Well positioned: After years of investment and planning, the sector is back on top

Since 2008 Dubai’s tourism sector has once again become a major economic contributor, following a downturn in the global economic crisis. In 2011 the industry attracted more than 9.3m tourists – up about 10% from the previous year – and contributed some 31% of the emirate’s total GDP, according to data from the Department of Tourism and Commerce Marketing (DTCM), the government’s tourism arm. Other estimates for 2011 tourism numbers were lower, with Mastercard suggesting 7.9m visitors in a public report.

The sector’s rapid recovery in recent years can be attributed largely to ongoing government support and investment through the 2008-09 international economic downturn, which had a negative impact on the emirate as a whole. The sector has also benefitted substantially from the political turbulence that has toppled governments throughout the region in recent years and, as of late 2012, continued to play out in many nearby nations. Finally, and perhaps most importantly, the growth of Dubai’s tourism industry is a direct result of the emirate’s strong fundamentals and solid reputation as a safe, stable and welcoming destination.

REGULATION & MAJOR PLAYERS: The DTCM, which was created in 1997 to replace the Dubai Commerce and Tourism Promotion Board, has a broad mandate to regulate the sector, boost tourism development and investment, and attract new tourists to the emirate. More specifically, the department is responsible for designing and implementing the state tourism development strategy; licensing and classifying hotels, travel agents and other services; and ensuring that the emirate’s historical and archaeological sites are protected. The DTCM also runs training and education programmes for tourism-related employees and organisations, with the goal of maintaining a high level of professionalism and competence throughout the sector.

In recent years the department has carried out an aggressive marketing campaign in a handful of key foreign markets. As of mid-2012 the DTCM operated 18 offices in various markets around the world, including the US, UK, France, Germany, Russia, South Africa, Saudi Arabia, India, China, Japan and Australia, among others. The organisation also regularly represents and promotes Dubai at numerous travel and tourism events around the world. The DTCM planned to participate in more than 25 major foreign tourism exhibitions in 2012, according to local media reports, in addition to staging at least 10 Dubai-focused tourism workshops of its own in a number of key foreign markets.

BY THE NUMBERS: As previously stated, in 2011 between 7.9m and 9.3m tourists visited Dubai, including hotel guests and cruise ship passengers, up some 10% from the previous year. These figures are indicative of the resurgence of Dubai’s tourism industry, after years of slow expansion in the wake of the 2008-09 downturn. In 2007, a year before the crisis hit, Dubai was the eighth most visited city in the world, according to a report by Euromonitor, a multinational market research firm, pulling in around 7m visitors over the year. Growth slowed substantially during and after the crisis – tourist arrivals reached 7.5m in 2008 and rose to just 7.6m in 2009, according to data from the government’s Department of Economic Development.

The emirate’s hotels were hit especially hard during the crisis. According to HVS, a US-based hotel consultancy and research firm, occupancy rates at Dubai hotels dropped from a decade-long high of around 87% in 2007 to 69% in 2008. Revenue per available room (RevPAR), meanwhile, dropped from $225 in 2007 to $209 in 2008, $127 in 2009 and $121 in 2010, in line with average room rates, which fell from $259 in 2008 to $184 in 2009 and $167 in 2010.

ON THE RISE: Since mid-to-late 2010, however, the industry has seen steadily rising visitor numbers and, consequently, rapidly improving revenues. Some 8.5m tourists entered Dubai in 2010 according to the DTCM, up by around 12% from the previous year. Taking into account the 2011 jump to 9.3m visitors, the emirate is expected to continue to post rapid expansion in the coming years. Indeed, according to DTCM forecasts, a total of 10.1m tourists are expected to visit Dubai in 2012, up by around 9% from the previous year. Hotel occupancy rates have also risen in recent years, from around 70% in 2010 to 74% by the end of 2011, according to official DTCM statistics. Similarly, based on HVS data, RevPAR rates had improved to $138 by the end of 2011, while average room rates had reached $191 in the same period (see analysis).

TOP DESTINATION: As of mid-2012, after nearly two years of recovery, Dubai was once again considered to be among the top tourist destinations in the world. Occupancy rates were running at 83%, according to statistics from Jones Lang LaSalle (JLL), a multinational real estate firm, while TRI Hospitality, a UK-based tourism research organisation, found occupancy rates at around 80% as of September 2012. According to the DTCM, the emirate’s hotel segment reported total revenues of Dh13.67bn ($3.72bn) in 2011, up 20% from Dh11.3bn ($3.08bn) in 2010 and Dh10.6bn ($2.89bn) in 2009. The city was named the eighth most visited city in the world on MasterCard’s 2012 Global Destination Cities Index, up from ninth in the 2011 edition of the same report.

According to data from the World Travel and Tourism Council (WTTC), an independent, UK-based research organisation, the travel and tourism sector directly contributed around Dh83.8bn ($22.8bn) to the UAE’s economy in 2011, which was equal to around 6.5% of GDP. Dubai accounts for a significant percentage of this figure, followed by Abu Dhabi, which has also worked to build up the local tourism industry in recent years. The sector’s direct economic contribution is expected to rise by 4.6% to Dh87.7bn ($23.9bn) by the end of 2012, according to WTTC forecasts.

Similarly, the sector’s total contribution to GDP (which includes investment in supply chain development and other broader economic effects) is expected to jump from Dh175bn ($47.6bn) in 2011 (around 13.5% of GDP) to Dh182.8bn ($49.8bn) (13.7% of GDP) by the end of 2012. According to the WTTC, in 2011 the travel and tourism sector employed around 388,000 people, or nearly 11% of the workforce.

GROWTH DRIVERS: The development of Dubai’s tourism industry has been carried out under the rubric of the Dubai Strategic Plan 2015, which was launched in February 2007 and revised in 2009, after the downturn. The tourism sector is the first of six areas that were slated for development under the plan, all of which are seen to be working together. “Tourism growth is also driven by the growth of other core sectors – from financial services to construction,” Khalid bin Sulayem, the director-general of the Department of Tourism and Commerce Marketing, told OBG. “Residents increase year-on-year, and visitors also increase as well.”

These industries, which are seen as key building blocks of the emirate’s economy moving forward, have benefitted substantially from government investment since the strategy was launched. Under the tourism component of the plan, the DTCM is working to attract 15m tourists to the emirate by 2015. While progress towards this goal was slowed by the downturn, more than 10m tourists are expected to visit in 2012, according to the DTCM (other groups, such as Business Monitor International, suggest the number may closer to 9m) and visits are on track to continue to rise in the coming years.

This expansion is the result of a number of key growth drivers, including an aggressive promotional and marketing campaign in a handful of key foreign markets; steadily increasing air connectivity to major hubs around the world; a growing reputation as a tourism destination; and Arab Spring-related tourist growth. In 2011 the top foreign source markets for tourists entering Dubai were Saudi Arabia, with 873,152 visitors, or around 9.4% of the annual total; India, with 702,142 visitors (7.5% of the annual total); the UK, with 643,196 visitors (7%); Iran, with 476,708 visitors (5.1%); and the US, with 462,653 (5%). Rounding out the top 20 tourist source markets in 2011 were Germany, Kuwait, Russia, Oman, Pakistan, China, Australia, France, Egypt, the Philippines, Qatar, Italy, Jordan, Bahrain and Lebanon, according to the DTCM.

ASIAN FOCUS: The majority of the department’s marketing activities in recent years have focused on rapidly expanding Asian markets, and specifically China, which is expected to account for a steadily growing percentage of visitors to the emirate over the course of the coming decade. Indeed, according to the DTCM, the number of Chinese visitors to Dubai will likely double throughout 2012 as compared to the previous year. This nascent market represents a growing source of revenues for the emirate. Due to rising levels of disposable income in China in recent years, Chinese tourists are considered to be high spenders on lodging, food and retail, which may also help prove a boost to the emirate’s luxury segment. Local hotels have worked to cater to the market by hiring Chinese-speaking employees and expanding their restaurant menus to include Chinese food. During the 2012 Chinese New Year, which fell in late January, around 80% of the guests at the exclusive Burj Al Arab hotel were reportedly from China.

The DTCM operates three offices in China and works to highlight Dubai’s growing popularity for Chinese tourists. The department is also working to attract visitors from other new and expanding markets such as India, Russia, South-east Asia and other GCC countries. Special package tours marketed at these demographics may also be possible.

REGIONAL TOURISM: Regional unrest, widely known as the Arab Spring, has had a negative impact on a number of major tourism destinations. Many tourists looking to travel in the Middle East have avoided these countries outright, instead booking stays in a handful of stable Gulf destinations, such as Dubai. Though precise figures are currently unavailable, based on circumstantial evidence the inflow of Arab Spring-related tourists has had a major positive economic impact on the emirate. For example, prior to the regional unrest, Egypt’s tourism industry accounted for around 11% of the country’s GDP, bringing in around $9bn in the first nine months of 2010. Some 12.5m tourists visited Egypt in 2009. As one of only a handful of other major tourist destinations in the Middle East, Dubai has likely benefitted substantially from a decline of visitors to Egypt, which began happening in late 2010 (see analysis).

LEISURE AND RETAIL: Dubai’s tourism industry is distinctly multi-modal. Indeed, the emirate is one of only a handful of destinations in the region to cater to a wide variety of niche tourism markets. Prior to the 2008-09 downturn the emirate was known primarily as a high-end luxury destination. While growth in this segment was tempered somewhat during and immediately following the economic crisis, it began to recover in late 2010 and has expanded since then. The health of the luxury tourism segment is closely linked to the health of the emirate’s high-end hotels and the luxury retail segment, both of which have posted solid returns over the past two years. Since 2009, 11 five-star hotels and 17 four-star hotels have opened for business, and many others are currently in the pipeline (see analysis).

According to an April 2012 report released by CB Richard Ellis (CBRE), a multinational commercial real estate advisory, the UAE is currently the second most targeted market for international retail brands after London. Luxury retail brands have performed especially well since mid-2011, buoyed by steadily increasing numbers of well-heeled foreign visitors from China, Saudi Arabia, Russia and other increasingly wealthy nations. The emirate’s two largest shopping malls, Dubai Mall and Mall of the Emirates, currently have occupancy rates in excess of 90%, and footfalls have increased steadily over the past half-decade.

In 2011 Dubai Mall became the most visited shopping and leisure destination in the world, attracting 54m visitors, up 15% from the previous year. The 2011 Dubai Shopping Festival, a month-long event that takes place annually in January and February, contributed Dh15.1bn ($4.1bn) to the emirate’s economy, according to the Dubai Events and Promotions Establishment. A substantial percentage of this revenue comes from tourist spending money in the shopping centre.

BUSINESS & MICE: Dubai has been a major destination for meetings, incentives, conferencing and exhibitions (MICE) tourism in the region for nearly a decade.

The Dubai World Trade Centre (DWTC) has historically been seen as one of the emirate’s most influential institutions in MICE terms. It generated a net income for Dubai of Dh6.5bn ($1.77bn) in 2011, and Oxford Economics, an analytics firm, reckons spending by DWTC accounts for 2.1% of the emirate’s overall GDP, in part driven by the vast amount of trade conducted at meetings held at the centre.

Another player, the Dubai Convention Bureau (DCB), a division of the DTCM, was launched in 2003 with a mandate to attract new MICE business to the emirate and boost Dubai’s reputation as a centre for business tourism. The local MICE segment suffered during the 2008-09 downturn, as many firms cut back on conference spending. Since then however, the market has recovered substantially. In 2011, according to DCB data, the emirate hosted 34 major MICE events, up from 31 in 2010 and 25 in 2009. According to a recent report released by CBRE, by mid-2011 nearly 56% of the world’s largest 280 companies were operating in Dubai, making it the ninth most popular business destination in the world, which bodes well for the MICE market.

The DCB recently launched the Dubai Bid Alliance (DBA), an in-house working group made up of representatives from major hotels, tourism operators, MICE facilities, airlines and other tourism stakeholders. The alliance has a mandate to attract large-scale events to the emirate, with a focus on events that draw a minimum of 1500 delegates and the use of at least 750 hotel rooms. The DBA has been working to put forward a comprehensive bid proposal for each event, including pre-negotiated hotel terms and rates; flights on Emirates Airlines, the UAE’s flag carrier; favourable rates at the Dubai International Convention and Exhibition Centre (DICEC); and other additional incentives from the DCB and other partners.

CRUISE DESTINATION: In addition to leisure, retail and business tourism, the DTCM is working to position Dubai as a regional cruise destination. In 2011 the emirate’s cruise terminal, located at Port Rashid, attracted 108 cruise ships, up from 103 ships the previous year and 87 ships in 2009. As of late 2012 Dubai served as a home port in the region for five international cruise companies, including Costa Cruises and Royal Caribbean International, among others. In recent years the emirate has also become a popular port of call on many international cruise itineraries, especially in the wake of the Arab Spring, as many other popular destinations in the region have become somewhat precarious. The DTCM, which has overseen the cruise segment since 2001, is in the midst of an aggressive cruise-related marketing campaign, with the goal of attracting 145 ships per year to the emirate by 2015 (see analysis).

OTHER NICHE SEGMENTS: Other niche tourism segments cater to middle-income and budget travellers; medical tourists; and sports tourists, among others. The budget tourism segment has developed rapidly in recent years, primarily as a result of hoteliers and tourism operators seeking to diversify businesses away from the volatile high-end luxury segment in the wake of the 2008-09 crisis. As of late 2009 around 60% of the emirate’s hotel rooms were four- and five-star properties, according to JLL data; by June 2012 this number had dropped to 37%, according to the DTCM, as developers brought new budget and mid-market properties to market. Major government infrastructure projects, such as the Dubai Metro, have also had a positive impact on the emirate’s nascent reputation as a relatively affordable vacation destination (see analysis).

Medical tourism, which has been a niche growth segment since the early 2000s, has only begun to take off in recent years. The segment is centered in Dubai Healthcare City (DHCC), a large-scale mixed-used development that was launched by the government in 2002. Through the early and mid-2000s the project expanded in fits and starts. Since the downturn, however, DHCC has seen a substantial amount of activity. As of late 2012 the 4.1m-sq-feet development was home to two hospitals and more than 100 outpatient medical centres, with a total staff in excess of 3000 medical professionals from around the world. While the majority of the patients that seek care at DHCC are locals, the centre has seen an uptick in medical tourism receipts.

Other hospitals in Dubai have seen similar increases in the number of foreign patients seeking care in recent years, according to local reports. Because health care costs in Dubai are not substantially lower than other major health care markets around the world, DHCC is working to position itself primarily as a high-end provider of elective surgeries, though hospitals and clinics at the centre offer a wide variety of procedures.

Sporting events have also played an increasingly important role in Dubai’s tourism industry in recent years. Like a handful of other nations in the Gulf, Dubai has attracted a variety of major sporting events over the past decade, including the Dubai World Cup, an annual equestrian race with a $10m purse; the Dubai Duty Free Tennis Championship; the Dubai Rugby Sevens; and the Dubai Desert Classic, a major golf tourney. In March 2012 the DTCM signed a memorandum of understanding with the Dubai Sports Council, the government sports authority, in an effort to boost coordination and collaboration between the agencies, with the goal of turning Dubai into a regional centre for sporting events and sports enthusiasts (see analysis).

HOTELS: As of the end of 2011 Dubai was home to 575 hotels and hotel apartments with a total of 74,843 rooms, according to DTCM figures. Of this total, 63 hotels were listed as five-star properties, 76 were four-star, 61 were three-star, 50 were two-star, 120 were one-star, 17 were unrated guest houses, and the remaining 188 were hotel apartments. In the years leading up to the crisis a substantial number of new hotels set up shop in Dubai. Between 2002 and 2008 the number of hotels operating in the emirate increased by more than 75%, jumping from 272 to 351. When the crisis hit in late 2008 many hotel projects were put on hold or cancelled entirely. By the end of 2009 just one new hotel had opened for business, bringing the total to 352, according to DTCM figures, though around 20 hotel apartments came onto the market in the same period. Since then, however, as tourist numbers have improved, many stalled projects have started up again. By the end of 2010 Dubai was home to 382 hotels, for example, and this number had risen to 387 by the end of 2011. As of mid-2012 Dubai’s construction pipeline included more than 25,000 new hotel rooms, which makes the emirate one of the busiest hotel construction markets in the world (see analysis).

NEW CLASSIFICATIONS: In May 2012 the DTCM released a draft version of a new hotel classification system, which currently has a number of elements being rolled out in the emirate as part of a soft launch of the system. Under the new system, hotels will be assigned a rating of one to five stars based on strict guidelines developed by the department over the past few years. The new framework is expected to clear up confusion and inconsistencies that have developed under the existing ratings framework, which is more than a decade old and decidedly out of date. For example, over the past few years a number of leading properties (such as the exclusive Burj Al Arab) have been falsely identified as “seven-star” hotels.

Under the new classification system, five-star properties that wish to stand out from the crowd will be able to apply for “gold” or “platinum” status. The new framework will also include a “budget” hotel category, for sub-one-star properties, such as youth hostels. After the new law is published, hotels will have six months to prepare to meet the new standards. Despite this grace period, a substantial number of local properties are expected to be downgraded as a result of the law.

TRANSPORT INFRASTRUCTURE: The government’s numerous investments in transport infrastructure over the past decade have been a boon for Dubai’s tourist sector. In 2011 Dubai International Airport (DXB) was the fourth-busiest airport in the world, serving almost 51m passengers, up 8% from around 47.2m passengers in 2010. The airport, which is the primary point of entry into Dubai for most visitors, was named the Middle East’s leading airport at the 2011 World Traveller Awards and the best airport in the world at the 2011 Skytrax World Airport Awards. Dubai Airports, the government-owned company that operates DXB, recently launched a $7.8bn expansion and improvement project plan at the airport, with the aim of boosting capacity to handle some 90m passengers on an annual basis by 2018.

DXB is home to two local airlines, including Emirates, Dubai’s flag carrier, and flydubai, a low-cost carrier, both of which are owned by the government. Emirates, which was founded in 1985, is currently the largest airline in the Middle East, serving destinations on six continents. Flydubai, meanwhile, which was launched in 2008, has quickly become one of the leading budget carriers in the region, despite competition from a number of other regional low-cost carriers. Both airlines are major stakeholders and play pivotal roles in Dubai’s tourism sector (see analysis).

OUTLOOK: The travel and tourism industry currently faces a number of challenges. While developing economies around the world have seen some economic growth in recent years, many developed countries have yet to return to pre-crisis levels of expansion. In Europe, for example, the debt crisis continues to hinder consumer spending in many countries, which in turn has negatively impacted outgoing travel and tourism expenditure. Additionally, Dubai faces increased competition from a number of other cities and countries in the region, including Abu Dhabi, Oman and Qatar, among others. Finally, a slew of new construction in the tourism sector in recent years could eventually result in an oversupply of hotel rooms, which in turn has the potential to push down prices and occupancy rates throughout the emirate.

With these issues in mind, the long-term outlook for the tourism sector remains uncertain. That said, the DTCM and the emirate’s tourism operators are looking forward to continued growth for the foreseeable future, for a number of reasons. While inbound tourism from the EU, the US and other Western nations has slowed in recent years, Dubai has benefitted from an influx of new tourists from China, India and other major developing markets, not to mention visitors from other GCC member states, who are expected to continue to account for a substantial percentage of incoming tourists in the years to come.

While competition from nearby destinations has ramped up in recent years, Dubai has a number of solid advantages over other cities in the region, including well-developed transport and hotel infrastructure and a booming retail sector, among others. The increase in other attractions and niche segments also gives the emirate a leg up. So long as Dubai can maintain its current momentum, the emirate is well positioned to continue its reign as one of the world’s most popular and profitable tourism destinations for years to come.


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The Report: Dubai 2013

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