Dubai on budget

More than 2 billion people live less than a five-hour flight from Dubai. And it seems those of us who live here may be seeing a lot more of them in future. There have been efforts to diversify Dubai from an exclusive playground for the rich on tour to an affordable destination for visitors from different income groups.

Many in the industry are heralding such changes as the key to the emirate's survival as a major global tourist hot spot, with analysts saying such moves have been inevitable for some time.

There is certainly no ignoring that global conditions have had some impact on Dubai's inbound tourism. Department of Tourism and Commerce Marketing (DTCM) figures show hotel occupancy rates in Dubai fell by 14 per cent in the third quarter of 2008 year on year, according to Reuters.

"Definitely the first quarter [of 2009] and potentially the second quarter are going to be a challenge," Elie Armaly, Director of Business Development at hospitality and leisure consultancy firm Roya International, told Gulf News.

The industry's immediate response has been a reduction in prices as hotels compete for customers. "In terms of spending in the resorts, it is much less as an average per head, across the board," Samir Hamadeh, Director of Sales and Marketing for Alpha Tours, told Gulf News.

"Definitely the amount of spending is down on tours and excursions as well as in restaurants."

In reaction, Alpha Tours has stepped up special offers and new initiatives to encourage better spending. The Department of Tourism and Commerce Marketing (DTCM) has also produced better deals for wary would-be visitors to the city. "Part of DTCM's plans to lure more tourists to Dubai include offering reductions of between 40 to 60 per cent off room tariffs at the city's luxury hotels," Eyad Ali Abdul Rahman, Executive Director of Media Relations and Acting Director of Business Development at the DTCM, told Gulf News.

Attracting more GCC visitors requires more value for money, says Hamadeh. Those travelling from neighbouring Arab countries often have larger families, he notes, and this made luxury Dubai inaccessible to many in the past. "With the [hotel] rates we were seeing last year it was definitely out of the budget of many GCC tourists," he said.

Efforts to make Dubai more affordable reaches much farther indeed than attracting neighbours, and now forms the business basis of notable changes in the industry here. While Dubai's iconic luxury seems unlikely to ever lose its appeal or glitz, the city's construction sites are increasingly building lower-budget hotels as the market diversifies to take advantage of those without five star wallets.

Euromonitor International highlighted the shift in its October 2008 report on tourism in the UAE.

"Growth in the low-cost sector is evidence of growing demand for budget travel in a region that has long neglected budget tourism infrastructure," said the report. The structure of tourism arrivals to the UAE is already experiencing a shift towards more budget tourism and decreased perceptions of the UAE as a 'luxury only' destination for the rich."

It also noted that as the "budget segment becomes a potential growth market for tourism, this will also push travel agencies and tour operators to target tourists from new destinations with packages that are less expensive and offer a different range of accommodation..."

Pointing out that Dubai's budget hotels are suffering less from falling occupancy rates than luxury establishments, Armaly believes Dubai's market for such accommodation is promising.

"Developers are realising the need to move away from luxury," he said.

"The investment is much less [with a budget hotel] than a five star and the demand is high. The budget hotel would hold its value better - as far as construction cost and demand."

The DTCM are also heralding the increase in budget hotels as a positive move in the industry.

"A number of developers started budget hotels and today the emirate of Dubai has several properties that fall under the so-called budget hotels and self-service hotel apartments," said Abdul Rahman. "In fact, Nakheel was one of the first organisations that went into tapping this market through a tie-up with easy hotels."

If Dubai fully embraces the lower budget end of the tourism industry, Armaly believes it can diversify as a destination, offering both luxury and value for money, similar to some of the world's other top travel spots. "There is now the potential to develop Dubai as not only a luxury destination," he said. "Look at Thailand and South Africa. Yes the luxury exists but also the facilities for backpackers."

Lower-cost accommodation could prove essential in maintaining business travellers to the city, as companies the world over cut down on costly trips for employees. "The business visitors have especially become spending-conscious," said Abdul Rahman and Armaly highlighted the fact that "Even fortune 100 companies are telling their employees to travel less and use budget hotels."

However, business travellers are more likely to be downgrading the expenses of their trips rather than staying away entirely, so better choice of accommodation will serve such a development.

"With the business sector and exhibitions still going on, they still continue to come however the class of flight is yet to be determined," said Armaly. "They are downgrading their flight status but not necessarily cancelling."

Despite the challenges faced, those most involved in Dubai's tourism trade echoed a similar refrain - the emirate's proven ability to bounce back after hard times. Experiences of falling visitor numbers due to international events included the September 11 bombings in New York and ensuing wars in Iraq and Afghanistan, which, although causing a dip in numbers, was combated by active marketing of the destination around the world.

"We have been through hard times in the past," Manu Mehrotra, General Manager of Al Tayer Travel Agency. "In 2001, at that time there was a dip and during the Iraq war, people would be a little more cautious, but Dubai has always bounced back."

Indeed, some say that times of crisis have been opportunities for Dubai to increase its market share over other competing destinations around the world, leaving it in a better position in the long run. "Dubai has passed through different crises before and because of the marketing campaigns we have been able to gain market share," said Hamadeh. "The key has been aggressive marketing when other destinations are not doing enough."

"So as a destination Dubai is becoming more accessible and adaptable - because it is designed with a degree of flexibility," said Gade. "Of course it was easier to be successful in a global boom - but that was not the case when Destination Dubai was first built. There is no doubt that the policy makers who achieved the success will react professionally to the challenge of having to work on keeping Dubai tourism in its rightful place," he said.

Exchange Rate: Fluctuating behaviour

Throughout Dubai's recent history as a tourist destination, the mainstay of nationalities visiting the city have been western European, particularly travellers from the UK. However, not only has recession in their home countries affected the numbers able to afford holidays in Dubai, but the falling strength of their currencies is making the current situation a double-edged sword for those considering trips here.

"People in Europe are taking more short trips rather than long haul," Manu Mehrotra, general manager of Al Tayer tourism company told Gulf News. "The pound has come down so that makes a bit of an impact. The euro has come down also. There is always the possibility that some people might re-think their plans. Hotels are however, offering special rates to reduce the impact of the exchange rate factor," he added.

Such reductions include the DTCM's efforts to offer cheaper packages to tourists and major luxury hotels slashing room rates across the city to make up for a pound that holds less weight than before.

In recent days the pound has dropped to its lowest level against the US dollar since 1985 and the euro has also dropped, leaving those depending on such currencies getting distinctly less for their money when on holiday in Dubai.

With regular tickets for shows at Cinestar in the Mall of the Emriates priced at Dh30, this time last year British tourists could have converted that to £4.11. On the same date this year, it will cost £5.81. A serving of fish and chips at one restaurant costs Dh75. Last year that meant £10.27 to hungry Britons but today it will set them back as much as £14.50.

Although the impact of the euro is not as considerable as the pound, those holiday-makers coming from the euro zone are also getting less for their money compared with a year ago. A large cappuccino in Dubai's Starbucks outlets costs Dh18. Converted this time last year, that cost 3.32 euros, whereas now that translates to 3.70.

"Exchange rates are both a direct and indirect factor on tourism — they influence the spending potential of tourists on the ground as well as package prices," Sven Gade, director and head of consulting at PKF The Consulting House.

"Thus, euro-travellers are currently at a disadvantage if visiting Dubai whilst the dollar — or dollar-pegged travellers benefit".

However, he draws attention to the fact that changes in exchange rates are often short-term and those who have already booked their holiday well in advance are unlikely to cancel based on the power of their currency.

"A look at euro fluctuation over the last year alone shows just how fluid exchange rates behave [there is a 25 per cent fluctuation around the mid point over one year] and how fast they change," noted Gale.

"An impact on tourism requires a longer-term trend because the rate will have to filter from the source market to end-users who often book up to one year in advance."