Dubai tourism faces challenges in 2009

Dubai faces a number of challenges as it seeks to attract visitors to the emirate in the wake of the credit crunch.

One of the more glaring factors weighing on Dubai's tourism industry is the cost 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.

Despite such high rates, Dubai hotels were able to achieve 82.8% occupancy levels in October, but those numbers are likely to trend downward, analysts say. To lure travellers some hotels in the emirate have begun offering special packages and discounts of 30% or more.

The decline of the euro and the pound against the dollar is also putting pressure on Dubai's tourism. '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,' according to Alex Kyriakidis, Global Managing Partner of Tourism, Hospitality & Leisure at Deloitte.

Combined with the fact that many travellers in the major feeder markets to Dubai, meaning the UK and many other European countries, are suffering from significant pressures on their spending due to weakening economies and the prospect of job losses, the outlook for leisure travel to Dubai does not look rosy in the short term.

Corporate travel slows

Travel experts in Dubai say it is hard to determine if there has been a decline in corporate travel in the wake of the credit crunch, partly because business travel typically slows down this time of year.

However, there appears to be a consensus that corporate travel will slow in the first quarter of next year.

Bill Horsley, general manager of Al-Futtaim Travel in Dubai, predicts that many companies will begin to adopt 'essential travel only' policies, and instruct their employees to fly economy rather than business class.

And although companies may continue to keep travelling throughout the Middle East, there are likely to be cut backs on corporate travel to Europe.

One result of declining occupancy is that hotels may start to go after certain segments that they traditionally may not have targeted, said Jeff Strachan, Marriott International area director of sales and marketing Middle East & Africa. For example, beach hotels which have seen a decline in leisure travellers may begin to target the corporate travel market.

Dubailand faces setbacks

Tourism in the emirate was expected to get a major boost from Dubailand, but the $64bn project has been beset by delays and it appears that the scope of the development has been curtailed.

Launched in 2003, the development was to consist of 45 mega projects and 200 subprojects, but in many cases initial work on these projects has yet to begin. One of the main reasons cited as to why Dubailand has fallen behind schedule is that that the development has been slow to complete its basic roads and infrastructure.

Another blow to Dubailand has been the global credit crisis, which has raised questions about how these projects will be financed. One project that has reportedly been delayed due to the credit crunch is Asia Asia, a 6,500-room hotel that is to be the largest in the world, and the centrepiece of the Bawadi development in Dubailand.

With so much at stake, Dubailand is taking steps to deliver a critical mass of projects in as short a timeframe as possible to help give the development some momentum and create a buzz about the project. It is reported that Dubailand has taken over control of some of the projects that have fallen behind schedule and will build the parks themselves.

Despite the delays that have plagued Dubailand, there is optimism that the development will be a success. And even if Dubailand is scaled back, it is still realistic that Dubai will hit its target of 15 million tourists a year by 2015, said Claude Attala, Managing Director, Business Development, NorthCourse, Middle East.

The emirate has a number of other big attractions that have either already been built or on the way, including Atlantis and the QE2. He points out that Las Vegas attracts 44 million tourists a year, but only 30% of these visitors go there to gamble. The remaining 70% of tourists are family visitors. One must also not forget that more than 300 million people live near Dubai, so there is a 'captive audience' says Attala.