Cart the cartels away

Le Meridien’s regional manager dismisses hotel cartels as a viable method of keeping the hospitality industry afloat.

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By  John Irish Published  April 14, 2003

A week’s a long time in politics, former British Prime Minister, Harold Wilson once said. Well, just a month ago, Francisco Borrello, Meriden’s chief in Abu Dhabi called on the hotel industry to join forces by creating fixed price cartels. However, in an interview with Arabian Business, yesterday, April 13, Sami Zoghbi, Le Meridien’s Middle East manager, dismissed the concept of hotel cartels as a return to “Socialism.”

“I believe that the consumer should have the choice. Cartels, throughout the economic life of any country in the world has never worked, in the end they have been a disaster, because they do not give the consumer the right product. The object of developing hotels in a country is to increase tourism input into that state, then cartels are doing the exact opposite,” says Zoghbi.

“In the UAE, I can stay in the best hotel if I want for Dhs250. In markets like here, Singapore or Bahrain, where the market is price driven and the demand is far below the supply, we have to stop the bleeding procedure and find a strategy. It’s not uneconomic or anti-free market, we just want to make sure the developer has a reasonable return,” Borrello told Arabian Business last month.

While the thinking behind the cartel is to avoid extremely cheap 5-star hotel pricing, particularly during the off peak season, Zoghbi claims that the cartel takes away the consumer’s right to choose, while also being completely unworkable in the region.

“The problem with the cartel is that unless you do it in such a way that it is bullet proof, there will always be somebody who cheats, turning its value into zero,”

Referring to a hypothetical example, Zoghbi suggested that if a cartel set a fixed room rate at $100, somebody would eventually start to offer breakfast and then if they were after several rooms, the hotel could offer a few rooms for free in return for the customer’s business. Consequently, they would be discounting and defeating the purpose of the cartel.

“There are so many games going on, so in order to make a cartel work, you need to have all the probabilities listed out and then you need to have a mechanism to control that,” adds Zoghbi.

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