After earning a reputation as a 'luxury only' destination for the rich, Dubai's hotel industry is increasingly offering more lower-cost offerings in the wake of the economic crisis.
With some of the most glamorous - and expensive - hotels in the world, Dubai has proudly touted its image as a travel hotspot that caters primarily to wealthy jet-setters from across the world.
However, the emirate is beginning to realize that in order to attract more tourists it needs to diversify its offerings to appeal to a wider scope of travellers, especially in light of the financial downturn.
Dubai has set ambitious targets of attracting 15 million tourists a year by 2015, but analysts have been saying for years that this figure will be hard to attain without more budget and mid-level hotels on offer, said John Podaras.
It is hard to say what percentage of hotels in Dubai are in the low to mid-budget category because there are a lot of unbranded hotels in the older parts of town such as Deira, he noted.
However, most experts agree that Dubai has a disproportionately low number of these types of hotels on offer, especially given the fact that tourists are tightening their belts.
'During the Dubai Shopping Festival, hotels should be getting occupancy in the 90s, but we are hearing is that it is in the mid-70s,' Podaras said.
'And what all of them saying is that guests are booking at the last minute rather than months in advance, which is a worrisome trend,' he said.
The beach hotels in particular are really facing intense competition due to the arrival of Atlantis, which brought a huge number of rooms, and the fact that leisure travel is down. Still, it appears that many hotels are resisting offering major discounts, and instead are trying to lure customers with offers of free room nights with a 2-night stay or other packages.
'I sense there are very few hotels, at least along Sheikh Zayed road, that are cutting rates willy nilly just to get people through the door. It's still too early to get into that mode,' Podaras said.
Growth opportunity
Dubai's high room rates are creating an opportunity for budget hotels in the emirate, and major hotel operators are eyeing a share of this potential market.
Some believes limited-service hotels are a burgeoning new segment in Dubai and the region in general. 'Many travellers are not looking for the full-service experience and simply want a clean fresh room that they can retire to at the end of a long day, and that is what limited-service hotels bring,' says John Bamsey. 'We will see many tourists leaning to limited service hotels as a value for money option.'
Bamsey cites the emergence of low-cost carriers such as Al Jazeera and Air Arabia as one factor that is helping to attract budget-conscious travellers to Dubai.
'Our research has shown that the Middle East market has a gap for high-quality, internationally branded hotels which place an emphasis on quality at great value for money.
'By establishing our limited service brand Holiday Inn Express in the region, we are meeting that need, catering to travellers looking for comfort and convenience at a great price,' he said.
Competition increases
One manager of a three-star property in Dubai says he has seen a significant rise in the number of budget properties in the emirate since his hotel opened three years ago. 'There have been at least half a dozen mid-market direct competitors from the international chains along with other independent hotels,' says Mark Lee.
Dubai has recognized that its hotel offerings are weighted to the high end, Lee noted, and he believes there is 'no doubt' that there will be an ever-increasing amount of mid-market hotels opening up in the coming years in line with the emirate's ambitious expansion plans.
However, success for these new hotels will not come easily due to increased competition and the fallout from the financial crisis. 'There is no doubt that business levels have dropped year-on-year due to the current situation.
'We are using this to review all aspects of our business and we are working even harder in terms of sales marketing yield management value for money in order to ensure that we weather the storm better than our competitors,' Lee said.
Geographic location will become increasingly important in this challenging environment, and hotels with a prime location will still be able to be more price resistant. 'However, the trouble with Dubai is you could be in a fantastic location now but maybe in three years time maybe you might not be because its infrastructure changes so much,' Lee noted.
Lee said his hotel has had to be more creative and think even more outside the box in the current financial climate. To help lure guests, some hotels are offering a special during the Dubai Shopping Festival in which guests will receive a one hundred dirham voucher for every night they stay at the hotel to spend at over a dozen restaurants at nearby Wafi.
'Dubai has been riding a crest of a wave for the last 5-6 years and had it relatively easy, but now we have to roll up our sleeves and work harder to win the business. Yes it's very challenging but not necessarily a complete disaster because it makes us all better, which ultimately should help Dubai in the long run,' Lee said.
