Al Tayyar expects its online sales to hit SAR 2 bln by 2018-end

Saudi Arabia’s Al Tayyar Travel Group expects its online sales to reach SAR 2 billion by the end of this year, and SAR 3.75 billion in 2020, chief executive officer Abdullah Al-Dawood told Argaam on Wednesday.

The forecast improvement will be backed by a rise in online airline and hotel reservations from zero percent in 2015 to SAR 1.4 billion in 2017.

The company’s income diversification plan has mitigated the impact of dwindling sales under a government contract that contributed a considerable portion of its revenue.

Al Tayyar had been providing ticketing services to students enrolled in the government-funded international scholarship program over the past years. The contract was terminated last week following three years of steep declines in value.

Subsequently, the company announced the signing of a contract with Choice Hotels International Inc. to develop and operate seven hotels, thereby incrementing its hotel asset portfolio to 12 facilities upon commencement of operations, Al-Dawood told Argaam in an exclusive interview.

Al-Dawood considered that Wadi.com, the Mideast-centric e-commerce platform wherein Al Tayyar owns 33.3 percent stake, shows solid performance, despite competition, but said that this type of projects normally incur losses at startup years.

Below is the full interview text:

Q: How many hotels are owned by Al Tayyar, and what about the hospitality segment’s contribution to your group’s revenue and bottom line?

A: The group currently owns five hotels, which began operations at the end of 2017. Our portfolio comprises four hotels in Makkah, including Sheraton Makkah Jabal Al Kaaba and Movenpick Hotel City Star, in which Al Tayyar’s book value investments stood at around SAR 4 billion.

We signed an agreement with Choice Hotels International, Inc. to develop and operate seven new hotels, three of which are located in Riyadh and Jeddah, and one at Taif.

Hence our portfolio will likely include 12 hotels upon completion of the new entries.

Last year, the company announced a plan to operate 6,000 hotel rooms by 2020, a move that aims to rebalance its business portfolio and diversify revenue sources.

However, the contribution of hospitality to our revenue remains low, as five hotels commenced operations in the first year. But we target stronger revenues from the sector going forward.

Q: The group is planning to set up two real estate funds (REITs) and list one of them on Tadawul – any updates on this plan?

A: Yes we plan to start up a new REIT and a real estate fund to develop middle-class hotels. We are still in talks with fund managers to attract investments and assess appetite.

Q: Any specific information about a target asset size and IPO timing for the REIT?

A: The new REIT’s asset portfolio will include the group’s hotels in Makkah. Offering timing will be discussed in the upcoming board meeting.

Q: What about Al Tayyar’s investment income from its 30 percent holding in Zakher Real Estate Development?

A: Zakher is a land plot of over 300,000 square meters. We plan to build integrated developments on this land, including hotels, residential units and shopping malls. But the project remains in early stages.

Q: What is the impact of the Ministry of Education’s contract termination on revenue, and what measures have you taken to offset impact?

A: The ministry’s contract had considerable contribution to our total reservations, sometimes topping 50 percent, before falling to 40 percent in 2015 and 2016. The decline continued to nearly 20 percent in 2017.

The drop is attributable to lower numbers of enrolled students, and a decline in ticket prices after the peaks of 2012 and 2013. The average ticket prices continued to decline from 2015 to 2017, which weighed on sales.

Our expansions into other segments has helped offset the negative impact. The group expects online reservations to hit SAR 2 billion by the end of this year, and SAR 3.75 billion in 2020.

The expected improvement will be backed by a rise in online airline and hotel reservations from zero percent in 2015 to SAR 500 million and SAR 1.4 billion in 2016 and 2017, respectively.

Al Tayyar’s revenue diversification and expansion plan led to a drop in the Ministry of Education’s contract to 20 percent in 2017, from over 50 percent earlier.

Other expansions came in hotels and the car rental segment, which recorded additional sales last year. Car rental sales stood almost at SAR 100 million this year, thanks to the significant growth witnessed by the business.

Al Tayyar also owns three companies in the United Kingdom, which rank among the top ten travel agencies in the country.

Q: Is it true that Al Tayyar is planning to close Wadi.com due to continuous losses?

A: All e-commerce platforms are operating. This type of projects normally incur some losses during the initial years of operation, as more expenses are directed for building a strong brand and employees’ salaries.

Wadi.com is showing solid performance despite fierce competition, especially with Amazon. Therefore, we have aimed to diversify Wadi’s business profile through launching the Wadi Grocery operations - a move that will give the platform a competitive advantage.

Q: Uber was said to be in talks to buy Careem, in which Al Tayyar owns a 14.7 percent stake. What is the expected financial impact of this deal, if completed?

A: UAE-based Careem ranked among the group’s major investments. Al Tayyar invested in Careem when it was valued at $20 million. The ride-hailing service app showed solid performance and gained a good market share vis-à-vis Uber. It also expanded operations from Pakistan to Morocco.

Regardless of Uber’s talks which date back to over two years, we will continue to support Careem.

Q: Nasser Al Tayyar, a founder of the group, continued to cut his stake in the company. Do you have any comment about this?

A: The company has no information other than those published on Argaam.com about changes in shareholders’ equity.

Businessmen take personal decisions in light of target investments. We have no information whether this divestment is related to a certain reason, or to Nasser’s target investments.

Q: Do you any message for the company’s shareholders?

A: Under the group’s transformation plan, investors should consider the real value of Al Tayyar’s investments, whether those reflected in the profit, or other investments such as Careem. The travel group generated strong profit from Dubai’s Careem, but the ride-hailing service’s profit was not reflected on the group’s balance sheet, due to accounting policies.