Despite terrorism activity across a number of Middle East markets, hotel performance has continued to storm ahead during the first quarter of 2005 according to the HotelBenchmark Survey by Deloitte. Revenue per available room (revPAR) jumped 24% to reach US$91 compared to US$74 for the first quarter of 2004. As occupancy climbed to 73%, the highest level recorded since 1996, performance has been buoyed by a massive increase in average room rates. Across the region average room rates surged ahead by 23% to reach US$125.


Source: HotelBenchmark Survey by Deloitte

Gulf passenger traffic: fastest growing in the world
One of the main drivers of this stellar performance is that many countries have begun to diversify their economic base (which was predominately oil focused) and have started developing their tourism offering. Over the last decade international visitor arrivals to the Middle East have nearly doubled according to the World Tourism Organisation (WTO). In 1996 international arrivals to the region were just 15.4m, however by the end of 2004 this had grown to 28.8m, representing a CAGR of 8.1%.

Not surprisingly the airline industry has changed beyond all recognition and passenger traffic through the Gulf is now the fastest growing in the world, rising by 10% per annum. There has been a rapid expansion of regionally-based international carriers such as Emirates Airlines, Eithad Airways, Qatar Airways and Gulf Air - many of which are adding new routes to their schedules to open up new source markets. In May Emirates will start flying daily to Seoul, in addition to a new route from Dubai-Bangkok-Sydney-Auckland. Qatar Airlines recently flew its inaugural flight from Doha to Osaka, Eithad Airways is adding Frankfurt to their schedule and Air France has doubled its flights between Dubai and Paris.

A number of low cost carriers are also entering the market. Air India Express will offer discounted flights from Dubai to Kochi, Kozhikode and Thiruvananthapuram from the end of April. Kuwait based Jazeera Airways also plans to launch low-cost flights between Kuwait and Dubai, Bahrain, Damascus, Amman, Luxor and Alexandria in October.

The metamorphosis of the hotel industry
Against the background of changing and increasing demand, the hotel industry is witnessing a metamorphosis. Today, all global hotel brands either have or plan to have a significant presence in the region. It is estimated that 80 new hotels will open on the Arabian Peninsula by 2008.

Dubai leads the field and remains the focus of development with an estimated 12,500 rooms being added to supply over the next four years. In recent years Dubai has been the launch pad for a number of new brands into the region including Fairmont, Traders, Shangri-La, Rydges and Millennium. The newest brand to enter the market is the luxury Armani hotel, a joint venture between fashion designer Giorgio Armani and Dubai-based Emaar properties. Qatar and Kuwait are also projected to see increases in rooms' supply of 145% and 75% respectively.

Which markets were the winners and losers during the first quarter of 2005?
Only three markets reported a decline in revPAR during the first quarter of 2005, Cairo - Heliopolis, Beirut and Kuwait. With an 18% fall in revPAR, hotels in Kuwait reported the most disappointing performance, with occupancy down 7% and average room rates down 12%. This indicates the market is returning to 'normalised' trading conditions, following the highs of the last two years, since the start of the Iraq War. Kuwait's first quarter revPAR compared to the same period in 2003 is virtually identical at US$153. 

Following the assassination of Prime Minister Rafik al-Hariri on 14 February 2005, the Lebanese tourism industry has been plunged into a state of despair. Tourism arrivals fell 18.5% in March compared to February, as foreign tourists stayed away wary of their safety. Consequently, occupancy has fallen 22% in the capital Beirut. Encouragingly, hoteliers have managed to maintain average room rates, which grew 10% during this time, mitigating the revPAR erosion to just 14%. Like Kuwait, Lebanon has experienced a renaissance during the last two years and despite the challenging trading conditions performance is still ahead of first quarter 2003.

At the other end of the spectrum, the regions winners during first quarter 2005 were Muscat and Doha. Hotels in Muscat reported an impressive 83% increase in revPAR. As occupancy increased 22% to reach a staggering 89% for the period, average room rates steamed ahead 50% to US$141. The only market to beat Muscat in terms of occupancy was Dubai where a phenomenal 93% was reported. Many comparisons are being made between Muscat and Dubai. Under construction in Muscat is "The Wave" a tourism and residential development costing US$805m. Whilst in Dubai construction has begun on two Palm developments, The World and Dubailand - all of which will help to generate future demand.

Average room rates in Doha have steadily increased since the beginning of 2004 and at 63% for the first quarter mark the highest growth of any market in the Middle East. The Qatari Government has done a great job of raising the profile of Qatar, spending US$15 billion positioning the country as a premier tourist destination. Visa restrictions have been relaxed for Westerners and this Muslim country has opened its arms to Western lifestyles, allowing women on the beach in swimsuits and lifting some restrictions on the consumption of alcohol. Construction of the Pearl of the Gulf (a lifestyle city) and the Asian Games in 2006 should continue to help boost performance for sometime to come.

Can hotel performance continue at this rapid rate?
Compared to other regions of the world economic indictors remain positive, and with the WTO estimating global growth in international tourism arrivals of 5% for 2005 - prospects remain positive for the medium term. Next week at the Arabian Travel Market, the World Travel and Tourism Council release their eagerly awaited 2005 forecasts for the Middle East.

Assuming demand continues to grow at this rapid rate the real challenge for the industry will be ensuring the airlines and associated infrastructure can cope. Dubai International Airport is adding a third terminal to accommodate 100m passengers expected by 2020. Other airport development is planned for Abu Dhabi, Kuwait and Jeddah, whilst in Doha a brand new airport costing US$2 billion is under construction. As long as governments across the region keep constructing innovative developments to boost their tourism offering, there appears to be no reason why hotel performance should not continue to storm ahead over the next few years.

Note: All analysis in US$

The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,500 hotels and 1.2 million rooms every month. Monthly surveys are produced on the following areas:

• Four regional rate and occupancy surveys covering Asia-Pacific, Europe, Central & South America and the Middle East & Africa.
• 12 country/sub-regional rate and occupancy surveys for Australia, Belgium & The Netherlands, China, Germany, India, Italy, New Zealand, Nordic Countries, Paris, Qatar, South Africa, Spain, UK and London.
• Profitability surveys on Germany and London.
• Two city rate and occupancy surveys for Paris and London.
• On an annual basis we produce profitability surveys tracking performance across all regions of the world.