in these hotels.
Foreign investment in Pakistan has declined during the tenure of the previous government, resulting in a decrease in the number of international guests, said an official, seeking anonymity.
Foreign investment, according to the Board of Investment, dropped from $5.2 billion in 2007-08 to $1.4 billion in 2012-13.
Unlike past, there is hardly any multinational company in Karachi whose head is a foreigner, PC’s director public relations said.
Explaining, she said because of a reduced presence of foreign businessmen in the city, business activities and meetings of foreign delegates have moved to places like Dubai, Malaysia and Singapore.
The future of the hotel business, said an official, will completely depend on the government’s economic policies. “If the government can help increase economic activity, it will be good for the industry,” the official said. “But this can happen only when it restores peace in the city.”
Starwood Hotels and Resorts declined to comment on the reasons only confirming that they would not be operating Sheraton in Karachi as of January 1, 2014.
Published in The Express Tribune, September 7th, 2013.
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