Dubai's swift turn to budget hotels draws new business

The global downturn in travel and the emirate's ambitious plans to increase its number of visitors have led to a rapid growth in budget hotels.

Ibis hotel in World trade centre in Dubai.

Emirates Airline's latest television advertisement follows an inquisitive British tourist around Dubai in a series of videos in which he visits various attractions and meets residents.

In one of these he wanders around the ramshackle shops of Satwa, one of the poorer, more rundown parts of the city, and eats at Ravi, a popular and affordable Pakistani restaurant. This is an area of Dubai that previous advertising campaigns ignored, opting instead to portray the emirate as an exclusive luxury destination that would appeal only to high-rolling visitors. But the combination of an economic crisis that has hammered global travel, Dubai's expanding range of hotels, an increase in flights and the emirate's ambitious goal of doubling visitor numbers to about 15 million a year by 2015 has led to a definite shift in how the city portrays itself as a destination.

There is a move towards budget and mid-scale hotels, which have been springing up in the city in the past two years. "It is trying to highlight Dubai as a place for all segments of the market," says Dr Ian Michael, a professor of marketing at Zayed University in Dubai. "It is interesting that it has moved away from highlighting Federer and Agassi playing tennis on top of the Burj Al Arab, and is moving away from all the glitz of the shopping centres to the common person on the Dubai street.

"There is movement in terms of the branding of Dubai away from only that luxury segment towards becoming more of a destination for the more middle-income traveller." After years of developing high-end luxury hotels, Dubai in the past 18 months has added new Holiday Inn Express hotels, budget Ibis properties and Premier Inns as the market has started to mature. These hotels are charging from about Dh250 (US$68) a room. Premier Inn, the UK hotel brand that operates properties in Dubai Investments Park and Dubai Silicon Oasis, this month announced it had cut room rates by 40 per cent, from Dh495 to Dh295, in response to market trends.

Inexpensive hotels planned to open in Dubai in the coming months include the region's first easyHotel in Jebel Ali. "We found in all our research that the problem four or five years ago with Dubai was it kept itself too high on that perception of luxury," says Dr Michael. "When we spoke to people who wanted an affordable holiday, we found they had this block that Dubai was equal to Burj Al Arab. People would tell us that they didn't even want to stop over at Dubai because it's terribly expensive."

The gap for cheaper hotels is now being filled. "There will generally be a push towards more mid-market developments," says Max Cooper, the executive vice president at Jones Lang LaSalle Hotels MENA. The French management company Accor has added about 1,400 Ibis rooms to the Dubai market in the past year and plans to open more next year. "The Ibis strategy is really price-driven, volume-driven," says Christophe Landais, the managing director of Accor Hospitality Middle East, meaning it offers exceptionally low prices to fill the hotel.

Mr Landais says this makes economy hotels profitable because they have lower fixed costs and are much cheaper to build. Five-star hotels have suffered as running costs have remained high, despite job cuts and other cost-saving measures, because they still have to offer exceptionally high standards of service and maintain five-star facilities even though room rates have fallen sharply in the past year.

New hotels, particularly in the mid-range segment, have forced established properties in Dubai to cut their rates to compete for guests, which has led to a 23.8 per cent fall in average daily rates to $155.36 from $234.74 in the first 10 months of this year, compared with the same period in previous years, figures from STR Global show. Occupancy levels have also dropped to 67.9 per cent from 78.1 per cent over that time.

Some hotels cut their rates by more than 50 per cent in the summer as part of special promotions. Emirates Airline, hotels and tourism authorities even teamed up to offer deals such as free flights, accommodation, meals and entry for children. Atlantis, The Palm, the flagship luxury hotel on Palm Jumeirah, was charging as little as Dh800 a night, which included free entry to the Aquaventure water park. But it has to be remembered that Dubai hotels were commanding exceptionally high rates compared with other destinations worldwide.

"I think the downturn in Dubai has forced hotels to rethink pricing and consider affordable accommodation," says Dr Michael. "Dubai has come back to reality. "For three or four years there was a massive hype all around the world about the destination and that would have contributed greatly to some sort of shortage over here." The tourist is the real winner, with market conditions pushing prices for a five-star weekend hotel break in Dubai in mid-January down to as little as £74 (Dh436) a night, Expedia's Hotels.com says. Naturally, interest from British tourists is picking up.

"With cheaper hotels and the Metro running, Dubai will become more affordable to the traveller who has a $100-a-day budget," Dr Michael says. "And I think only then can the tourism authorities say that their targets of 15 million tourists a year are attainable." @Email:[e-mail]