Comment: The outlook is positive for the UAE’s tourism industry

Published: 23 July 2019 - 11 a.m.
New Supply

We expect UAE hotels to see a slight improvement in performance in 2019. In Dubai, occupancy levels have remained strong, but average room rates have struggled due to increased supply. The situation in Abu Dhabi has been slightly different with the emirate experiencing a strong Q1, with double-digit growth in both occupancy and average room rates. This can be attributed to the slower pace of new hotel supply, compared to Dubai, and the strategic planning initiated by the UAE government in recent years.

We can, therefore, deduce that new supply is the key factor most affecting average room rates, however, for each market, it is important to assess the micro-markets of each city. In Dubai, for example, Jumeirah hotels have been less affected than hotels in Business Bay, because of the predominantly five-star deluxe stock that caters to a niche segment. Business Bay properties cater to a much wider audience and therefore face more pressure to fill the varying star gradings on offer in the area.

Cost-driven economy

What we have ultimately seen is a market shift from a revenue-driven hotel economy to a cost-driven one, which has stabilised the overall industry. Now hotels are forced to re-engineer their operations to find more cost-saving measures as opposed to revenue enhancement.

To achieve this, many hoteliers will look to cut rates, particularly during the tougher summer months, however, this is a short-term approach normally associated with a degree of, or lack of, proper yield and cost management. Hotels should be looking for a more value-added strategy proposition – internal economies of scale or tactical pricing for third-party partners such as OTAs, for example.

Although this will add additional distribution costs, strategic operational strategies, including ancillary revenues, will be generated. Price is still the stimulus for tourists when choosing a hotel, however, value added is also a consideration, particularly if it is going to make the overall cost of the trip lower than if all the services are bought through a third party.

Challenges

In recent years, there has been a trend by owners to re-flag or de-flag their property in order to reduce costs. This is a common misconception to preserving the bottom line unless of course, the asset is at the end of the lifecycle and in need of complete repositioning. The implications of introducing a new operator are not only the implementation of new brand standards, but it is also the loss of business in the interim with the switch from old to new. Accounting for the loss of revenue during this period, which can be as long as six months, could be far greater than the losses experienced with the current operator.

Opportunities

There are, however, many positives the tourism industry can look forward to, particularly as Expo 2020 draws closer. We expect the performance of hotels to steadily increase in the coming months as the build-up to the event intensifies and the flow of professionals and visitors increases. In contrast to a soccer world cup competition which lasts for four weeks, Expo will take place for a six-month period and as with previous Expo events, a consistent flow of visitors throughout the duration of the spectacle is expected.


Looking ahead

As we look to the future and potential long-term successes, owners should be focusing on building hotels that are able to serve not only the current demand but the growing appetite the market is likely to generate in the 20 years post-completion. This should incorporate everything from the brand, the facilities, the interior design, and overall ROI feasibility, all with a 20-year plan in place.

Long-term sustainability has often come into question with the influx of new hotels; however, I would argue new hotels and new hotel brands are needed in every market as they indicate both an innovative and diversified market. This is an essential ingredient for the long-term sustainability of the market. Hotels built in the early part of the 21st century are not necessarily what is in demand now or will be in the future. The most critical factor for the long-term sustainability of the market is how hotels that are over 15 years old, can be repositioned to stay competitive for another 20 years and continue adding value to the requirements of future consumers.

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