Dubai hotels face hit as European travellers cut back (page 1 of 2)

The financial downturn is dampening tourism throughout the world, and Dubai is no exception.

The International Air Travel Association (IATA) reported that global air traffic suffered a 2.9% decline in September, which represented the worst month to month drop since the Sars crisis in 2003.

The bad news for the travel industry is that this decline occurred before some of the more dramatic events in the financial crisis took place.

IATA spokesman Anthony Concil describes the global situation as 'desperate', and said people are not travelling because of the combination of the credit crunch and the loss of consumer confidence.

World's costliest rooms

Dubai faces a number of challenges as it tries to attract visitors during the financial crisis, not the least of which is the price of its hotels.

The emirate ranked highest globally in terms of average room rate in October, with an average of $375 during the month, according to a report by STR Global. The next highest cities were New York at $311 and Paris at $250.

Despite such high rates, Dubai hotels were able to achieve 82.8% occupancy levels in October, but those numbers are likely to trend downward, said Alex Kyriakidis, Global Managing Partner of Tourism, Hospitality & Leisure at Deloitte.

He said a number of factors are going to negatively impact tourism to Dubai, starting with the financial crisis. 'In the major feeder markets to Dubai, meaning the UK and many other European countries, you have travellers suffering from significant pressures on their spending and also the impact of falling house prices and concerns over that whole issue.

'On average there is expected to be a continued drop in house prices in the UK and elsewhere Europe anywhere from a further 10% to 30%, and that is going to push a lot of people into fairly difficult economic territory.

'Another factor you have is job losses and weakening economies, all of that leading to consumers beginning to cut back and looking for more value for money for their tourism spend. And that goes for leisure as well as business travel,' he noted.

Exchange rate bites

However, Kyriakidis says the one factor that may have the most dramatic impact on tourism from Europe to Dubai is the exchange rate.

'In the space of the past three months the euro and sterling have depreciated against the dollar by 20%-25%. Since Dubai's currency is pegged against the dollar that means that hotel rooms overnight have almost become 20%-25% more expensive for that consumer set.'

The falling exchange rate will not take its toll on Dubai's tourism until after the Christmas/New Year period, because much of the travel for the holiday period has already been per-booked in advance of the global financial meltdown. 'However, from mid-January onwards we are going to start feeling the pain of that more costly room product. That price increase will be a significant issue for many leisure and business travellers.'

With travellers becoming more price conscious and looking for more value for their money, Dubai hotels will face greater pressure to soften their rates as there are relatively few rooms available in the emirate in the mid-market and economy category.

Dubai will also find it increasingly difficult to compete with destinations such as Turkey and Egypt which have economies that are not pegged to the dollar and where room rates are much cheaper, he noted.

With Dubai's real estate market in near free fall, the emirate can ill afford to see a decline in tourism, which accounts for about 30% of Dubai's gross domestic product.