Dubai skyline
Dubai's hotel operators are hoping summer will offer some respite if residents opt to stay put rather than travel. But tourists will take a longer time to return in a post-COVID-19 world. Image Credit: Gulf News Archive

Dubai: Hotels in the UAE will have to rely on bookings from UAE and Gulf residents to see them through summer… if the COVID-19 spread settles before that.

Because most hotel operators are not convinced that leisure and business travel from outside the region will materialize in the next two three months.

“Nothing will recover before July/August,” said J.S. Anand, CEO of LEVA Hotels & Resorts. “People will be wary of travelling since Western countries are still suffering. Tourists will start returning only by the fourth quarter.

These are particularly trying times for the UAE hotel industry. Layoffs have started at most of the leading hotel chains and independent operators. Bookings have been halted at some hotels entirely, while some new hotels that are due to open in the coming weeks will try and get by with as little financial pain as possible.

The next few months were to see multiple new hotels opening in Dubai, originally scheduled to be ready for Expo 2020, which has been postponed to next year.

“We have a lot of fixed costs in terms of staff accommodation, transport, food, salaries, uniforms, etc.,” said Anand. “But we have no money for any cashflow now.”

J.S. Anand of LEVA Hotels & Resorts

The decline in numbers are stark. LEVA’s four-star property attached to Mazaya Centre on Sheikh Zayed Road typically runs an average occupancy of 75 per cent in March. But in a COVID-19 inflicted world, occupancy has dropped to 20 per cent.

That too only because of long-stay guests who are on one-year contracts for rooms with kitchenettes. The property also has on board some shorter stay guests with average tenure of two- to three-months.

‘Long-stay’ is the only respite

Long-stay corporate guests on one-year contracts are the only source of income for UAE hotels, with leisure demand having completely dried up since mid-February. These longer stays are helping hotels clock in 20-25 per cent occupancy, with some 30 per cent occupancy in an otherwise tough market.

“We have around 50 long-stay guests [corporate employees, entrepreneurs] at our JBR property,” said Anthony Ross, CEO, JA Resorts and Hotels. “In Jebel Ali, our guests are primarily European guests who could not either exit the UAE owing to travel restrictions or did not want to return to Europe owing to the virus outbreak.”

Anthony Ross of JA Resorts and Hotels

JA is now operating only two hotels out of the six in its portfolio. These are the JA Oasis Beach Tower in Jumeirah Beach Residence and JA Palm Tree Court in Jebel Ali.

After consolidating all its remaining guests into the two hotels, the JBR property now has an occupancy of 30 per cent while Jebel Ali is at 20 per cent.

Employees from the other four properties are now on long leave, while JA takes stock of its value proposition.

The hospitality industry is hopeful that guests from within the UAE and GCC will start travelling and spending on staycations by late May/early June or so. “When the time is right for us to accept guests on a “staycation” basis, we will offer generous room rates to reflect the pain that people have gone through [in terms of loss of income],” said Ross.

A JA property in Dubai... The operator consolidated its six properties into two to see through the virus-driven slowdown. Other hotel chains too have gone in for selective openings and closures.

Worst possible time

The COVID-19 crisis builds on ongoing problems for UAE hotel operators, namely the steep decline in room rates and intense competition from holiday-home operators.

Room rates were stressed all through last year, with not even the usual December bump nowhere to be seen. Now, with COVID-19 inducing the slowdown, 5-star hotels are offering the same room rates as 3- and 4-star hotels.

“The room rate at our 4-star Leva Hotel is Dh150 a night - it used to be an average of Dh350 in March last year,” said Anand. “Today, the 5-star Dusit Thani or Millennium Plaza Hotel on Sheikh Zayed Road also charge the same rate more or less.

“There is an outright rate war in the absence of a regulation.”

Expo postponement

Then comes the Expo Dubai postponement to next year. So, whatever spike hotels were expecting this year will have to be pushed forward to the next.

But hotel industry is willing to wait it out. “The Expo will guarantee six months of MICE business - but it will depend on who gets a slice of the pie,” said an Abu Dhabi based hotel executive in Abu Dhabi.

“The recovery in the hospitality industry will be led by domestic demand and corporate visitors .”

For now, most hotels are offering full refunds to cancellations. LEVA had bookings worth Dh2 million cancelled from the beginning of March for a period lasting 90 days.

With tourist source markets in Europe still reeling under the impact of the coronavirus, it could take another six to seven months for a revival in international footfall.

Help needed… now

The UAE’s hotel operators are also seeking more government support to tide over the crisis. Citing the case of Abu Dhabi and Sharjah - where authorities have relaxed the tourism dirham and municipality fees, hoteliers have called for similar relief in Dubai.

“At the macro level, several fees are imposed on hoteliers,” said Anand. “We can do with some support in the form of a rental waiver or discount.

“In Dubai, the Municipality fee on sales has been halved to 3.5 per cent only for three months while the tourism dirham is unchanged at Dh15 per stay per night. We need more support.”