Dubai hotels operating to tight margins as occupancy levels dip

Hotels in Dubai barely managed to cover their operational costs in July, while those in Abu Dhabi made a loss when occupancy levels dipped to a record low.

Dubai’s plush hotels may command room rates of hundreds of dollars, but margins can be tight during some periods as the latest data from the booming sector reveals.

Hotels in the emirate barely managed to cover their operational costs in July, while those in Abu Dhabi made a loss when occupancy levels dipped to a record low and sales from food and beverages came to a halt during Ramadan hours.

The gross operating profit per available room that month was just seven cents in Dubai, according to Hotstats data from Dubai research company TRI Middle East. Abu Dhabi hotels made a loss of US$12.44.

The good news for the hotel sector is that the July performance does not reflect strong demand in both markets for the rest of the year.

Going into the peak season towards the end of the year, overall markets in both cities remain strong, the consultancy said.

The occupancy rate in Dubai and Abu Dhabi was 50.3 per cent for July, the lowest in the year.

“Lower occupancy is considered to be the primary reason for the lower profitability due to its direct impact on the revenues while the fixed costs remained unchanged, affecting the bottom line,” said Rashid Aboobacker, a senior consultant with TRI Middle East.

Dubai is one of the most expensive cities in the region to operate a hotel and had the highest payroll per available room in July. The payroll per available room in Dubai was $96.7 whereas in Doha, the next costliest city in the Arabian Gulf, it was $74.3, and $69.3 in Abu Dhabi.

The gross operating profit per available room for Dubai in July last year was $6.3 when the occupancy level was 54.6 per cent.

Generally, Dubai is among the top profitable cities in the world, ahead of European destinations such as Amsterdam and London. The average profit was US$184.35 last year, according to research company STR Global, behind only Paris and Hong Kong. In Abu Dhabi, the profit figure was $74.22, roughly on par with Amsterdam.

“The adverse effect of the growing competition is considered to have partly contributed to the drop in performance,” said Mr Aboobacker.

Dubai now has 88,680 rooms from 634 hotels and hotel apartments, adding 7,000 hotel rooms since end of July last year, according to Dubai’s Department of Tourism and Commerce Marketing.

There has been a rise in the supply of hotel rooms within the region, and that has also affected the low season occupancies.

“Occupancy levels have only changed for us during the season of Ramadan, possibly due to the increase in the number of rooms available in Dubai but we have also noticed trends where travel to some surrounding destinations have increased such as to areas like Salalah and Muscat, Jordan and Egypt,” said Enad Tannous, the general manager at Amwaj Rotana at Jumeirah Beach Residence.

The Dubai hotel market, however, remains strong with year to-date occupancy levels at 79.4 per cent and profit margins at 46.4 per cent, according to HotStats.

In Abu Dhabi, where room rates had decreased since August 2011 there is a reverse trend with the prices rising over the past five months with rising demand from regional visitors, the consultancy said.

The upwards trend is expected to continue into the peak season towards the end of the year.

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