Dubai’s hotels report strong RevPAR and profit growth during September, shows HotStats survey

Since the beginning of 2011, Dubai’s tourism and hotel sector has witnessed strong signs of recovery as the ‘Arab Spring’ diverted both international and regional tourists to safer locations such as Dubai. Both occupancy and average rates improved in September as Ramadan moved into August while September opened with the commencement of Eid Al Fitr holidays. This annual festival witnesses a marked increase in the flow of domestic and regional leisure travellers to Dubai, causing a surge in hotel bookings.

The strong recovery in demand this year (78.6% occupancy compared to 71.8% in September 2010) prompted hoteliers to increase rates by 10.9% in September, resulting in a 21.5% growth in RevPAR and a 24.6% growth in GOP PAR for the month. Dubai hotels’ year-to-date GOP PAR of $110.10 is 30.9% higher than its neighbouring city of Abu Dhabi and second only to Riyadh amongst the six cities covered in this survey.

“Dubai hotels have clearly benefited from the Arabic Spring and such trend is unlikely to change until there is greater stability in the hot spot areas of Egypt and Syria. However, with the uncertainty related to the ongoing economic problems in the Euro region, there is a downside risk that the European tourist inflow into Dubai may decline, which might slightly dampen the year-end figures,” said Peter Goddard, Managing Director of TRI Hospitality Consulting in Dubai.

In Abu Dhabi, Dubai’s richer neighbour and UAE‘s capital, however, things appear to be moving in a different direction. Hotels in this emirate continued to see room rates (ARR) drop, with a 7.0% decline in September, although occupancy levels improved by a similar margin assisted by the growth in demand during the Eid holidays. During the 12 months to September 2011, Abu Dhabi posted the largest decline in ARR amongst the six cities surveyed, plunging 20.9% compared to the same period in the previous year.

Conversely, demand levels in Abu Dhabi have seen consistent growth as reflected by the occupancy change for September (up 7.5%), year-to-date (up 8.4%) and 12 months to September (up 7.1%) 2011. According to Abu Dhabi Tourism Authority, the number of hotel guests rose 14% in the first nine months of this year compared to the same period last year. “Regardless of the growth in demand, the continued growth in supply, albeit at reduced levels compared to the last couple of years, is likely to maintain the pressure on rates and increase the risk of oversupply in Abu Dhabi in the short to medium term,” commented Mr. Goddard.

Most MENA Cities Surveyed Post Revenue and Profit Growth

Four out of the six cities in the HotStats survey registered TrevPAR and GOPPAR growth for the month of September. Cairo and Sharm El Sheikh were the two destinations to experience a decline in GOPPAR as tourist arrivals and hotel demand plummeted in Egypt since the popular uprising began in January.

Cairo, which has been the centre stage of the revolution, saw its hotel occupancy drop by 22.8 percentage points while Sharm El Sheikh registered a decline of 15.9 percentage points in September compared to last year. Interestingly, hotels in Cairo have managed to hold the rates above 2010 levels predominantly due to a shift in segmentation where the proportion of corporate guests have gone up as leisure tourists disappeared. The sluggish demand in Cairo and very low ARR in Sharm El Sheikh, coupled with a rise in the proportion of payroll costs in both cities, have contributed to a GOPPAR decline of 38.5% and 53.9% respectively in September.

“Hotel performance levels in Cairo are not likely to improve until the protests subside, the security situation improves and international travellers put Egypt back on their travel itinerary. In the short term, performance is likely to remain subdued under the threat of possible violence associated with the proposed general election planned in November and presidential election planned in early 2012. On the other hand, Sharm El Sheikh is likely to bounce back faster than Cairo because of the vested interests of tour operators who own and operate hotels, charter flights and holiday packages to Sharm El Sheikh and other resort destinations along the Red Sea coast,” said Mr. Goddard.

The Saudi Arabian cities of Riyadh and Jeddah have emerged both rate (ARR) and profit (GOPPAR) leaders amongst the six cities currently surveyed by HotStats in the Middle East. The two cities achieved ARR of $245.7 and ARR $212.7 respectively in September, and managed to post GOPPAR well above the other four cities covered in the survey.

Riyadh has clearly taken the lead and saw its hotel occupancy grow by 18.7 percentage points, RevPAR go up by 52.6% and GOPPAR surge by 91% in September compared to the same month in 2010. On the other hand, Jeddah’s growth has been strong but modest when compared to Riyadh, posting a 10.4% growth in TrevPAR and 11.8% growth in GOPPAR for the month.

“Hotels in Riyadh and Jeddah have seen a surge in demand in September due to a combination of reasons. The exit of Ramadan out of September and into August this year and the spill over of Eid holidays into September have favoured the month’s figures. More importantly on a macro level, the ongoing security issues in the Levant and the government’s efforts to promote domestic tourism have resulted in an increasing number of Saudi travellers now spending more time holidaying in the Kingdom, which also benefited hotels in Riyadh and Jeddah,” said Mr. Goddard.