HOSPITALITY

►overview

The World Tourism Organization (WTO) estimates that tourism in Lebanon generated revenue of $742 million in 2000, an increase from the $673 million collected in 1999. The sector was once responsible for around 20 percent of GDP.

Accommodation facilities continue to grow, especially at the high end. Altogether there are 293 lodging establishments – motels, furnished apartments, hotels, and resorts – of which 13 are affiliated with an international chain.

Types of Demands

The proportion of demand for leisure facilities is categorized as equally split three ways among residents, Arab visitors, and non-Arab visitors. In the provision of hospitality services, for the businessmen, it is perceived as mainly divided 50-50 between Arab and non-Arab visitors. The industry shows good signs of recovery in the post-war period.

Who Visits

Many Arab nationals, especially those from Saudi Arabia, spend their summer vacations in mountain resorts or in areas known for the nightlife attractions. They typically spend long stays and have high purchasing power.

►investing in the hospitality sector

Feasibility studies

The hospitality industry is cyclical and has high fixed costs. Investors frequently use the Internal Rate of Return (IRR), the discount rate at which Net Present Value of an investment equals zero, to determine whether they will invest.

The IRR represents the opportunity cost of not investing in an alternative project. It is linked to the market interest rate, which is relatively high in Lebanon although slowly declining. IRRs can reach 25 percent in Lebanese liras. Several consulting companies conduct market research and feasibility studies for investors.

Financing

          Commercial Bank Loans

Tourism and hotel developments are long-term business ventures with considerable pre-operating costs. The value of the collateral needed usually exceeds the amount by 50 to 100 percent. Commercial banks prefer short-and medium–term borrowers, so few provide long-term loans. Therefore, banks are slow to respond the loan requests.

         Subsidized Loan Program

In 1997, the Government introduced a loan subsidy program to encourage investment, including tourism. By end-2001, credits of around $540 million had been made under this program, of which 28 percent went into tourism. The interest rate on these subsidized loans was LIBOR – London InterBank Overnight Rate – plus two percent.

          European Investment Bank Credit

In 1998, the European Investment Bank (EIB) provided 30 million euros for the hospitality sector. This funding was mainly for rehabilitation or construction of small and medium hotels outside Beirut.

          Equity

Equity financing is a way of raising money by selling part of one’s ownership in a company. In contrast, debt financing (sale of bonds) raises money through borrowing.

The Phoenicia and Le Vendôme Inter-Continental Hotels, owned by the Société des Grands Hotels Libanais, raised $90 million through an equity and debt package.

► restaurants and cafes

Eating out

The Lebanese enjoy eating out. A study by IPSOS-STAT indicates that 48 percent of the Lebanese questioned eat out more than twice per month. The survey further says the respondents cared more about the quality of the food than its price. It notes that of those who eat out at least weekly, women visit eateries 4.44 times a month on average. Men, at 5.49 times, are even more frequent diners-out.

Getting a license

The Ministry of Tourism issues permits to all establishments serving food. This includes restaurants, nightclubs, cabarets, discos, bars, snack bars, cafés, teahouses, patisseries, and sandwich bars. While the paperwork is similar (except for cabarets, which require an additional permit for ‘ballet troupes’), the location requirements for each establishment vary according to type.

Restaurant franchises:

A franchise is a license granted by a franchiser, a company with a famous brand name and product, to a franchisee, the party wanting to trade on the name of franchiser. The franchisee pays a fee to use the franchiser’s name, products, and services. Current franchise operators include Burger King, Dunkin Donuts, TGIF, and McDonalds.

Talking to head office

Once the relevant research has been done into both local market conditions and the business of the franchiser, the franchisee drafts a business plan, which is presented to the franchiser. This plan includes the site location for the retail outlet, objectives, financial background, and business experience.

What it costs

Typically, a franchising fee is paid up front for the license, which gives the franchisee the right to use the name, trademarks, copyright, design rights, and franchiser’s know-how. The deal may also include a percentage of profit or turnover.

This upfront fee is considered an asset on the balance sheet and is amortized over the years of the deal.

►Accommodation

Hotels

According to the Syndicate of Hotel Owners, applications for hotel building permits have steadily increased since 1994. The Ministry of Tourism says that some 32 hotel construction permits were granted between 1999 and 2001. Over the past five years some 25 new hotels have been added and an additional 10 are expected to open in the next four years.

           Price Bracket

International hotels secure many of their clientele from their international reservation centers and fix their prices according to market forces and competition, with some discounts as high as 50 percent of the declared rack rate.

Andersen’s Hotel Industry Benchmark Survey for 2001 highlighted that increased competition in the hotel industry in Beirut had contributed to a decrease in room rates and yield. In 2000 room rates were LL117,062 ($77) compared to LL146,300 ($97) the year before, and room yield equaled $63 compared to $93. Many hotels attributed this drop to the number of new hotels that opened in the interim.

         International Standards

Independent owners no longer dominate the hospitality industry. Increasingly, large multinational chains are invading the market. Hotel owners are finding a comparative advantage – technological leverage, international reservation center, mixed personnel, corporate advertising, and worldwide representation – in joining international chains.

       Franchises

Hotel franchise fees are the compensation paid to the franchiser for the use of the chain’s name, logo, identity, image, good will, procedures and controls, marketing, and referral and reservation systems. The initial franchise fee typically takes the form of a minimum dollar amount based on a hotel’s room count. Operating profits are shared according to an agreed formula.

        New classification system

A new system makes hotels subject to an annual independent inspection for renewal of their star rating and is based on quality. Before, size was a predominant factor in determining how many stars a hotel should be awarded. Existing hotels have five years in which to meet the standards of their present classification, or face being downgraded, but new hotels will be required to meet the standards straightaway.

Under the new regulations, an inspection gives 39 percent of the assessment to conditions of rooms, 30 percent to the status of the building as a whole, 21 percent to entertainment facilities, and the remaining 10 percent to the quality of the services. A hotel’s rating will depend on the number of points it can score.

Furnished Apartments

Compared to hotels and second homes, furnished apartments usually show a higher rate of occupancy, typically with a longer stay. There are 3,198 furnished apartments in Beirut, Mount Lebanon, and North Lebanon, 67 percent of which are located in Beirut. There is still some confusion between ‘furnished apartments’ – which are completely independent – and a ‘suite hotel’ that provides minimum hotel-type services, such as front desk, maid service, and security.

► lodging or eatery permits

The application process to get a restaurant or other tourist facility permit is time consuming (approximately two months).

Licenses and permits are subject to periodic inspections by ministry representatives and health and police inspectors to ensure that the developer abides by the requirements set and the project conforms to the approval plans and drawings.

Permission to open a restaurant frequently requires the provision of car parking facilities

► Travel agencies

 Categories

The operational licenses issued are divided into three categories – travel and tour, transport and tour, car rental. A single agency can include all three given that each business occupies a separate location. There are around 162 agencies operating and registered at the Ministry of Tourism

Only licensed agencies can join the Tourism and Travel Agencies Association (TTAA) and the International Air Transport Association (IATA).

Travel or Transport Agency permits

Before a firm can apply for a permit at the Ministry of Tourism, it must be registered with the Chamber of Commerce. At the MOT, a 13-member committee adjudicates on applications. The legal requirements for opening an agency are outlined in Decree 72/4216, which is currently under review. It is expected that many modifications  – concerning location, number of buses, bank guarantee, amount and standard of employees – will be made.

►Car rentals

Overview

Today there are 87 car rental agencies registered with the Ministry of Tourism. The total estimated fleet is between 8,000 and 9,000 vehicles. According to the guidelines, car rental agencies must have at least 30 cars.

Licensing

To open a rental agency requires

• Maintaining a fleet of 30 new cars

• Providing a parking space of 40m2 for each car

• Providing a LL32 million ($21,333) bank guarantee (double if it is a foreign company)

• Providing insurance on all cars and (when operations begin) on all passengers

• A notarized written commitment that the applicant will register 30 cars within a month after receiving license approval and will provide a copy of each car’s registration papers

• A notarized written commitment that the applicant will employ at least five people three months after receiving the license and will provide copies of workers’ police records, their job descriptions, and their names.

► Fiscal Issues

 Taxes

The major taxes applicable to the hospitality industry are the same as those on any business – income tax and VAT (depending on size). There are some extra taxes and also some industry-specific Customs tariffs concessions.

• Income tax: progressive from 2-20 percent of net profits

• 10 percent on dividends

• Tax on music property rights given to the Association for the Protection of Artists: $100-$300

• Entertainment tax: 5.65 percent

• Entrance (to the country) fee per artist: LL50,000

• Work permit for entertainers: LL1 million

• Fee on entertainment artist’s residence:

  – 1st class: LL800,000

  – 2nd class: LL400,000

• Municipal tax depending on the surface area

  – Seven percent on the rental value of the building

 – License fee: Public places: LL20,000-LL200,000/Gambling clubs: LL60,000 -LL600,000

• Tax on alcoholic beverages: 30-35 percent depending on the size, which is estimated by the Ministry of Finance controllers

• Employees’ health book: Medical tests for employees are required every six months; a health certificate from the municipality or the Muhafaz is required

• For artists in nightclubs, health certificates must be provided every three months (doctor’s fee of $25; lab fee $32; hospital (one-time) $40)

• Social security: 21.5 percent of salaries

• 10 percent VAT.

 Customs Duty

No tariffs are imposed on imported equipment and material for tourism facility construction unless they can be produced locally. Tourist facilities typically include new or refurbished hotel establishments, furnished apartments, and tourist transportation services.

►staffing

 Finding Good Workers:

While new establishments are filling the Lebanese – particularly the Beirut – landscape, there is an increasing shortage in qualified personnel, especially in the hotel sector. The reasons behind this deficit are: insufficient means of providing quality workers and a brain drain of graduates and experienced staff in search of higher pay.

 Salary Levels

The number of qualified staff leaving the country to seek better professional training and higher salaries is declining. This is due mainly to a 50 percent reduction in the salaries offered in the Gulf States. Training facilities at home are also improving, albeit slowly. Most of the international hotels run their own training schemes.

 Training

To correct the deficit in the supply of qualified staff, the MOT has upgraded courses and reactivated the facilities closed during the war. It reopened the Tourism Guide School from which the first 55 officially approved guides graduated in November 1996 and the Ecole Hôtelière is trying to re-establish the reputation it enjoyed decades ago.

The Lebanese University began offering tourism courses, an initial step toward a complete tourism studies program, and Balamand University has associated with City University to launch hotel management courses. In addition, a number of institutions across the country offer relevant vocational and technical courses.

► ski resorts

There are six ski resorts in the country, with plans to build additional ones at Knaysseh and Ehden. The Cedars, the oldest ski resort, was built in 1935 by the French army. In total, there are 46 lifts and more than 40 hotels and country lodges close to the resorts.