A phenomenal success, but with more to do

12/29/2005

Tourism has been one of the most talked-about success stories in the UAE's 34-year history as the country looks forward to another promising year. Yet, there remains wonderful additional potential in this area to attract Western tourists with new and creative products, not least utilising the natural advantages of sun, sand and sea.

Dubai leads the way, having made amazing strides in turning a vast desert landscape into an oasis of attraction.

The emirate's success is demonstrated by the demand for hotel rooms outpacing supply owing to the high influx of international arrivals.

Its tourism industry last year served more than 5.42 million hotel guests, representing perhaps the highest per capita tourism ratio for a city of just over a million inhabitants.

Dubai has an impressive number of 383 hotels and hotel apartments with a total room capacity of 35,396 in 2005, an increase of 5.9 per cent from 2004.

The director-general of the Department of Tourism and Commerce Marketing (DTCM), Khalid Bin Sulayem, has explained the positive trend: "The excellent figures recorded by Dubai hotel and hotel apartments ... is a reflection of DTCM's aggressive promotional campaign to position Dubai as the world's leading tourism and retail hub. It is also the fruit of an inspirational public-private sector partnership and government's unwavering determination to be a model business and leisure destination."

A further boost to the industry has come from the gradual opening up of the economy through phased reforms. Ongoing negotiations with the United States on a free trade agreement (FTA) show the UAE's willingness to play an active role in the globalised economy.

However, growth has been severely imbalanced, with Dubai dominating in almost all aspects.

Dubai's tourism industry recorded a 37 per cent growth in revenue that generated Dh6.2 billion in 2004, at a time when hotel inventory grew only by 2.3 per cent, pushing the average occupancy by 8.7 per cent to 81 per cent and room rates much higher.

Travel and tourism in the UAE is expected to generate Dh76.2 billion ($20.74 billion) in total revenue in 2005, growing to Dh123.6 billion ($33.65 billion) by 2015, according to the World Travel and Tourism Council (WTTC).

In real terms that translates to 2.4 per cent growth in 2005 and 2.9 per cent between 2006 and 2015.

But, despite its successes, the tourism industry is not without its challenges and dangers.

The high demand and relatively lower supply in additional hotel capacity is driving hotel rates higher. This trend is set to continue.

"Average hotel price is going up due to strong demand and lack of adequate supply, and harming Dubai as it is becoming a 'rich man's destination'," Gassan Aridi, chief executive of Alpha Tours, said recently.

The average room rate for a five-star hotel varies from $250 (Dh918.28) to $350 (Dh1,285.59) per night. Some hotels charge more. Even summer rates average between $175 to $250 per night much higher than any comparable cities.

"Lots of tourist perceive Dubai as expensive. The emirate need speedy supply of new rooms to be able to bring down the average price," Aridi said.

Impact

"At this rate, Dubai will lose budget travellers to neighbouring states, where accommodation is much cheaper," he said.

As a close alternative, Sharjah has reported a strong growth in tourism intake in recent years.

Market segmentation has to be recognised too. "Demand for budget and business hotels is stronger than luxury five-star ones," Selim Al Zyr, president and chief executive of Rotana, said.

"If Dubai has to cater to 15 million tourists by 2010, it needs to have more than 60,000 hotel rooms and all of them can't be five- or four-star rated. We need more business and budget hotels."

According to industry sources, Dubai needs 45,000 additional rooms in the next five years to cope with the expected tourism boom, while 72,000 hotel rooms, involving Dh39.63 billion ($10.8 billion) in direct investment, are coming online between 2005-12 in the Gulf region.

The latest DTCM data show 41 confirmed developments coming online between 2005 and 2008 in Dubai, as announced by public and private developers.

Such growth forecasts indicate the size of opportunities within the next ten years.

However, the country needs to undertake a number of initiatives in order to structure the tourism industry's growth.

The UAE could maximise its output in this sector by undertaking a number of steps, including formulating a national tourism policy, putting a national tourism accounting system in place, setting up a federal tourism authority, and by strengthening coordination among tourism development across the seven emirates, to name a few.

Further relaxation of entry permits and border controls would accelerate travel within the six-nation GCC (Gulf Cooperation Council) and would create more opportunities for investors.

Besides, creating new attractions through world-class events like the Dubai Shopping Festival, Dubai Summer Surprises, Sharjah Ramadan Festival, etc. would bring in more tourists and strengthen the UAE as a year-round tourism destination.

In review, the growing success of the tourism sector has been driven by the emirate of Dubai through its open-door and liberal policy, backed by astute public relations skills. However, the rest of the country has been much less prominent, and is likely to remain so unless action is taken.

The outlook for the UAE's tourism industry remains strong in the short and medium terms. However, the only way the country can enhance its present success is by expanding infrastructure and adding capacity and attractions for foreign visitors.

Its success in the long term depends on how the country tackles the challenge.

HOTELS
Well occupied and expensive

Total demand for UAE tourism services represents 0.3 per cent of the world market, according to the World Travel and Tourism Council (WTTC).

The direct and indirect impacts in 2005 are expected to have accounted for 12.5 per cent of GDP and 183,576 jobs (12.4 per cent of total employment). By 2015, the figure may reach 204,520 jobs, 12.3 per cent of total.

Among a list of 174 countries, WTTC ranked the UAE's tourism sector 41st worldwide in terms of absolute size, 65th in relative contribution to national economies, and 161st in long-term growth.

Dubai's hotels showed a 42.8 per cent increase in average hotel daily room rates between September 2004 and September 2005, according to a recent report by Deloitte and Smith Travel Research.

Dubai's hotels have become the second most expensive in the world after Paris. The average daily room rate was $204 (Paris at $231), while New York was third with $197.

Dubai's fast-expanding portfolio of hotels and hotel apartments reported the highest occupancy rate, 85.9 per cent, in January-September 2005.

Dubai hotels and hotel apartments were also ranked first in the world in terms of revenue per available room, followed by New York and Paris.