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Sat 31 Jan 2009 04:00 AM

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Avoiding 'the perfect storm'

Hotelier asked Deloitte’s global managing partner, tourism, hospitality and leisure, Alex Kyriakidis, some quick-fire questions about the challenges ahead for tourism developments in the UAE.

Hotelier asked Deloitte's global managing partner, tourism, hospitality and leisure, Alex Kyriakidis, some quick-fire questions about the challenges ahead for tourism developments in the UAE.

Do we run the risk of tourism developments not coming to fruition due to the current economic climate?

It's interesting. My view is the following: until now, we've had the benefit of investing in tourism-related product on the back of the real estate boom if we are honest about it.

It’s going to help everybody to focus sharply on the tourism product itself, its viability and its profitability as a tourism product.

In other words, most of the big projects, whether it's The Palm and what Nakheel has done there, or whether it's all of the developments that are currently in the pipeline, they've all been critically dependent or heavily dependent on real estate.

In other words sell the residential unit. It's the same throughout the region and there is nothing wrong with that, but what we're into now is a different era, one where globally, real estate is in trouble.

So I think for the foreseeable future, it's going to help everybody to focus sharply on the tourism product itself, its viability and its profitability as a tourism product.

I think that's healthy because the focus will be ‘can we make this destination/attraction/hotel/restaurant actually profitable in its own right?'

I've been through recessions four times now and I believe a third of all projects underway will continue and be completed. About a third will be delayed and about a third will fall away - the projects that were marginal and were only going to work if the real estate was going to work.

How do projects avoid being in that one-third that fails?

I think it's all in the robust business planning that takes into account the reality of tourism-related strategy as opposed to real estate related strategy.And that is the defining difference going forward that will determine the projects that survive and the projects that fail here, because it's not about real estate anymore.

So with the mixed-use projects planned, must attractions be integral to them as opposed to an added extra?

Absolutely. I think what's going to really make the difference now is the whole industry in this region is going to rely much more on operational focus in these developments and evaluate them for what they are; that is attractions, hotels, F&B and entertainment. I think that is healthy for the industry because you are building a sustainable business.

When do you think we'll see the full impact of the economic crisis hit the region's hospitality industry?

I think in the second half of next year, starting around about April or May, after the first quarter.

So that's when the press releases about these great projects stop coming then?

I think you'll see that before because most of the big hotel groups and most of the tourism trade are very savvy and they're going to plan for it. They know what their forward booking situation is and they know that there is pressure after the first quarter, so they're going to start planning for it now. You will start to see lots of promotions for value packages to the UAE region.

What's different about this recession?

It's the perfect storm. There's never been a recession that I've been through where you've got everything from a financial meltdown in the world markets to a deflationary environment to the dollar gaining strength and completely turning on its head the pricing of many destinations around the world, no money available from the banks so no money to finance anything and equity markets crashing through the floor.

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