The global tourism industry faces an uncertain and challenging 12 months as economies around the world slide into recession. As access to credit dries up and fears grow over job security, consumer purchasing power is expected to be restrained in 2009, with overseas travel one of the first luxuries to go.

The Middle East has enjoyed healthy growth in its tourism industry since 2002. But now, tourism chiefs from the region’s most popular destinations, such as Egypt and Jordan, and several smaller but growing tourism centres, such as Saudi Arabia and Yemen, are keen to assess the potential impact of the slump.

The UN World Tourism Organisation (UNWTO) forecasts growth in tourist numbers worldwide will be 0-2 per cent in 2009, compared with an average 2.5 per cent increase in 2008 and 6.6 per cent growth in 2007. The organisation says the first six to nine months of the year will be particularly difficult, with a gradual recovery thereafter.

The aviation sector is set for an even more turbulent year. The International Air Transport Association (IATA) forecasts worldwide demand will fall by 3.5 per cent, after an average of 2 per cent growth was recorded in 2008.

Falling numbers

The association says it will be the first annual decline in passenger volumes since 2001, the year of the terrorist attacks in the US, when a fall of 2.7 per cent was recorded. The air transport industry as a whole is forecast to make a loss of $2.5bn in 2009, with the IATA describing it as the worst revenue environment in 50 years.

The overall projections are much less gloomy for the Middle East, however, and the region’s tourism industry is expected to continue to outperform the rest of the world, as it has for the past few years.

The Middle East recorded an average 17.3 per cent rise in visitor numbers in the first eight months of 2008, compared with 4 per cent growth worldwide. Although growth in arrivals to the Middle East this year will be more muted than in the recent past, it is still expected to be the highest in the world, at 3-8 per cent, according to the UNWTO.

Likewise, IATA expects the Middle East will be the only region where passenger and cargo traffic volumes grow in 2009. Never-theless, the forecast 1.2 per cent increase is well below the 16.4 per cent rise in 2007, and the 7.6 per cent jump in 2008.

Despite the UN’s predictions, the region’s tourism chiefs should be wary of taking too much comfort from these statistics. The headline figure of 17.3 per cent average growth in visitor numbers to the Middle East in 2008 is mostly driven by a large rise in visitors to Saudi Arabia in the final few months of the year, thanks to the annual Hajj pilgrimage.

Break the figures down and they paint a very different picture, particularly for the region’s prime tourism destinations. Tourism in Dubai, for example, grew by 7.6 per cent in the first eight months of 2008, while for Jordan, visitor numbers rose by just 3.8 per cent.

The star performers include Egypt, where international tourist arrivals climbed by 23.8 per cent in 2008. Egypt’s tourist numbers have increased by more than 20 per cent a year for the past two years and it is the region’s main tourist destination by far.

Nonetheless, Egypt is heavily dependent on outbound tourism from Europe, making it vulnerable during the global economic downturn. In 2007, 69.6 per cent of its visitors came from Europe, principally Russia, Germany, the UK, Italy and France. The International Monetary Fund (IMF) predicts all of these economies, with the exception of Russia, will enter recession in 2009.

However, with UK visitors favouring destinations outside the eurozone because of the weakness of sterling against the euro, major hotel chains are marketing Egypt to UK customers in recognition of the potential growth in UK visitors in 2009.

Egypt also enjoys a significant competitive advantage over the Gulf states, whose room rates are among the highest in the world. In October 2008, the average price of a hotel room in Dubai was $376.79 a night, according to US hotel benchmarking firm STR Global, and Muscat was charging $336.36. Egypt’s rates were considerably lower, at $52-130.

Other exchange rates are also working in Egypt’s favour. The recent strengthening of the dollar, to which several Middle East currencies, including the UAE dirham, are linked, has made the region more expensive for visitors. Egypt, which does not peg its currency to the dollar, has not been affected and marketing campaigns are now emphasising its afford-ability. With its abundant historical sights, the country’s tourism sector looks well placed to weather the downturn far better than its regional rivals.

Egypt’s tourism industry will also benefit from a series of moves aimed to help it through the financial crisis. These include a temporary suspension of the tax hotels pay to the government’s Tourism Promotion Authority, reduced landing and take-off fees for airlines, and a cut in ground handling fees for charter flights.

Other states in the region are also reliant on European visitors, albeit to a lesser extent than Egypt. The 12 eurozone countries and the UK account for 26 per cent of hotel guests in Dubai.

Europeans also comprise about 20 per cent of arrivals to Oman, generating 46 per cent of its travel sector income. Half of these are UK nationals, the majority of whom reside in the UAE, with the remainder predominantly from Germany and France.

Fierce competition

Each of these markets therefore faces a difficult year, and competition for holiday-makers’ euros, pounds and roubles will be fierce.

With this in mind, the UNWTO’s forecast of 3-8 per cent growth in the region, which includes Saudi Arabia’s religious tourism figures, could well mask a sharp drop in visitor numbers to some countries.

Analysts expect Dubai, which relies on its shopping malls and hotels to attract visitors in the absence of any natural or cultural attractions, will be hit hardest by weakening demand for international travel.

The emirate has positioned itself as a package-holiday destination and a stop-off point for long-haul travellers to Australasia and the Far East. This tactic proved hugely successful during the economic good times, when disposable income was plentiful, but demand for these types of holidays is declining as consumers cut back their spending.

Tourism directly accounts for 18 per cent of the emirate’s gross domestic product (GDP), but including industries indirectly involved, the figure rises to 30 per cent. So any shrinkage in the sector will have ramifications for the wider economy, as retail sales and demand for other consumer services also slow.

“No one knows how severe the impact will be for Dubai,” says Gavin Samson, director of TRI Hospitality Consulting in Dubai. “But European tourism is certainly going to be affected as countries move into recession. Exchange rates have also made travel to the UAE 25-30 per cent more expensive, so there will be a marked downturn in tourism in Dubai, although intra-regional travel will continue.”

The slowdown in the growth of visitors to the emirate, combined with the number of new hotels that have opened their doors in recent months, will inevitably lead to a drop in hotel occupancy levels in Dubai. This is already proving the case, with a 3.1 per cent fall recorded in the year to September 2008, according to STR Global.

Abu Dhabi, by contrast, is likely to fare better. Occupancy rates in the emirate will be supported by an overall shortage of hotels. Never-theless, its reliance on the conferences and events industry means it too will not be immune from the global downturn. As companies seek to balance their accounts, corporate travel budgets will be scaled back and conference attendance worldwide is expected to fall.

Meanwhile, tourism chiefs in Oman are hopeful that the sultanate will escape the worst of the financial crisis because of the particular nature of its tourism market.

“Oman has not followed the same development path as the UAE, Bahrain and Qatar,” says one tourism official in the sultanate. “It has often been said that Oman has followed a conservative development path, compared with the countries that have targeted the mass market in group travel, investing heavily in mega airports and so on. But in hindsight, that conservative strategy has proven to be a wise one.”

The official says higher-yield segments of the tourism industry, such as travel associated with culture, heritage and nature, are expected to be less susceptible to the economic slowdown.

Middle East hoteliers largely accept the fact they will see a reduction in the average length of stay and expenditure of holidaymakers this year, which will put pressure on room rates as well as occupancy levels. In recognition of this, Dubai’s Department of Tourism & Commerce Marketing has already called on hotels to cut rates by as much as 60 per cent to attract visitors to the emirate’s shopping festival this month.

Although there are reports of a price war emerging between hotels in Dubai, many are cautious about dropping prices significantly, as once reduced they are difficult to raise again, preferring to offer other incentives instead.

“Room rates are too high in Dubai so they need to bring down prices, but experience shows that if you slash them too far it is hard to get them back up after,” says Samson.

A wholesale change in the economic climate will be needed before the global tourism sector regains its confidence. But unlike previous major downturns in the world travel industry, which were provoked by events such as the terrorist attacks in the US and the tsunami in Asia, there is no fear of travelling.

As a result, demand for travel to the Middle East should pick up quickly once the economic recovery sets in.

Key fact: Average growth in visitor numbers to the Middle East in 2008 - 17.3%