features: opinion & comments: Mixed fortunes
Mixed fortunes
The world has witnessed an economic crisis of unimaginable dimensions. The Middle East, although not as badly affected as mature regions such as the Americas and Western Europe, has suffered a slowdown as a result of the financial downturn, falling global trade and declining oil prices. Real GDP growth for the Middle East slowed to 2.2 percent in 2009, down from 5.3 percent in 2008, according to the IMF, with the impact mitigated by the region’s cash reserves.
With consumer and business travel under intense scrutiny, the global travel and tourism industry suffered a decline, falling by five percent in terms of international arrivals in 2009, exacerbated by the H1N1 outbreak in Q2. However, buoyed by resilient intra-regional demand, MENA arrivals reached 75 million, increasing three percent, although not quite as buoyant as the double digit growth witnessed in pre-crisis years. Visitors from key source markets such as Russia and Germany dropped as economic factors back home curbed travel.
Bucking the global trend
MENA was the only region, bar Africa, to buck the global slump in business arrivals by growing six percent in 2009, underscoring the region’s ever-increasing importance as a global business and travel hub. The meeting and incentive segment has proved to be hardy, with penetration rates already achieving impressive levels of 51 percent and 46 percent for Egypt and the UAE respectively.
Irreversible falling average spend
Incoming tourist receipts in MENA suffered a worse fate at the hands of the recession, as receipts dropped by seven percent in 2009, down on the previous year. This compounded the trend for falling average spend by international visitors which has been in steady decline over the last five years. In 2009, average incoming tourist spending stood at US$638, down ten percent on the previous year, and a far cry from the US$932 recorded in 2004, at 2009 prices.
Discounting - sting in the tail
Spending was further undermined by discounting, promotions and deals across the travel spectrum from luxury hotels, NTOs and airlines to travel retailers. Hotels reported falling occupancy, average daily room rates and revPAR across the board. The region now faces the challenge of how to reverse this spending slide. One option is to diversify away from intra-regional travellers or the expat visiting friends/family segment to target new higher spending segments from emerging countries, requiring greater connectivity.
With Asia leading the charge on economic recovery, countries such as China and India continue to offer potential, as well as Brazil. China outbound visitors are set to grow by seven percent each year, with a predilection for mid-priced accommodation and travel options.
Following open skies agreement, Emirate’s increased flights from Dubai to Sao Paulo. Qatar Airways’ new route to Sao Paulo/Buenos Aires in June will also help to bring in a new source of higher spending visitors.
With the much touted end of conspicuous luxury in the West, coupled with general wealth destruction around the world, all consumer income groups and businesses, have revived their interest in value for money, ushering in a new set of price, positioning and service challenges for travel operators.
Destinations on the up
Saudi Arabia, the region’s largest destination, is forecast to welcome an additional 13 million visitors by 2014 to reach 30 million. The country continues to benefit from the pillar of religious tourism, which has proved resistant to major external shocks such as H1N1and economic austerity.
Qataris also likely to witness a strong uptake in intra-regional visitors from its low base, as investment continues in its luxury hotels and transport infrastructure. Qatar Airways’ aggressive expansion plans will also help rebalance its dependency on business travel.
Maturity kicks in
The UAE remains a beacon of development in the region, with the most active hotel pipeline regionally with more than 53,000 rooms in the pipeline, according to STR Global. Nevertheless, the maturity of its primary destination, Dubai, will lead to a slowdown in international visitor growth. By 2014, the country expects to welcome 10.4 million visitors, up from 8.7 million in 2009.
Friendly power play
As competition heats up, two cities will take centre stage – Dubai and Abu Dhabi. Dubai will continue to attract the largest international city arrivals in the region, with 8.7 million in 2009, even greater than Mecca, whilst Abu Dhabi lags behind with 1.4 million, although it has grand ambitions to reach almost three million by 2015. The Abu Dhabi Tourism Authority will continue its investment in building a long-term cultural and sustainable tourism infrastructure, away from Dubai’s shopping ethos. Both have targeted cruise as a lucrative segment to tap into.
Wellbeing is a must-have
Health and wellness tourism proved to be highly resilient during the crisis, the only category to continue growing at a healthy pace, driven by international and domestic visitor demand. The market was worth US$2.6 billion in 2009, expected to grow annually by six percent in constant terms over the next five years.
Incorporating health and wellness into the destination offer, as well as a myriad of new hotel spa/resort openings in 2009, stimulated much interest in spas with operators offering a healthy escape at attractive prices. Award-winning operators such as Anantara boost the region’s credentials in this category.
Diversification and authenticity
Recovery timelines in the region to return to pre-crisis levels vary by sector, ranging from zero impact for health and wellness to more than four years for hotels.
Greater liberalisation, rising disposable income, rising competition and new brand launches will help drive low cost carrier (LCC) expansion from its low base. However, it will remain less than double digits at 9.6 percent of air passengers seats sold by 2014. Establishing a greater price differential from Middle East giants such as Emirates will help entrench LCCs further.
With hotels holding a dominant 85 percent share of accommodation sales, much work has to be done to build viable accommodation alternatives. Emerging segments, such as camping and self-catering, offer potential, especially “glamping” which combines camping with luxury. Budget hotels remained patchy, accounting for only 11 percent of hotel sales, but 27 percent of outlets in the top five MENA markets in 2009.
Greater diversification will be required across the travel industry to encourage and accommodate new and growing consumer groups. Luxury will remain a cornerstone of the region without doubt. However, greater diversity into mid and budget options is likely to open up new opportunities without the fear of category cannibalisation or brand erosion.
