DUBAI // As the fireworks exploded over the Atlantis Hotel in Dubai to celebrate its star-studded opening last November, it seemed the party would never end. But just four months later, the effects of the global financial crisis are taking their toll.
Hotels in the emirate are involved in a price war, laying off staff and some are even paying commissions to taxi drivers to bring in guests.
"The extended honeymoon is over," says Habib Khan, the chief executive of Planet Group, which owns and manages three mid-level hotels in Dubai. Mr Khan believes hotels are facing challenging times because of uncertainty about when the downturn will end. "Managing our costs and launching more effective marketing plans will be key from this point on, as it's really going to be a year of survival," he says.
"2009 is a year when the men will stand out from the boys in the hospitality industry," says another Dubai hotelier.
Expectations of nearly full hotels have vanished along with the discretionary incomes of potential guests. Profit margins at hotels in Dubai dipped 27 per cent last October, 12 per cent in November and 18 per cent in December, according to a recent report by Jones Lang LaSalle, a property and hospitality consultancy based in the US.
Hotels that once boasted of having the highest average room rates in the world are now undercutting each other in a price war. Hilton Hotels has slashed its rates by up to 50 per cent on weekends. The Hilton Dubai Creek, known for its Gordon Ramsay Verre restaurant, is offering rooms as low as Dh530 (US$144) compared with last year's rate of Dh1,944.
"Cutting down prices is never a good idea because once the prices go down it will be very hard to lift them up again, and at the end of the day it's not a sustainable strategy," says Elhamy el Zayat, the chief executive of Emeco Travel, one of the largest travel agencies in Egypt, and the former head of the Egyptian Tourism Federation. "But in the case of Dubai, I think cutting prices now is a wise choice because rates were too high and in some cases overpriced, unlike Egypt, where the rates are low to begin with."
The average room rate for Dubai hotels used to be $283 per day, but Dubai's Department of Tourism and Commerce Marketing (DTCM) created a scheme in December to ease prices once the economic slowdown and financial crisis started to hit.
However, despite the global recession, the DTCM still hopes to double the number of tourists to 15 million by 2015. To continue enticing visitors to the emirate, the department offered discounts of up to 60 per cent off some hotel rooms and 25 per cent off food and beverages during the Dubai Shopping Festival, which ended last month.
Khalid bin Sulayem, the director general of DTCM, said the campaign was part of an effort to sustain tourist attractions throughout the year. Last week, the DTCM launched a three-month familiarisation programme called Keep Discovering Dubai, which will bring 2,000 tour operators and members of the media to the emirate. It is hoping to dispel negative perceptions of Dubai by giving industry insiders first-hand experience.
Despite the uncertainty in the market, after the crisis is over Dubai will learn how to separate tourism from the now declining property sector, says Alex Kyriakidis, the global managing partner of tourism, hospitality and leisure at Deloitte, an international consultancy.
"It's about time the UAE realises that tourism is a completely independent sector and a hotel is a standalone business and does not need to be part of a much bigger mixed-used development," he says.
Dubai has plans to increase the number of hotels from 470 to 484 by the end of this year, but some anchor projects such as Tatweer's Dh325 billion Dubailand are under review. Dubailand's master plan includes 45 theme-based projects including amusement parks, hotel complexes and leisure facilities, all geared towards attracting families. One of Tatweer's units, the developer Bawadi, is building Asia Asia, a 6,500-room hotel covering more than 55 hectares, as well as a strip of other hotels to make up the hospitality core of the project. When completed in 2020, Tatweer hopes to attract 40,000 people a day.
On a global level, hotel projects in Europe, the Middle East and Africa declined 6 per cent in last year's third quarter, according to a report by Lodging Econometrics, a US-based research firm. Another indicator of the slowdown in the region is the number of projects that are being cancelled: 185 during the third quarter of last year compared with 87 in the same quarter in 2007. The number of rooms cancelled totals 36,049, up from 18,112 in the second quarter, the report says.
"Project cancellations are high in all three regions, reflecting the unavailability of financing and new developer concerns about what appears to be the beginning of a global recession, causing slower industry growth and a fall-off in demand that is expected to continue trending downwards into 2009 and 2010," it says.
However, as Dubai anchors its tourism success on developing attractions, there is a need for the emirate to reinvent itself. "We need more hotels like the Atlantis on The Palm to attract tourists and that is why our priority for this year is to continue pressing on with these projects," says a spokesman from DTCM, who stressed that financing for projects such as the Asia Asia Hotel had been long planned and would not be affected by the crisis. However, some analysts are more sceptical.
"Projects worldwide have been delayed and saying that projects in Dubai will not be affected is not being very accurate," says Rod Taylor, the head of hospitality and tourism at the Europe Arab Bank, based in the UK.
Mr Kyriakidis predicts tourism growth will ease to 5 per cent this year from 15 per cent last year.
According to data released by the DTCM recently, Dubai's visitor growth slowed to 3 per cent in the third quarter of last year from an average of 10 per cent in the same quarter in the previous two years. A total of 1.79 million visitors arrived in the emirate between July and September last year compared with 1.74 million in the same period a year earlier, the DTCM said in its report.
The industry's global outlook does not look much better; international tourist arrivals increased 5.7 per cent from January to April last year, down 2 per cent compared with a year earlier, according to the UN World Tourism Organisation. This year, UNWTO analysts predict global tourism growth will fall in the range of zero to 2 per cent.
In the US and Europe, hotel occupancy rates fell to their lowest level in 15 years, reaching 16.4 per cent in America in the last week of December, compared with 42.8 per cent the year before, according to STR Global, an international hospitality firm.
The tourism industry in the UAE does not seem to be doing as badly as in the West, but for it to have a stronger position Mr Kyriakidis strongly believes the seven emirates must unite to form a stronger body. "It's time for the UAE to work together and market the country as a whole," he says. "I find that competition between airlines like Etihad and Emirates is less effective during this time. The emirates really have to start working together."
abakr@thenational.ae
Dubai hotels cut room rates as tourism industry hit by global downturn
Hotels in the emirate are involved in a price war as the tourism industry feels the pinch.
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