Tourism experts say that this will be a rough year for the industry, with the Middle East’s dollar pegged economies likely to be hit both by the strengthening greenback as well as by a drop in international travel from recession-hit source markets.
The International Air Transport Association (IATA) forecasts a dismal year ahead. The industry as a whole is expecting to lose $2.5 billion, with all regions except the US expected to report larger losses in 2009 than in 2008. The Middle East is set to notch up losses of $200 million.
In the hotel sector, occupancy figures from travel research firm Smith Travel Research Global show that, on the back of a weak summer, hotel demand fell sharply in the Dubai, Kuwait and Manama markets in October. In Dubai alone, it dropped 4.1 per cent to 79.6 per cent from January to October last year, as compared to 83 per cent in the same months of 2007.
Deloitte Middle East, meanwhile, says the hotel industry should expect a decline in the average daily rate (ADR) and the revenue per available room (RevPAR). RevPAR for 2008 is up over 2007 numbers (for the year to September), but this trend looks set to decline over the next few quarters as leisure tourism takes a hit.
While several top regional properties have privately confirmed that the industry has already begun to feel the effects of the crunch, the Fairmont Dubai is one of the few properties to say so publicly. It has seen a slight decline in occupancy in the fourth quarter, “like most hotels in Dubai,” Kent Cooper, vice president of regional hotel sales in the Middle East and Africa for Fairmont Hotels & Resorts, told the website ameinfo.com. Alex Kyriakidis, global managing partner of Tourism, Hospitality and Leisure at Deloitte generally agreed. “Bookings are down for 2009,” he was quoted as saying in Emirates Business 24/7.
Europeans comprise a large share of inbound tourists, but a drop in the value of their investments and real estate properties means they have less disposable income and travel is an early casualty.
Add to that the unfavourable exchange rates between the euro and sterling on one hand and the region’s dollar-pegged currencies, such as the riyal, the dirham and the dinar, and the price of a visit to the UAE, for example, is up 25 per cent, says Kyriakidis.
Oman, too, whose largest source market is the UK, is likely to be badly hit.
Tourism growth projections for the period between 2007 and 2010 are now expected to be somewhere around 16 per cent, as opposed to earlier projections of 40 per cent.
The industry can react by innovating and augmenting its offerings. Dubai may revise its target of attracting 15 million tourists a year by 2015, according to media reports quoting Khalid Ahmad Bin Sulayem, director general of Dubai’s Department of Tourism and Commercial Marketing. The new tourism initiative, to be announced shortly, will include special marketing initiatives aimed at Chinese, Russian, Saudi Arabian and British guests.
Marriott Hotels are aggressively repositioning themselves with new packages and deals so as to minimise the impact on the group’s bottomline. Rebates, discount schemes and airline tie-ins are among their new offerings, measures which Samir Daqqaq, vice president global sales, Middle East and Africa, Marriott Hotels International, was quoted as saying in Emirates Business 24/7, have minimised the challenge.
Despite the downturn, the company opens some 98 new hotels in the next two years. Particularly well placed to take advantage of these new market dynamics are budget and mid-market hotels, to which some top executives are turning.
UK chain Premier Inn hopes to dominate the region’s value hotel sector with high quality accommodation at a low end price.
“When there have been recessions in the UK we have seen our occupancy increase,” said Darroch Crawford, managing director of Premier Inn in the Middle East. “We think we are well positioned if there is a softening in the Middle East market. The economic downturn has created a huge demand for value for money that has not been there before.”
The group opened its first hotel outside the UK at the Dubai Investments Park earlier this year, with plans to build some 80 new hotels across the region over the next decade.
“The mid and limited service hotel market is currently underdeveloped in the UAE and this should be addressed promptly. Hoteliers should also look to different sales channels such as tour operators to broaden the distribution base,” says Kyriakidis.
And with new investment pouring into the airline sector – Emirates is spending $35 billion on new planes, with Qatar Airways and Etihad putting out $30 billion and $40 billion respectively – there’s hope for the industry. Kyriakides feels mega projects such as Dubailand, Abu Dhabi’s Yas and Saadiyat Islands, Oman’s Blue City and the various projects along the Red Sea in Saudi Arabia will all push up demand and appeal to families.
“The key is broadening the tourism offering to meet the needs of today’s tourists. There will be an increased emphasis on value for money as the [region] competes for European visitors with Egypt, Turkey and the Far East,” adds Kyriakidis.
Another way of bringing more tourists to the region is to continue developing a diverse range of attractions.
Hotels are being cautioned against dropping rates to compensate for falling demand. Pricing integrity is paramount during a recession, but if hotels slash rates as occupancies come under pressure, it may take years before the ADR climbs to pre-recession levels again.
By Clark Kelly
