Dubai Skyline
Event cancellations and a sharp drop in business travel over virus fears is making it an extremely difficult first quarter for UAE hotels. Image Credit: WAM

Dubai: Hotels in the UAE are following airlines in asking their staff to go on unpaid leave, as the hospitality sector battles the full impact of the coronavirus on demand.

The move to sanction unpaid leave will impact mostly on middle-level managers rather than the daily operations staff for now, hotel sources say. Several properties in Dubai and Abu Dhabi are already pressing ahead with the move, which would, they believe, help them to drastically cut down on costs. Employees have been told to utilise all outstanding leave-in-lieu days and proceed on unpaid leave. (There are some who do get paid as well.)

That’s not all - other steps being taken by hotels to reduce costs include closing full floors to save on utilities, a temporary freeze on new hires and replacements, and postponing non-essential purchases. The UAE hotel industry had responded with similar steps back in 2001, after the World Trade Center attacks in New York put the brakes on global travel, and during 2009-10, when the economy was hobbled by the financial crisis.

A senior hotel industry executive said that hotels in the mid-tier space are even changing their food and beverage suppliers to minimise costs. For instance, "They are buying Brazilian meat at half the price instead of from the US or Australian meat,” he added.

Who’s not affected?

Lower rung employees such as waiters and contract workers (who are there for banqueting and catering services, gardening and pest control) are not affected by this move. Employees are forced to take up the proposed option of going on leave or face redundancy.

Slash and then some more

At entry level 5-star hotels, rate have been slashed to Dh300 a night to try and convince travellers to book with them. At the luxury end of the hospitality market, properties are finding even rates as low at Dh1,200 a night is not winning them guests. (Some hotels have countered this demand dip by offering “staycation” packages for UAE residents.)

“I recommend hoteliers in regions affected by the coronavirus to offer special discounts to attract bookings and check all options to reduce fixed costs at the earliest,” said Dr. Tassilo Keilmann, CEO of Wellness Heaven Hotel Guide. “Some affected hoteliers have reduced their staff temporarily - if permitted by contracts. Other hoteliers have shut down parts of their hotels to save energy and reduce workload on their service personnel.”

While luxury hotels have not been hugely affected by cancellations caused by the virus outbreak, mid-tier ones that target corporate travellers have been affected. With firms like McKinsey and Ernst & Young have put strictures on corporate travel for their staff, business-related trips have nosedived. This is keenly felt by hotels.

Event cancellations have further compounded the hotel industry’s woes. With travellers from China, Italy and from within the GCC all but disappearing, hotels are among the worst hit. The general sense of caution related to travel and being in public places is weighing on occupancy and average daily rates.

A ‘war’ breaks out

The situation has inevitably set off a price war between mid-tier and luxury hotels, as they try to beef up occupancy levels. Rates are getting cut by the day, with current ones nearly on par with 2019 summer - or off-peak - rates. This translates into bad news for the hotel industry as it is overly reliant on the winter season to meet profitability targets.

The level of difficulty depends on the main source markets for guests. Hotels with a heavy reliance on Chinese and Iranian tourists have, obviously, been worst hits. Saudi Arabia’s closure of Mecca and Medina has impacted hotels in the UAE that used to host stopover Umra groups from Asia.

A hotel executive who spoke to ‘Gulf News’ said his hotel has lost bookings cumulatively worth Dh250,000 to Dh300,000 since the beginning of this year. He added that hotels on Yas Island in Abu Dhabi were facing a 60-70 per cent drop in occupancy. (Two hotels on Yas Island were quarantined off after two members of an Italian team who were to participate in the UAE Tour cycling event tested positive for coronavirus.)

The virus outbreak has impacted on one of the busiest periods for the UAE hotel sector. Even luxury hotels have not been immune to the need to cut down rates. Image Credit: Gulf News Archive

More costs to clean up

Fears about the virus is forcing hotel chains to spend more on housekeeping. The Indian hospitality chain OYO Hotels & Homes has invested in additional measures to increase the frequency at which rooms and facilities are cleaned and sanitised.

“While we have ceased any business travel to critical countries and monitoring the health of the staff, we’re also supporting our partners by exempting commissions for newly signed hotel owners,” said Pranav Mehta, Country Head - UAE, OYO Hotels & Homes.

To cushion the impact of Covid-19 virus on partners, OYO launched marketing campaigns to stimulate demand. “In terms of cancellations, we have been urging our partners to oblige guests’ requests for cancellations, especially those from markets impacted by the virus,” he added. “Most requests for either a refund or cancellation have come from guests who have been impacted by the cancellation of flights from China to the UAE.

“That said, we continue to welcome a large number of guests, particularly those from around the region.”

It's all happening again
Hotel industry executives who spoke to 'Gulf News' recalled similar measures being taken to counter a slowdown in business - in 2008 during the global economic recession as well as in 2001 after New York World Trade Center incidents.
Employees who had accumulated leave were encouraged to proceed on voluntary holidays. “The hotel industry is one of the first sectors to feel the effects of a business slowdown," said an industry source.

No joy for holiday homes either

Holiday homes in Dubai, which in the last two years have emerged as a serious threat to hotels, have not escaped the virus fallout. “This is the first month we see a slight drop in rates and occupancy,” said Anna Skigin, founder of Frank Porter. “Some guests are cancelling and we are offering refunds depending on the policy and situation.

“Many guests are already covered by their travel insurance. We feel that as people are holding off with their holidays, they will be deferring them to a later date. At that point, we anticipate a rebound and increase in both occupancy... and price.”