The lobby of the Atlantis hotel in Dubai. Image Credit: Gulf News Archives

Dubai

Dubai’s hospitality sector is expected to benefit from the latest decision to reduce service charges at hotels to 7 per cent from 10 per cent, a move that will boost hotels’ profitability.

Analysts said the move to cut fees by 30 per cent will make hotels more affordable, especially given the introduction of Value-Added Tax earlier this year, while hotel operators praised the move, saying it will help maintain Dubai’s position as a preferred destination.

“We expect this positive decision to further encourage travellers to enjoy the unique destination of Dubai,” said Rudi Jagersbacher, Hilton’s president for the Middle East, Africa, and Turkey.

He added that the Dubai government’s moves to develop the tourism industry give Hilton “great confidence in the market looking forward.”

Similarly, Rotana, the UAE-based operator, said it believes the move will stimulate Dubai’s hospitality sector, paving the way for growth in the market to cater to visitors during Expo 2020.

“Offering a significant incentive to investors and further contributing to [return on investment] of hotels, the landmark move will enhance the market’s appeal and attract increased local and international tourism,” said David Prince, vice president for Dubai and the Northern Emirates at Rotana.

“As the reduction in business costs will naturally reflect on room prices, guests staying in Dubai’s hotels will also benefit from this initiative, thereby reinforcing the emirate’s position as a preferred corporate and leisure destination.”

On Monday evening, Shaikh Hamdan Bin Mohammad Bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Dubai Executive Council, issued a resolution to reduce service charges for both hotels and restaurants by 30 per cent.

In a series of tweets, Shaikh Hamdan said the reduction is to enhance Dubai’s position for both investment and tourism, and is part of governmental efforts to reduce the cost of doing business and attract new investments.

“Today, Dubai is one of the world’s most popular tourist destinations. Last year, we welcomed 16 million visitors, and look forward to receiving 20 million in 2020 when we host the Expo,” he tweeted.

The decision on Monday follows other measures in the country to cut fees to incentivise investment, with the government having last week announced it will reduce aviation and municipality fees.

And analysts agreed with hoteliers on the benefits of the latest decision, saying the government’s move was a positive step towards making hotels in the city more affordable.

“If people are staying in Dubai for a week or two, that three [percentage points] can result in quite a bit of saving especially for some of the luxury hotels in the market, so I think there will be a benefit regardless of it being only three [percentage points],” said Christopher Hewett, director at TRI Consulting.

Hotels across Dubai have been facing pressure over the past two years as demand dropped amid lower consumer and corporate spending. This has been forcing hoteliers to reduce room rates, leading to lower revenues per available room.

Nikola Kosutic, research manager at Euromonitor International, said he was positive there would be more such initiatives to ease the pressure on various key industries, especially ahead of the Expo 2020.

“Fundamentals, demand; this is all solid. But hotels were operating with ever-increasing fees, which had an impact on their profit margins. They were complaining as much as they could have, and the government is responding to those complains to help them improve their profit margin, so this move will have a direct effect on improving profitability,” Kosutic said.