Dubai tourism sector to cool on oil slump

12 January 2015

Ahmed Ramdan, group CEO of the local hospitality consultancy Roya International, discusses the impact of falling oil prices on tourism in Dubai

For more than a decade, tourism has been one of the key sectors identified by Gulf governments when looking for opportunities to diversify their economies away from oil.

Dubai has led the way and has established itself as a leading regional and international tourism destination, and others are following its example. Local hospitality consultancy Roya International has played an important role in many of the projects that are driving the development of the tourism industry, and has grown to offer a range of services across the hospitality sector since it was founded in 1998.

Widening services

“Roya has gone a long way from where it started,” says Ahmed Ramdan, the firm’s group CEO. “Initially, we had two activities in hospitality, asset management and operator search. Then we moved into development of hotels, then consultancy, and from there we moved and grew to advising governments on tourism strategy. We then expanded into mergers and acquisitions, and the disposal of assets. Two years ago, we went further still and set up Roya Project Management, which project manages hospitality developments.”

Roya’s first big project was the Shangri-La hotel in Dubai, which opened in 2003. “We opened the Shangri-La on time and within the budget provided,” says Ramdan. “So I could say that is where we started. Then other jobs followed, such as the Sadiyaat Island masterplan, as well as masterplanning for Reem Island and Lulu Island, and negotiating with more than 25 hotel operators during our first five years.”

Today, Roya is active on some of the biggest hospitality schemes in the Gulf. “We have just finished the biggest Sheraton in Dubai, on Sheikh Zayed Road next to the H Hotel, which we are asset managing,” says Ramdan. “We are also doing one of two urban business hotels around Mall of the Emirates, which is in the design stage.”

Elsewhere in the UAE, the company is working in Ajman and Abu Dhabi. “We have just finished a [Starwood] Luxury Collection resort in Ajman; the St Regis in Abu Dhabi finished one year ago, but we are still involved; and we have been very busy at Doha airport, where we are working on two airside hotels,” says Ramdan.

Regional projects

Some of Roya’s largest projects are in Oman and Saudi Arabia. “In Oman, we are looking at two megaprojects,” says Ramdan. “One is an eco-resort for which the financing is being finalised. The other is a combination of residential and high-end residential - a 100-room hotel and 100 residences in the Musandam area - and we are in the design process with that project. In Saudi Arabia, we are busy in Mecca. We are asset managing two hotels and [on the search for operators] for about five hotels.”

The opportunities for work have improved significantly as the region rebounds from the 2008 financial crisis, and Roya has been well-placed to capitalise on the raft of projects. “We had signed all our contracts long-term, so the crash of 2008 did not affect us immediately,” says Ramdan. “For us, 2010 and 2011 was a very tough time, and at our own expense we kept all our talent. This paid off in 2013 and 2014; we had talent and people, so we enjoyed double-digit growth across all our activities.”

“I think there will be minor corrections in 2015 and 2016, but in 2017 it will pick up with 2020 [Expo] in Dubai and 2022 [World Cup] in Qatar. The oil war is creating a little bit of uncertainty that is fuelling the slowdown.”

One of the immediate challenges for the region, and in particular Dubai, is managing the impact of the declining numbers of Russian visitors. “We can see it in two areas,” says Ramdan. “First are the high payers who stayed in suites; those people disappeared or reduced dramatically. The second is these people also used to go to good restaurants, rent nice cars and go on safari trips, so the impact is not just on rooms. This started soon after the Ukrainian problem and trade was affected. Then [the fall in oil prices] sped up [the decline].”

Russian tourists

The concern is that as oil prices remain depressed, this short-term issue could become a medium-to-long-term challenge. “Will [Russian tourists] return here? Of course they will,” says Ramdan. “But today, the way it is going with oil prices, I don’t think it will be quick. It all depends on the embargo being lifted and oil prices going up; then we will get that market back.”

Falling crude prices are accentuating the excess supply of hotel rooms in Dubai. “Growth is there, but supply and demand are not matching each other at the moment; you will see supply is exceeding demand,” says Ramdan. “The way it is going, it is across the board; initially we thought it was only for five-star [properties], but now it is also the lower categories that we will see are oversupplied as too many [new properties] are completed over the coming two years.”

There are positives to the slowdown in Ramdan’s view, however. “Hopefully, it will give us a bit of a correction on average room rates because I think Dubai became a little bit too expensive in late 2013 and early 2014,” he says. “Hopefully, prices will become more acceptable and Dubai can easily compete.”

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