Global Arab Network | Tourism Faces Second Half Crunch in 2009

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Tourism Faces Second Half Crunch in 2009

Global Arab Network - Robert Bailey

Tuesday, 09 June 2009 14:46

Although airlines began to see premium fare passenger numbers fall off, hotels throughout the Gulf continued to display relatively high occupancy rates as 2008 drew to a close. Overall, visitor numbers to the region were still holding up well.

The UAE has been experiencing visitor growth in double digits up to 15 per cent over the last three years even as some analysts caution this is unlikely to continue.

According to Alex Kyriakidis, managing partner for Real Estate, Hospitality and Leisure at Deloitte Touche Tohmatsu, the region faces a challenging time in maintaining the visitor levels seen over the past three years. “By the end of 2009, I think we will see growth, at best, 10 per cent down from this figure,” he predicts.

Yet in the face of this potential slowing, government officials and airlines in the region are still willing to look at the situation as a glass half full rather than half empty and seem determined to pursue long term development strategies.

Emirates says that “despite the challenging environment, the carrier’s booking levels remain buoyant with very little slackening in demand.”

The airline confirms that it will continue to provide 14 flights a day from the UK to Dubai in 2009, with services from London Heathrow (five times daily including one A380 flight), London Gatwick (three times daily), Birmingham and Manchester (twice daily), Newcastle and Glasgow (once a day).

A spokeswoman for Qatar Airways told Gulf Business that the carrier has not experienced any adverse affect to its operations as a result of the current global financial crisis.

“The airline is committed to growing its international network through new routes and additional frequencies over the next few years. However, we are able to shift capacity according to demand and supply market conditions and can react quickly in the event this is necessary.”

It is a robust response to some downbeat statistics. According to the most recent figures from the International Air Transport Association (IATA) the number of premium tickets sold by the worldwide aviation industry fell 6.9 per cent in October compared to the same period of 2007.

“The massive adjustments now taking place in banking are being seen reflected in the slump of business travel. With most economic forecasts suggesting that the recession will not bottom out until the middle of next year, further sharp declines in business travel and premium revenues should be expected well into 2009,” IATA advises.

In spite of this, Robert O’Hanlon partner at Deloitte Middle East points out that “hotel performance remains very strong in Abu Dhabi with revenue per available room (revPAR) up 45 per cent while Dubai’s revPAR increased 6.7 per cent in the twelve months to October 2008 according to STR Global hotel benchmark survey.

Though it is by no means certain that this impressive momentum will continue in the face of global recession there are few signs that any major brake on developing the region’s tourism sector is about to be applied.

But business models are going to need to be fine tuned. O’Hanlon believes that, an increased marketing effort for the UAE as a whole is important to ensure that hotel performance remains solid as well as aligning this strategy with the route expansion plans of regional airlines, which are identified as key drivers of the emirates’ tourism traffic.

A degree of flexibility may well be called for. Deutsche Bank chief economist Professor Norbert Walter told Gulf Business that “global passenger traffic is expected to decrease in 2009 due to the severe global recession. Both business travel and the leisure and tourism market are affected negatively. Airlines have already started to significantly reduce their capacities during the last few months.”

John Strikland of JLS Consulting comments that “The recent results from Emirates recording an 88 per cent fall in profits show that the Gulf’s airlines are not immune from global trends.”

Europeans comprise around 40 per cent of tourists to the region with British visitors a core element of visitors particularly to the UAE. Travel to the region over the last few weeks is also estimated to have become 30 per cent more expensive due to adverse exchange rates of dollar linked Gulf currencies and the euro and sterling.

Discretionary vacation travel in addition to journeys made by corporate visitors are inevitably going to be hit by recession which is also beginning to affect the Asia and Far East traffic that transits through the Gulf hubs.

Retail consultant Simon Thomson says that the collapse of the pound against the dollar and euro will reduce the number of tourist arrivals from the UK with the amount of money available for “sunshine breaks” reduced.

Thomson, who is a director of the Middle East Council of Shopping Centres, believes that international tourism is likely to be one of the casualties of disposable income as job security becomes less certain. ”Much of the mall retailing, especially in Dubai, has been predicated on tourism swelling year on year,” he says.

While store closures are a possibility, if visitor numbers contract considerably, greater cooperation between mall owners and retailers is more likely. “Because so many malls are populated by a limited number of major franchisees it means the latter are in a very strong position to renegotiate rents and lease terms in their favour,” Thomson suggests.

Dubai Department of Tourism and Commerce Marketing has yet to announce any amendment though to its ambitious target of attracting 15 million visitors by 2015 compared to the 7.7 million visitors recorded in 2007.

However, a growing number of industry professionals, think that the UAE is going to have to start looking into diversifying from just being a luxury destination in order to meet this target.

According to Khalid al Malik, chief executive of state-owned Tatweer, the developer of Dubai’s biggest tourism projects including the $64 billion Dubailand which plans to attract 40,000 visitors a day says: “Before, Dubai had the perception of being a place for luxury stays, short-term stays and a singles and couples destination, but now we are working to turn Dubai into a longer-stay family destination.”

He points out that the mid and limited service market is currently an underdeveloped sector in the UAE’s hotel supply and should be addressed promptly while hoteliers should also look to different sales channels such as tour operators to broaden the distribution base.

“Another way of introducing more tourists to the emirates is to continue developing a diverse range of attractions such as theme parks, cultural attractions, museums and nature reserves to widen the appeal to different types of tourists such as families.”

For Dubai and other destinations in the Gulf where to position their tourism is a difficult balancing act particularly where upmarket luxury accommodation and services has so far been the hallmark.

According to FutureBrand the UAE remains one of the most popular tourist destinations in the world and well ahead of other destinations including the Maldives, Australia and US.

The American brand consultant comments that “to maintain a strong country brand, there is a need to sustain the momentum through initiatives that deliver the brand’s core essence, in the case of the UAE the country has remained in a class of its own in delivering world-class hospitality options that have truly redefined the industry.”

Deloitte’s says there will be increased emphasis on value for money and the UAE will increasingly be competing for European visitors with Egypt, Turkey and the Far East.

Kyriakidis says bookings for the first quarter of 2009 still looked positive though the negative results of worldwide recession would start to appear in the second quarter. But putting matters into a global perspective, his view is that the UAE will be in good shape compared to other regions such as the US and Europe where Deloitte predicts a contraction in tourism.

Nonetheless, the disposable budgets of private households for trips and holidays as well as corporate travel budgets will be much lower next year. Below the line, the short-term prospects for the air travel industry are clouded – even in the Gulf region, he says.

According to Professor Walter: “There are some chances to mitigate this downward trend by lowering prices for tickets and accommodation rates and the lower oil price provides the airline industry with some room for manoeuvre.”

Emirates reduced fares from its six UK departure points by up to 20 per cent in mid-September following the fall in oil prices. But carriers can only go so far with discounting.

Aviation consultant John Strikland says that airlines can consider cutting fares on a segmented basis where there is price sensitivity but other routes are not and it would not be appropriate to reduce fares on these in the hope of obtaining more passengers.

Nevertheless, Strikland believes that the business models of Emirates, Etihad and Qatar Airways which are predicated on huge fleet expansions are still viable when the region’s tourism expansion strategies are taken into account in spite of the downturn.

Emirates’ total order book still stands at 179 aircraft, all wide-body, and worth more than $58 billion and which include 58 A380s.

Qatar Airways has more than 200 aircraft currently on order valued at some $40 billion including Boeing 787s and Airbus 380s. The airline now flies to more than 80 destinations and the network is still being expanded. A third US route, to Houston, will commence next March.

“Qatar Airways has a long-term commitment to its future aircraft needs having placed huge orders worth over $40 billion for more than 200 new-generation aircraft. Qatar Airways adopts a long-term view, not a short-term approach. We entered into multi-billion dollar agreements with no intention to pull out as our approach is very much a long-term one.”

Strikland points out that the region’s carriers are also opening up innovative routes and increasing traffic flows between the Middle East and new destinations in the Far East and Africa with the potential to generate considerable business.

Oman Air is to start a daily Airbus A310 service from Muscat to London Heathrow in January.

Etihad is to fly to Tokyo five days a week from its Abu Dhabi hub from March 2009. The move is the first entry for the airline into the Japanese market where Etihad also has rights to commence flights to Kansai and Chuba in addition to Tokyo’s Narita airport. The Abu Dhabi carrier also serves Beijing, Manila, Bangkok, Kuala Lumpur and Singapore.

It is not just the region’s airlines that remain optimistic. Singapore Airlines has said it intends increasing services to Abu Dhabi International Airport and to the rest of the Middle East from next March with daily flights to Abu Dhabi and four services to Kuwait.

With some slowdown in the pace of tourism development likely in 2009 there is no sign of panic or pessimism taking hold with tourism development firmly established as a vital component in the region’s economic diversification strategies

Abu Dhabi Tourism Authority prepares a register of development activity on a quarterly basis primarily to monitor accommodation development. Its latest update confirms the fact that projects are continuing despite the difficult global environment.

“Although it is inevitable and sensible that developers and investors review longer term projects when conditions are seen to have changed but the reality is that although Abu Dhabi is not immune from the impact of the unprecedented global economic environment it is well inoculated,” An ADTA spokesperson told Gulf Business.

Global Arab Network

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