Saudi Arabia wants to keep pace with the growth in tourism across the Middle East. It is an emerging player in the market, as visitors to the country have traditionally been restricted to pilgrims and businessmen.

Estimates for Saudi visitor numbers in 2006 vary from 8.6 million, according to the government, to 8.9 million, according to global research company Euromonitor. Meanwhile, the World Travel & Tourism Council (WTTC) expects the kingdom to attract 14 million tourists in 2007, rising to 45.3 million by 2020.

The WTTC figures present a positive future scenario for private sector tourism investment, with total capital investment of $4.4bn set to rise to $6.6bn by 2017. The council expects Saudi tourism revenues to increase from $34.8bn in 2006 to $56.1bn by 2016.

Meanwhile, the Saudi Commission for Tourism (SCT) forecasts an increase to 13.1 million inbound trips by 2020, based on average annual growth of 3.1 per cent, with domestic tourism trips rising to 128 million, with average annual growth of 4.5 per cent.

Currently, tourism contributes only 6 per cent of Saudi Arabia's SR55bn ($14.6bn) gross domestic product (GDP), despite the annual influx of Hajj and Umra pilgrims. But SCT aims to increase this to 16 per cent of GDP by 2020, creating up to 2.3 million jobs.

Research from SCT's Mas Centre forecasts “the kingdom can expect 141 million internal (domestic) and international tourist trips in 2020, an increase of over 116 per cent on 2002. Almost 91 per cent will be domestic tourists, with the remaining 9 per cent being international inbound tourists”.

In 2006, SCT says, the kingdom attracted 11 million inbound trips, representing 112 million hotel/nights - 51.4 per cent of which were pilgrimages. Business accounted for 18.6 per cent, family visits for 13.4 per cent and holidays for 6.6 per cent. Visitors spent SR18.6bn inside the kingdom and SR1.6bn on transport getting there.

To increase tourism, SCT eased restrictions on non-religious tourist visas in 2006. In 2007, it implemented plans for multiple-entry, one-year business visas.

Attracting financiers

This was a timely move as Saudi megaprojects have attracted a flurry of financiers, consultants and prospective investors. There is also growing demand for upmarket properties in the major cities.

In 2002, Saudi Arabia had just 81,197 hotel rooms in 796 hotels, with 60 per cent of national capacity in Mecca.

The government forecasts growth from 104,000 rooms in 2005 to 127,000 by 2010, and 194,000 by 2020. Hotel revenues will reach SR14.3bn by 2010 and SR21.8bn by 2020, based on annual growth of 4 per cent.

Using its Red Sea tourism development strategy, the SCT is planning $40bn worth of new hotels and resorts, adding 557,000 hotel rooms at eight tourist resorts at Ras Humaid, Sharma, Qayyal, Dhafat al-Wajh, Arrayes, Ras Muhaisen and Haridha. These resorts are expected to create up to 413,000 jobs.

SCT says the Red Sea could attract SR150bn worth of tourism investment, generating annual tourist spend of SR9.9bn. It forecasts the resorts will attract 19 per cent of domestic tourists and 25 per cent of foreign tourists by 2020.

Reinvesting wealth

Rohit Talwar, chief executive officer of UK-based forecasting company Fast Futures, says investors in Saudi tourism are reaping a return on investment of $7.91 a dollar. Fast Future's GFF study, released in 2007, suggests this will rise to $8.50 a dollar invested by 2016/17.

“The Supreme Commission for Tourism is planning a tourist development fund to provide loans,” says Talwar. “This will focus on opportunities for family tourism, cultural heritage, environmental attractions, health, shopping and adventure sports.

“We see three major drivers: an increase in religious travellers globally, a rise in leisure travellers who have visited another Middle East destination and, as Saudi Arabia invests in new economic developments, a flow of investors and business partners travelling regularly to the kingdom.”

Swiss hotel chain Movenpick is expanding by offering units in Mecca, Riyadh, Al-Khobar and Yanbu, which will add an extra 1,700 rooms. “The record oil prices of the past few years have created wealth to be reinvested,” says Toufic Tamim, Middle East vice-president, sales and marketing, at MH&R.

“This has boosted investment in real estate and hospitality. With the massive new projects, there has been a flood of demand for hotel space from business travellers. For the past 10 years, Saudi hotels have had occupancy rates of about 50 per cent. Business travel has boosted this to 90 per cent in the top hotels of Riyadh and Dhahran.”

Traditionally, Riyadh and the Eastern Province were undersupplied with business hotels. Now there is a flurry of new investment in luxury apartments and hotels.

Riyadh has been especially busy in 2007, says Tarek Bekheit, general manager of the city's Four Seasons Hotel. “The city has seen stunning growth in occupancy rates,” he says. “We are looking at year-round occupancy rates averaging 75 per cent in Riyadh's five-star properties.

“In 2003, average occupancy rates were in the mid-50s. In 2008, we expect an increase to 78-79 per cent, and rates are increasing by 20-25 per cent a year in this class, to $300-320 a night. About 70 per cent of our business is government and corporate. Demand from consultants and financiers is booming.”

This year, the government announced that pilgrims could undertake year-round Umra pilgrimages, boosting occupancy rates in Mecca, Medina and Jeddah outside the peak Hajj season. Confirmed new projects will add 5,000 five-star hotel rooms and 15,000 rooms at hotels with three stars or fewer in Mecca alone.

Creating jobs

Meanwhile, a drive to promote domestic tourism, persuading Saudis to holiday at home, is achieving quiet success, says Tamim.

“At the Movenpick Resort al-Nawras in Jeddah, 99 per cent of our visitors are Riyadh and Al-Khobar families,” he says. “There is growth in resorts catering for Saudi families taking short breaks. That segment has grown significantly over the past five years. The average Saudi family takes at least three holidays a year. During major Islamic holidays, they take short breaks inside Saudi Arabia

Events such as Jeddah's summer shopping festival are becoming very popular with families from Riyadh.”

Saudisation remains a challenge for leisure and tourism players, and the government is anxious to create jobs for young nationals. With a shortage of skilled local managers, MH&R and several other hotels are launching training programmes for young managers.

This spring, SCT announced plans to create regional tourist boards, a national tourism marketing campaign and the country's first tourism investment conference in March 2008. SCT wants to introduce systematic grading for hotels, and plans to upgrade museums and heritage sites countrywide.

Meanwhile, hotel expansion continues. Marriott Hotels is opening five Saudi outlets targeting business travellers, including five-star properties in Mecca, Medina, Riyadh and the Eastern Province.

Belgium's Rezidor Hotel Group has opened new mid-market Park Inn Hotel properties in Al-Khobar and Riyadh, and opens the 221-room Al-Diyafa Park Inn in Mecca in early 2009, mainly targeting pilgrims.

The Accor Group opened its flagship property the ZamZam Grand Suites in Mecca in 2006, and a second Mecca property, the Mercure Grand Residence Azizziah.

In 2007, it opened the 230-room Sofitel Al-Khobar and the 210-room Novotel Princess Al-Anoud in Riyadh.

Regional expansion

Accor's wholly owned Saudi subsidiary, the Saudi-French Company for Hotel Development, aims to manage 4,500 rooms in the kingdom by 2009, employing 4,500 staff.

Crowne Plaza is opening two properties in Al-Khobar and Medina, offering 867 extra rooms.

Luxury spa brand Banyan Tree Holdings launched a regional expansion programme in 2005, with confirmed plans to build 1,000 rooms in new properties in Dubai, Abu Dhabi, the northern emirates and Oman.

“Saudi Arabia is also on our radar, as a destination and as an outbound market,” says Paul Chong, vice-president, business development, at Singapore-based Banyan Tree Holdings. “We see an increasing number of Saudi families checking into the kingdom's hotels and resorts.”

TABLE: Purpose of visit to Saudi Arabia

Sources: Mas Centre; Supreme Commission for Tourism

TABLE: Tourism growth rates to 2020 (%)

Source: Mas Centre; Supreme Commission for Tourism

Liberalising aviation

In 2009, some of the new hotels opening in Saudi Arabia will include a 292-room Radisson-SAS property in Jeddah, a 167-room Yanbu Radisson and a 234-room Radisson SAS in Riyadh. Demand is also expected to generate investment in lower-cost properties. Easy Hotels plans to open one Saudi property a year between 2007 and 2009.

Liberalisation of the aviation sector is also encouraging tourism. Passenger arrivals increased by 23 per cent and departures by 33 per cent between 2000 and 2005. Now the General Authority of Civil Aviation (Gaca) aims to issue additional licences to private carriers by 2010.

National carrier Saudi Arabian Airlines (Saudia) is also being privatised, with the sale of 30 per cent of its equity. Saudia will invest in a new fleet as part of a 10-year modernisation plan. Meanwhile, low-cost airlines Air Arabia and Sama are boosting domestic and intra-regional air travel.

National Air Services (Nas), Saudi Arabia's first private airline, has ambitious plans to transport more than 10 million passengers a year by 2011. Its network covers 22 Saudi cities, expanding to 37 domestic routes by 2009, investing more than $4bn to boost its fleet from 44 to 98 aircraft by 2012.

Meanwhile, the private all-business carrier Al-Khayala has launched flights between Dubai, Riyadh and Jeddah.

Airport infrastructure is also expanding. Five airports are under construction, including a new airport at Medina, while there are plans to hand over 25 regional and local airports to private sector management. A new, $1.5bn airport at Jeddah will have four terminals.

Observers caution that the sheer pace of Saudi development will put its resources under extreme pressure. Shortages of water and housing units could slow the pace of tourism growth without careful planning.

“Saudi Arabia is trying to diversify away from religious and business travel, by encouraging religious and leisure travel, and leisure-only travel,” says Talwar. “Religious tourists are encouraged to stay longer for shopping, cultural or historical tourism. And the government will also decentralise tourism, transferring more power to regional authorities over the next two years.”

In 1996, Saudi Arabian Airlines launched the Discover Saudi Arabia programme. Any tourists wanting to visit the country must do so through this programme.

Tourists are only allowed in the country in groups of at least four, using a travel agent in their country, who will contact a Saudi tour operator. The local tour operator will then arrange visas and organise the trip. There are 18 tour operators in Saudi Arabia, but only six have received approval to organise foreign tours. Tourists landing in a Saudi Arabian port as part of a cruise can obtain visas on arrival.

Women may find it more difficult to get a visa. “We have no restrictions for gender, but we might have restrictions for single women under a certain age,” says Majed al-Sheddi, general director of the public relations department at the Supreme Commission for Tourism.

Other restrictions apply once tourists arrive in Saudi Arabia. Non-Muslims cannot enter Mecca or the centre of Medina, for example. Desert trips, potentially a key attraction for foreign tourists, are possible, but camping overnight in the desert requires a special permit. Similarly, a permit is required to enter the archaeological site at Madain Saleh, and tour operators need to apply up to two weeks ahead of time for permission from the Antiquities & Museums Ministry.

Key fact

The kingdom will host 45.3 million tourists by 2020, up from 14 million in 2007.

Travel restrictions

In 1996, Saudi Arabian Airlines launched the Discover Saudi Arabia programme. Any tourists wanting to visit the country must do so through this programme.

Tourists are only allowed in the country in groups of at least four, using a travel agent in their country, who will contact a Saudi tour operator. The local tour operator will then arrange visas and organise the trip. There are 18 tour operators in Saudi Arabia, but only six have received approval to organise foreign tours. Tourists landing in a Saudi Arabian port as part of a cruise can obtain visas on arrival.

Women may find it more difficult to get a visa. "We have no restrictions for gender, but we might have restrictions for single women under a certain age," says Majed al-Sheddi, general director of the public relations department at the Supreme Commission for Tourism.

Other restrictions apply once tourists arrive in Saudi Arabia. Non-Muslims cannot enter Mecca or the centre of Madina, for example. Desert trips, potentially a key attraction for foreign tourists, are possible, but camping overnight in the desert requires a special permit. Similarly, a permit is required to enter the archaeological site at Madain Saleh, and tour operators need to apply up to two weeks ahead of time for permission from the Antiquities & Museums Ministry.