The global financial crisis has had a severe impact on the hotel industry worldwide as companies and individuals have cut back on their travel expenses. The Middle East, especially Dubai, has been no exception, as evidenced by a new report by STR Global which reveals that hotels in Dubai saw the biggest fall in revenue in the region in the first half of 2009.
Across the region, hotels in 22 cities witnessed an average 10.9 percent decrease in occupancies and a 17.2 percent drop in revenue per available room (RevPAR), the report added.
Media coverage 'unfair'
While it is true that the hotel industry in Dubai has experienced a slowdown in recent months, the situation is not as bad as the image that has been painted by the media, says Jeff Strachan.
'All we have been reading about for the last six months is the alleged bubble has burst and everyone wants to sit in a glass house and throw stones at Dubai,' he told AME Info. 'I think what is needed is a real perspective about where Dubai was and where it is now.'
Strachan argues that while the hotel industry in Dubai and the rest of the Middle East has indeed taken a blow, it is still very robust when compared to the rest of the world. 'If you look at the STR report, the average RevPAR in the Middle East was $131 in the first six months of 2009 whereas it was $159 in the same period last year.
The other regional market that is closest is the Caribbean at $109, and it has dropped from $152. So we're still sitting here with most buoyant RevPAR market on the planet,' he noted.
'Now if we break it down into cities, Beijing, which just finished the Olympics, has an average RevPAR of $43, whereas Dubai's is $176. Even New York's is just $144 compared to Dubai.'
In just a few years Dubai has gone from having 10,000 hotel rooms to 30,000 today, yet its occupancy level is just shy of 70 percent, he noted. 'This gives us a perspective of where we really are. We are knocking something that really shouldn't be knocked,' he said.
Part of the reason why Dubai may be getting such a bad rap is that its performance in 2008 was so extraordinary, with an average room rate of $333 and RevPar at $275. 'These figures were just astronomical,' Strachan contends.
Market share is key
With hotels across the globe struggling with revenue and occupancy, the name of the game now is market share, not profit, he said.
The belief that Major reputed hotels are not being affected during recession, is boosted by the fact that slowdowns tend to be especially difficult times for unbranded hotels. 'If you are an unbranded hotel, it's difficult to buy your way up. For example, it's difficult to buy your way onto the global distribution, and branded hotels appear higher on search engines. The branded hotels have much more strength in those areas,' he said.
'It's a very competitive environment at the moment. You can sit and be a spectator for only so long; sooner or later you will be dragged into the game,' Strachan said.
'You don't want to be the first one to go in and lead the way in rate slashing, because all that will happen is the market will be repositioned at that level and everyone will reposition around that.'
'Obviously if three or four of our competitors decide they are going to start selling at a certain rate, we will position ourselves around that somewhere or we will lose share. You need to understand where your hotel sits in that competitive environment and price yourself appropriately.'
'We haven't had anyone come to us to withdraw any projects from the pipeline,' he said. 'You don't build hotels for two or three years. You build them for hundreds of years. Markets will always go through up and down cycles; this is one of those cycles.'
Future looks bright
Hotel Market is upbeat about the remainder of the year in Dubai, especially the last quarter. 'The general outlook in terms of occupancies is positive. There are a lot of demand generators that are looking buoyant in the last quarter of this year, with the big exhibitions, the Air Show, the Race to Dubai, even the overflow from the Grand Prix in Abu Dhabi,' he said.
'On top of that, the movement of Ramadan is going to cause a lot of compression in October and November, because people who want to do meetings in September will need to move everything back later. So we really have two months of the year left for all of the normal business environment which happens.'
One reason why the hotel industry in Dubai will remain strong is the quality that it offers, he argues. 'Compare Dubai hotels to ones in London, New York or Tokyo, where you are looking at rooms that are 25 square metres in size on average. In Dubai you are up to 45-50 square metre rooms with balconies and beautiful views. The quality of accommodation is unmatched anywhere in the world,' he noted.
Despite the challenges that Dubai faces at the moment, the outlook for the hotel industry in the emirate is bright because the market has been built on a solid foundation.
'The region as a whole is at the bottom of a continued growth cycle. Cities such as Dubai, Abu Dhabi, Doha are now centres of business, which they were not ten years ago. And that by itself is causing movement of traffic throughout the region,' he said.
