UAE Tourism Shows Signs of Recovery


Economic News

22 Jul 2010
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Tourism to the UAE has suffered in the wake of the September 11th terrorist attacks. Optimism in the sector’s recovery is returning, however, especially with the advent of the Dubai Shopping Festival that began on March 1st. Despite reports last autumn that Dubai hotels had suffered a dip of 40% in occupancy, the Dubai-based airline Emirates has ordered $15bn in new aircraft in a bid to triple its fleet in the coming decade to accommodate a rise in tourism and business. In mid-February, the Dubai government approved the final design of the second phase of the $2.5bn project to expand Dubai airport.

In the wake of September 11th a number of airlines cut routes, especially to the Middle East, leading observers and some analysts to predict a tourism and aviation disaster. Although arrivals to the UAE declined in the wake of the attacks, the affects were milder than many had expected. Although reliable figures for hotel occupancy in Dubai are hard to come by, reports indicate that it had fallen by around 40% in the months after September. By the beginning of March, estimates of hotel occupancy were up again, with Dubai's Department of Tourism and Commerce Marketing (DTCM) claiming that the numbers have been back at usual levels since December, but not giving exact figures.

The department is focusing its efforts beyond the tourists who look for nothing more than a sunny spot on the beach and has begun to concentrate more on promoting Dubai as a conference and exhibition centre. The DTCM has itself taken part in a number of exhibitions and road shows to bring conferences to Dubai, with the main impetus coming from the decision to stage the annual IMF and World Bank meeting in the city in 2003. Conferences and exhibitions have a "long term future" according to the DTCM director of marketing Mohammed Khamis bin Hareb in late February.

Should this strategy be successful, the argument that Dubai has an oversupply of hotels would be invalid. A growing number of international hotel chains have said that they will continue to expand in Dubai, with Hilton International announcing on March 7th that it plans to build two more in the emirate to boost its total capacity by 1000 rooms. In an interview published in the local Gulf News the vice-president for Hilton in the Gulf said that he believed there to be an "oversupply" of demand in Dubai.

But in the short term, Dubai is looking to gain from its already established month-long annual shopping festival, which began on March 1st. Most hotels are reporting higher than expected occupancy rates, above 80%. Promotion for the festival began some four or five months ago, with hotels offering packages, including visas if required, to other Arabs, Europeans and Indians. To help the marketing process along, the Dubai government insists that all hotels- even the most prestigious- implement a 40% reduction on normal rates. The Dubai World Cup horse race and the Dubai Classic golf tournament are both staged during the course of the shopping festival.

An estimated 13.5m passengers passed through Dubai airport in 2001, around half of them on the Dubai-based airline Emirates. The airline does not yet serve North America, although it plans to do so next year, which observers and company officials acknowledge may have sheltered it from some of the post-September fallout. In November it ordered an additional $15bn worth of planes, from both Boeing and Airbus- including 22 A380 superjumbos - to bring increase its fleet from 36 to 100 aircraft in ten years time. Emirates chief executive Maurice Flanagan said in early March that the last three weeks of January were the most profitable the company had ever experienced.

The company's chairman Sheikh Ahmed bin Saeed al-Maktoum announced in late February that his airline was planning a new bond issue, probably in 2002, although he did not disclose the exact timing or the amount. Last year Emirates became the first UAE company to issue bonds and list them on the Dubai Financial Market. Following over-subscription, the offering was doubled to Dh1.5bn ($408m).

Sheikh Ahmed is also president of Dubai's Department of Civil Aviation, and on February 18th said that the Dubai government had approved the plans for the second phase of Dubai's airport expansion. The $2.5bn project will add another terminal- due to be completed in 2006- and will include an exclusive concourse for Emirates. The Mega Cargo Terminal will take rather longer, and after several phases of construction should be in operation from 2018. The airline expects to have 51m passengers passing through Dubai airport in 2015, 15m of whom will be tourists to the UAE.

Emirates also announced on February 28th that it had decided to buy the engines for its confirmed superjumbos from the Pratt and Whitney and General Electric joint venture, in a deal worth up to $1.5bn. The deal to supply the engines, which typically account for around 20% to 25% of the value of an aircraft, brings the American companies back into a battle with Rolls Royce to supply orders of A380s.

Other regional airlines have fared less well in the last few months. The regional carrier Gulf Air, jointly owned by the governments of Abu Dhabi, Oman, Bahrain and Qatar is reported to be struggling. Gulf Air lost $98m in 2000, and prior to September had said that it wanted to halve that loss in 2001, largely through a cash injection of $159m from the owners in May.

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