Lower tourism fees to boost UAE tourist numbers and increase operators’ revenues

Both Dubai and Abu Dhabi this week reduced fees to stimulate tourism growth

Abu Dhabi reduced the 6 per cent tourism fee currently applied to hotel rooms and outlets to 3.5 per cent, Courtesy Emirates Palace

The reduction of tourism fees in Dubai and Abu Dhabi will help stem a fall in room rates and boost occupancy levels as the UAE’s Dh150 billion hospitality sector attracts more local and regional tourists, analysts said.

“These measures will have a short-term positive impact for both owners and consumers. For the owners, there will be less expenses and, therefore, they will be able to provide a more competitive pricing for the consumer, which will stimulate the domestic and regional [tourist] markets,” said Filippo Sona, director of hotels Mena region at consultancy Colliers International.

Abu Dhabi reduced the 6 per cent tourism fee currently applied to hotel rooms and outlets to 3.5 per cent, halved municipality fees to 2 per cent, and lowered the per room per night hotel fee to Dh10 from Dh15. The emirate didn’t say how long these cuts will remain in place.

The UAE is undertaking a series of measures to propel growth, attract more foreign direct investment, lower the cost of doing business and create jobs.

Last week, Abu Dhabi announced a three-year Dh50 billion stimulus package accompanied by 10 initiatives that include creating at least 10,000 jobs for Emiratis.

"It's not clear yet if this is a long-term initiative, but in the short term we certainly expect the fee cut [in Abu Dhabi] to benefit the hotels in the form of stronger accommodation demand and more guests spending at their facilities," said Rashid Aboobacker, a director at TRI Consulting.

“The move may also help revive GCC leisure and domestic staycation demand, particularly considering the timing of the announcement as we are heading into the summer months, which is a low demand period for hotels.”

The UAE’s tourism industry, which contributed over Dh150bn to the gross domestic product or 4.6% of GDP in 2017, according to Knight Frank figures, is getting affected by over-capacity.

The industry ended 2017 with 767 hotels and more than 147,000 rooms, according to data provider STR Global. Last year, revenue per available room (RevPar) fell 3.3 per cent, the fourth consecutive year of declines due to lower average daily rates. ADRs are down by 20 per cent over the last four years.

According to STR estimates, there were over 38,000 rooms under construction, at the end of December. If all that inventory comes to the market within the next 24 months, average annual supply growth would exceed 13 per cent, putting further pressure on occupancy and ADR growth.

Occupancy in Abu Dhabi rose 2.7 per cent to 80 per cent in April, according to STR. However, ADR fell 3.3 per cent to Dh432.12 and RevPar dipped 0.7 per cent to Dh345.88.

Some analysts have argued that the governments should have made deeper cuts into the fees to attract more international tourists.

“We are basically less than two years away from Expo 2020, which will benefit both Abu Dhabi and Dubai, so they should have been more aggressive in cutting these fees,” said Mr Sona.

Separately, Dubai plans to slash the municipality fee on sales at hotels and hotel restaurants to 7 percent from 10 per cent. Dubai didn’t stay how long this measure will last.

“When VAT was initially implemented, many hotel operators felt that the move made Dubai less attractive in relation to other international destinations and in some cases certain demand segments were being priced out of the market,” said Ali Manzoor, a Dubai-based associate partner at Hospitality and Leisure at Knight Frank. “What this move succeeds in doing is reversing some of the incremental cost brought in at the beginning of the year, making Dubai slightly more affordable for price sensitive guests."