A winter without the Russian tourists

The rouble has dropped 38 per cent against the dollar since the beginning of June as oil prices reached a five-year low. That made foreign goods and travel abroad twice as expensive for those who are paid in roubles.

Russian-speaking clerks sit idle in the dozens of shops that line Dubai’s Deira fur market, waiting for someone to come in and look at the racks stuffed with mink, sable and ermine coats. This was supposed to be the busiest time of the year.

“We knew the storm was coming, but we didn’t realise how strong it would be,” said George, a shopkeeper who says sales have dropped by about 70 per cent this year. The store hasn’t sold any coats at the top price of US$100,000 after several were bought last year, he said.

The rouble has dropped 38 per cent against the dollar since the beginning of June as oil prices reached a five-year low. That made foreign goods and travel abroad twice as expensive for those who are paid in roubles.

Dubai’s economy grew at an estimated 4 per cent this year, the Department of Economic Development said this month. The IMF had projected growth of 5 per cent this year compared with 4.6 percent last year.

Russian visitors to Dubai typically surge towards the end of the year and into early January, when many take their longest holidays. The country’s economic turmoil deepened in December as oil slumped and the ruble’s drop accelerated.

Russian hotel guests in Dubai dropped by 16 per cent through the end of October compared with the same period a year ago, according to Issam Kazim, the chief executive of the Dubai Corporation for Tourism and Commerce Marketing.

Retailers in Dubai are feeling the decline. Spending by Russian tourists dropped by about 10 per cent this year, according to Nikola Kosutic, research manager at Euromonitor. Visitors from the country spent Dh3.3bn last year.

“They are big spenders. They buy luxury goods, which are significantly cheaper in the UAE than in Moscow or St Petersburg,” Mr Kosutic said. Some retailers “won’t feel a thing, while others will have a devastating decline in sales.”

Tourists account for as much as 35 per cent of all spending in Dubai and the decline in Russians has had an impact, said David Macadam, CEO at the International Council of Shopping Centers. Dubai has also witnessed a decline in spending by visitors from Saudi Arabia and Kuwait, he said.

The decrease in Russian tourists is coming as arrivals increase from China, Oman, India and the United Kingdom. The number of Chinese visitors climbed 25 per cent, while Indian and British tourists grew 10 per cent and 9 per cent respectively this year through October, according to the city’s tourism authority.

Russian property buyers have almost disappeared, stopped by the currency’s decline and international sanctions that make moving money abroad more difficult. Dubai developments such as Jumeirah Beach Residence and the Palm Jumeirah have long been popular with wealthy Russians looking for vacation homes, said Zhanna Yerkozhanova, a managing partner at Bebo Real Estate brokerage

“The middle and upper-middle segments collapsed completely” for travel companies, said Dennis Dolmatov, the business development director at Destinations of the World. “Companies working with charter flights and with large tour operators have had declines of 30 per cent or more. They are losing margins as well because they’re having to fight for each tourist.”

The number of Russian guests at Hyatt International, which has six hotels in the UAE including four in Dubai, has dropped by 15 per cent since August, said Tareq Daoud, the regional vice president of Middle East sales.

Russians were the sixth-biggest group of foreign homebuyers in Dubai in the year up to November after being fifth last year. Transactions totaled Dh2bn in the period, compared with Dh3bn for all of last year.

“When a significant chunk of the market is withdrawn, the impact will be felt and a lot of developers will have to rethink their projects,” said Craig Plumb, the head of Middle East research at the broker JLL. Even though demand from places such as China and West Africa has been growing, it will not make up for the loss of Russian buyers, he said.

The currency crisis has not deterred the high-end travelers, who are still eager to book Dubai’s luxury hotels with an average cost of $30,000 per booking, Mr Dolmatov said.

“The top five hotels in Jumeirah, like Burj Al Arab, are fully booked,” Mr Dolmatov said. “We have had to put some clients on waiting lists.”

Dubai’s tourism authority isn’t put off by the Russian slowdown. The city continues to invest in marketing in the country, which “remains a key source market for the long term,” Mr Kazim said.

“It’s a panicky situation because we don’t know what to compare it to,” Mr Dolmatov said. The global economic decline was expected after the mortgage crisis, but “the situation now is more fearful. Not only has the global economy not fully recovered, now there are political aspects related to the ruble and oil.”

* Bloomberg News

Published: December 24, 2014 04:00 AM

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