Hotels brace for euro crisis fallout

Dubai hoteliers fear improving occupancy levels could face a major reversal this year as a currency slide forces bargain-seeking euro zone tourists to stay at home.

Lights shine on The Monarch Dubai's exterior at night.
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Dubai hoteliers fear improving occupancy levels could face a major reversal this year as a currency slide forces bargain-seeking euro zone tourists to stay at home. The euro fell to a 14-month low against the US dollar last week as the fallout from the Greek financial crisis extended throughout the largest source market for tourists visiting the Emirates. That means using euros to buy dirhams, which are pegged to the US dollar, has become more expensive.

"Hotels in Dubai are counting on business from Europe this summer due to an early Ramadan this year," said Arshad Hussain, the director of business development at The Monarch Dubai. "With a weak euro on the horizon, Dubai might lose business to Europe as clients will find deals more attractive in the euro zone," he said. "Destinations such as Paris, Vienna and Rome will win business away from Dubai. Hotel rates in Dubai are already at all-time low, and the falling euro rate will not help Dubai hotels."

Greece's recession-hit economy is struggling under almost US$300 billion (Dh1.1 trillion) of debt. Concerns over whether the country will be able to meet its debt obligations and fears that the credit crisis will spread through Europe have put the single currency under pressure. There are also fears that the British pound, which came under pressure after the inconclusive UK election, could fall further because a hung parliament there could hinder action to tackle the country's budget deficit. The UK is Dubai's main source of tourists.

Mr Hussain said his hotel was increasingly looking to markets such as China and India to find new business and reduce its dependence on Europe and minimise the impact of currency swings. Occupancy levels in Dubai hotels have improved greatly this year, with more competitive prices attracting more tourists, hoteliers say. Average room rates fell 3.2 per cent in March to $257.22 compared with March last year, while occupancy levels rose 7.8 per cent to 79 per cent for the same period, according to data from the London-based research company STR Global.

Tour operators also voiced concerns, but some in the tourism industry were confident that Dubai's deals would keep drawing business to the emirate. Others said many tourists would reduce their length of stay at a particular destination rather than choose a cheaper location for their holiday. "Definitely the fluctuations of the currencies around the world affect the tourism and the travel industry in general, not only for Dubai as a destination," said Samir Hamadeh, the director of sales and marketing at Alpha Tours in Dubai. "For example, the drop of the pound affected UK travel massively and this came along with the financial crisis. So definitely the drop of the euro is affecting travel in general."

But, he said, the aggressive promotions that Dubai had started as the tourism sector was hit hard by the financial crisis would help attract travellers to the emirate. He added that the industry had put much more effort into attracting tourists from the GCC after the financial crisis. The discounts, which in some cases were up to 50 per cent off peak prices, would more than counteract any change in the currency, he said.

"We have to look to alternative markets at times when we have problems with the currencies," Mr Hamadeh said. For example, he said, Alpha Tours was increasingly seeking business from markets such as South America and China. But the hospitality industry is nonetheless aware of the possibility that currency fluctuations could cause problems. "We have to be very careful because [the slide in the euro] could cut off our main feeder markets," said Guy Epsom, the director of business development at Moevenpick Hotels and Resorts, which is planning to open three hotels in Dubai this year.

Abu Dhabi hotels have already experienced sharp falls in occupancy levels and rates this year because of an increase in the supply of hotel rooms. A slide in the euro seemed to be the least of hoteliers' concerns. "We haven't taken that into consideration," said Torbjorn Bodin, the general manager at the Radisson Blu Hotel on Yas Island.