On 9-10 April 2013, Abu Dhabi will play host to the World Travel and Tourism Council’s Global Summit. That the annual gathering of thousands of industry leaders is to be staged in the capital of the UAE is a reflection of the emirate’s ambition to become a high-profile tourism destination.
The influx of delegates will also provide an important lift to the hospitality sector, which has been suffering in recent years due to a glut of new supply coming into the market. Average hotel occupancy rates slumped to 65 per cent in 2012, from more than 80 per cent in 2008, according to Abu Dhabi Tourism & Culture Authority.
The final quarter of 2012 alone saw the opening of the Ibis Abu Dhabi Gate, the Novotel Abu Dhabi Gate, the Centro Capital Centre by Rotana and the Al-Raha Beach hotel extension. Combined, they added more than 1,000 rooms to the market.
In total, real estate consultancy Jones Lang LaSalle estimates 1,700 branded hotel rooms entered the market last year, while TRI Hospitality estimates that across the market as a whole 3,809 new rooms came on stream.
“The supply pipeline in Abu Dhabi hasn’t allowed time for growth in demand,” says Gabriel Matar, head of hotels for the Middle East and Africa, Jones Lang LaSalle. “There has been growth, but it hasn’t been enough to compensate for the huge supply that has entered the market in the past three or four years.”
A huge amount of new [room] supply [has come to] market … the more there is, the tougher it gets to fill properties
Konstanze Auernheimer, STR Global
The oversupply of hotel stock has inevitably pushed down room rates as properties fight to win custom. Abu Dhabi Tourism & Culture Authority says the average room rate fell 8 per cent to AED452.90 ($123) last year. In particular, analysts say competition has been fierce between the new high-end properties to book weekend leisure business and corporate deals.
“Abu Dhabi is very much focused on corporate demand and there has been quite a large influx of rooms into the market and that has created a lot of options for corporates,” says Christopher Hewett, senior consultant at TRI Hospitality Consulting in Dubai. “Some of the new hotels have tried to undercut other hotels to get that demand and companies have been enjoying this as they can play hotels off against one another when it comes to securing a large parcel of business.”
Despite the negative headline figures, the Abu Dhabi tourism sector performed strongly in 2012, continuing the growth trajectory of recent years. The emirate saw a 13 per cent rise in visitor numbers, according to Abu Dhabi Tourism & Culture Authority, reaching a record 2.39 million hotel guests. The combined revenues for the hotel sector totalled AED4.6bn, up 6 per cent on 2011, with food and beverage sales contributing AED1.8bn, an increase of 12 per cent on 2011.
The UK remained the largest source market, accounting for 140,393 hotel guests, or nearly 6 per cent of the total, followed by India and Germany.
“Since 2009, Abu Dhabi has seen a huge amount of new supply coming into the market and the more room stock there is, the tougher it gets to fill the properties,” says Konstanze Auernheimer, director of analysis at hospitality industry tracker STR Global. “The good news is the number of occupied rooms is also up. You have more people coming, although at the moment the room stock is increasing at a faster rate.”
The rising visitor numbers are primarily the result of the continued expansion of the emirate’s airline. In 2012, Etihad Airways saw its passenger numbers break 10 million for the first time, while profits leapt 200 per cent to $42m. The airline, which was launched in 2003, now operates 70 aircraft, serves 86 passenger and cargo destinations, and provides access to 248 codeshare destinations. In 2006, Etihad carried just 2.8 million passengers.
Etihad’s growth has come through route expansion and its partnerships with other airlines. Over the past year and a half, the carrier has bought stakes in Air Berlin, Air Seychelles, Aer Lingus and Virgin Australia. In 2012, Etihad launched new flights to Tripoli, Shanghai, Nairobi, Lagos, Ahmedabad and Basra, in addition to increased frequencies on other routes.
|Etihad Airways in numbers|
|Net profit ($m)||14||42|
|Seat factor (percentage)||75.8||78.2|
|Number of aircraft||64||70|
|Number of employees||9,038||10,656|
|Source: Etihad Airways|
Visitor flows to Abu Dhabi reflect the growth of Etihad and the higher numbers passing through the airport in general, with the largest increase in 2012 seen in arrivals from Africa. The one-third rise in hotel guests from Africa was directly attributed to Etihad buying a 40 per cent stake in Air Seychelles in January 2012. Last year, 14.7 million passengers passed through Abu Dhabi International, up 19 per cent on 2011. The launch of services between Rome and Abu Dhabi by Alitalia was also said to have contributed to a 22 per cent rise in Italian hotel guests last year.
This year, Abu Dhabi is hoping to reach a target of 2.5 million hotel guests. Much of the growth is expected to come through the new destinations Etihad will add in 2013: Washington; Amsterdam; Sao Paulo; and Ho Chi Minh City.
“Etihad’s growth and its introduction of new airline routes is building the profile of Abu Dhabi and bringing the city to the attention of new markets and to new audiences,” says a spokesperson from Hilton Worldwide, which operates one hotel in Abu Dhabi that opened in 1973 and was one of the first in the emirate. “Oversupply is an issue in every developing city, especially one with strong business and political capital as Abu Dhabi. But as with any glut, there will be a plateau and the city’s hotels will really have to prove their mettle in service and product to keep their guests’ custom.”
Tough year ahead
Despite the strengthening fundamentals of Abu Dhabi’s tourism sector, the year ahead will be another difficult one for the emirate’s hospitality industry. Analysts expect occupancy and room rates to remain under pressure as more hotels open. Some big-name launches in 2013 include the 447-room Ritz Carlton, the 228-room St Regis on the corniche and the 190-room Rosewood hotel at Sowwah Island. Between 2013 and 2015, about 7,200 additional rooms are expected to enter the market.
“There is quite a bit of supply entering the luxury and upscale segment this year and that will continue to put pressure on the market, so you can expect similar trends through 2013,” says Hewett.
The market is expected to stabilise in 2014 as the supply pipeline slows, before entering a recovery phase in 2015.
At present, the Abu Dhabi hospitality sector is largely driven by business travel and conferences, but with so many luxury resorts and high-end hotels continuing to open, it is essential the emirate delivers new leisure attractions to drive demand during off-peak times and holiday periods.
Abu Dhabi has long articulated its ambition to become a cultural hub for the GCC region, with plans for several world-class museums, but the problem is those projects have been repeatedly delayed.
“There are still rooms coming into the market, which doesn’t make things any easier, but Abu Dhabi has ambitious plans to build up its attractions and some of those need to come to fruition before we see demand really increase. It depends on when things open,” says Auernheimer.
The opening of the $165m Yas Waterworld on Yas Island in January is expected to help the sector in the coming year, driving some weekend leisure tourism from Dubai and around the GCC to Abu Dhabi. But other major projects were pushed back following a spending review in the wake of the 2008 global financial crisis.
The planned Louvre Abu Dhabi and Guggenheim museums for Saadiyat Island were scheduled to open this year, but will now be completed in 2015 and 2017 respectively. It is only then that analysts expect to see the hospitality market truly recover.
“From 2015, things will properly start to pick up, mainly as there is a lot of key infrastructure being completed, including the Louvre and the Guggenheim, and more infrastructure on Saadiyat island, including shopping malls, which are a motivational factor for a lot of GCC travellers,” says Hewett. “They come to shop and you can really see that in Dubai during the school holidays.”
In 2012, Abu Dhabi carrier Etihad Airways saw passenger numbers break 10 million for the first time