Regional low-cost tourism sector offers rewards

Just as tourists worldwide are planning budget summer holidays in response to the difficult global economic climate, so the world’s leading hotel companies are responding with plans to increase the number of budget hotels they own or manage.

The Gulf’s budget hotel industry was, until five years ago, small and dominated by family-owned accommodation. This has steadily changed as groups including Accor, Intercon-tinental Hotels Group (IHG) and Rotana have all announced plans to launch their budget brands in the region.

The steady evolution of the region’s budget hotel sector is speeding up. Accor in particular has been investing heavily in this part of the market. In March, the Ibis al-Barsha opened in Dubai, the third of 19 Ibis hotels planned for the Gulf. The UK’s IHG opened its third Holiday Inn Express, the company’s budget brand, in Dubai in November last year, with a stated goal of becoming the leading provider of quality affordable accommodation in the region.

Of the Arab hotel companies, Abu Dhabi-headquartered Rotana has responded to the global brands’ investment in three-star budget hotels with the launch of its Centro brand in 2005. The company plans to open 25 Centro properties across the Middle East by 2014.

As the cost of construction drops in the Gulf - project costs are down by as much as 30 per cent in the UAE - the attraction of building budget hotels for the region increases. Three-star hotels in Dubai typically record earnings before interest, tax, depreciation and amortisation margins of up to 55 per cent thanks to lower operating costs, compared with European city averages of 10 per cent.

The historical undersupply of budget hotels in the Gulf, coupled with the attractive margins being recorded, make investment in non-luxury hotels in the region an attractive one in the current, budget-focused tourism industry.