Growth slows in Dubai tourism market

20 April 2015

The strengthening dollar is making the emirate a more expensive travel destination, potentially jeopardising its plan to reach 20 million visitors by 2020

The rate of growth in Dubai’s tourism market is slowing, putting in jeopardy the emirate’s plans for visitor numbers to reach 20 million by 2020.

After increasing by 9 per cent in 2010, 10 per cent in 2011 and 12 per cent in 2012, the rise in visitor numbers was 8 per cent in 2013 and just 5.6 per cent in 2014. Last year, Dubai’s hotel sector accommodated 11.6 million guests.

Continuing at the current growth rate of about 6 per cent a year, it would take until 2023/24 to reach the 20 million target. Visitor numbers need to be growing by 9 per cent a year for Dubai to succeed in its aims.

Strengthening dollar

The slowdown can be attributed to two main factors: the strengthening dollar and a fall in the number of Russian visitors. The stronger dollar, to which the UAE dirham is pegged, is making Dubai a more expensive destination, which is deterring potential tourists, particularly those from the eurozone, from visiting the emirate. The number of tourists from Russia has also dropped significantly as recession there eats into disposable incomes.

The number of tourists from Russia has dropped significantly as recession there eats into disposable incomes

The Russian currency has lost more than a third of its worth against the dollar since September as a result of sanctions imposed on Moscow because of its interference in Ukraine, and the collapse in oil prices. In 2013, Russians made up 3.7 per cent of hotel guests in Dubai, or 403,990. In the 10 months to October 2014, the number of Russian visitors dropped 15.6 per cent year-on-year.

Key fact

The strong growth in visitor numbers seen in 2010-12 in Dubai was due to discounted room rates

Source: MEED

Successful marketing initiatives by Dubai Tourism & Commerce Marketing (DTCM) have helped to compensate to some extent, bolstering visitor numbers in recent years. In particular, efforts to promote the emirate to the Chinese outbound tourism market have borne fruit, with a 24.9 per cent leap in visitors in 2014, to 344,329. This followed an 11 per cent rise the previous year.

China is now the seventh-biggest tourist source market for Dubai, up from 10th in 2013. The other largest markets in order of importance are Saudi Arabia, India, the UK, the US, Iran and Oman.

New properties

The slower pace of visitor growth will be a concern for the hotel industry, as it comes at a time when dozens of new properties are entering the market – 46 last year alone. At the start of 2014, the emirate had 84,534 hotel and hotel apartment rooms across 611 properties; by the end of the year this had increased to 92,333 rooms across 657 properties.

According to DTCM, the revenues earned by Dubai’s hoteliers and hotel apartment operators totalled AED23.9bn in 2014, up a healthy 9.8 per cent year-on-year, especially considering the 9.2 per cent increase in room supply. But the rate of growth is also slowing, and is significantly less than the 16-20 per cent increases seen each year in 2011-13.

Unless Dubai becomes a more affordable destination, it is hard to see where the growth will come from

Key sector indicators are also coming under pressure, with the UK’s EY reporting in its Middle East Hotel Benchmark Survey average occupancy rates of 79.7 per cent for 2014, compared with 82 per cent in 2013. While room rates largely held up last year, analysts have reported a weakening performance in the first two months of 2015, with decreases of up to 10 per cent in average daily rates. With the US’ JLL estimating another 3,600 keys scheduled for delivery over the next nine months and plans to double hotel stock by 2020 from 2012 levels, room rates are expected to continue to fall as supply outpaces demand growth.

Broadening appeal

To achieve the growth rates required and to absorb the new hotel stock, DTCM will need to continue to broaden Dubai’s appeal to new audiences, and encourage repeat visitors.

In many ways, however, the emirate is already a mature market as it is predominantly a high-end beach resort and entertainment destination, which does not suit everyone’s tastes. It is also one of the most expensive cities in the world in terms of hotel accommodation and food and beverage costs, which limits its potential pool of visitors.

It is worth noting the strong growth in visitor numbers seen in 2010-12 came amid significant discounting of room rates by hoteliers as they competed to win business during the global financial crisis. Unless Dubai becomes a more affordable destination, it is hard to see where the growth will come from.

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