Dubai: Only drastic cuts to fees and commissions on hotel bookings can ensure the longer term survival of three- and four-star properties in Dubai, according to industry sources. The room rates have already dropped below unsustainable levels at some of the city’s three- and four-star hotels.
“Many single hotel owners with unbranded properties - especially in the Deira area - have dropped rates below Dh50 per room per night on OTA (online travel agent) platforms,” said Praveen Shetty, Chairman of Fortune Group, which owns or operates four-star hotels."
“The guests who typically book at four- or three star stays are unlikely to return in sizeable enough numbers for the next six months at least. These properties are overly dependent on travelers from the Subcontinent and the Far East – and they will not be rushing back unless a COVID-19 vaccine is found and proved to be effective.
“That’s not the case with five-star and resort hotels, which have benefitted from staycation deals and travel from the UK and Europe.”
Industry sources confirm that entry and mid-tier hotels are disproportionately hit by the pandemic fallout. And even dropping room rates have failed to bring the guests back, because in most cases air travel to the key sourcing countries are yet to take off. Some three- and four-star hotels are stuck with occupancy rates of below 20 per cent for the better part of this year.
Other hotels are relatively better off by hosting visitors from the other Gulf states, and who are using Dubai for a connecting flight to their home country or to return to their place of work. Other Gulf states are yet to allow relaunch of international flights across their networks.
But this demand for overnight stays in Dubai will only last until the other Gulf states don’t allow direct flights to more destinations, which is why a longer term solution is needed, hotel sources add.
Set minimum room rates
Shetty is calling on Dubai’s tourism authority to intervene and “benchmark” hotel room rates. “What we suggest to stop this rate war is a benchmark for three-star and four-star hotels to not sell room rates below Dh125 and Dh150 exclusive of applicable taxes and fees,” he said. “Everyone shall benefit by this move… and earn collectively.”
With the pandemic continuing to exert its influence on hotel room demand from overseas visitors, this could be the right time to revise commission structures in the industry. Especially on bookings made for hotel stays by “domestic tourists”.
In particular, the commission paid to online travel agents should be brought down to 5 per cent from the “prevailing 15-25 per cent”. And the hotel industry should move to a variable commission payout to the booking platform based on room rates:
• If the room rate is below Dh100 per night, the commission should be 5 per cent;
• If room rates are in range of Dh100–Dh300 per night, it could be 10 per cent;
• If room rates are higher than Dh300 per night, then the commission cay be 15 per cent.
“Some far-reaching changes need to be made on the costs involved, or else the weaker hotel brands will disappear,” said Shetty. “There is already excess capacity across every star category for hotels in Dubai.
“In these circumstances, on a typical four-star management contract, the breakeven for the hotel operator could be well beyond five years. Not all operators will be able to sustain themselves through this period.”
Until overseas guests return in the kind of numbers that matter, UAE’s hospitality sector needs help from domestic stays.
According to Bruno Trenchard, Senior Manager at the CBRE Hospitality & Leisure division, “After several years of a relatively modest increase in demand, domestic tourism in the UAE has really picked up pace as a result of the pandemic. This growth is expected to accelerate due to underlying market trends and market maturation.”
• Reducing reliance on international visitors;
• Reducing exposure to international events, crises and security issues; and
• Reducing exposure to currency risk.
Income creation and retention
• Increasing hospitality market size through induced demand;
• Increased spending on hospitality from UAE residents;
• Increasing overall hospitality revenues in the UAE.