Mideast’s five-star hotels skirt price war on room rates

The Gulf’s gilt-edged getaways are sacrificing occupancy rates in favour of high room charges.
Mideast’s five-star hotels skirt price war on room rates
By Administrator
Fri 08 May 2009 04:00 AM

As the West’s credit-crunched hotels slash room costs, the Gulf’s gilt-edged getaways are sacrificing occupancy rates in favour of high room charges that rank among the world’s priciest.As hotels worldwide slash room rates in a bid to lure trade from a shrinking pool of leisure travellers, Gulf hotels are betting on the region’s resilience as a tourist destination and choosing to keep room prices high.

Clutches of hotels in Europe and parts of Asia have halved their room costs in an attempt to ride out the recession, as occupancy levels plummet.

By comparison, the Gulf’s gilt-edged hotels have declined to get their hands dirty in the price war, sacrificing occupancy rates in favour of keeping room charges high.

“Outside of this region, the trade is doing the sensible thing by making its prices more attractive,” said Nigel Pocklington, managing director EMEA of leading online booking agency Hotels.com.

“In Western markets, where the weakness in the economy has really started to hit occupancy, we’ve seen prices fall 12 percent year-on-year. In doing that, it would seem hoteliers have managed to avoid a significant drop in their occupancy.”

The firm, which is owned by the online travel giant Expedia, launched an Arabic version of its website at last week’s Arabian Travel Market (ATM), in a push to broaden its appeal within the local market.

The launch partly reflects the Middle East’s runaway appeal as a holiday destination, led by glitzy Dubai, Pocklington said. Site bookings for the emirate are up 74 percent year-on-year.

Still, Pocklington warns that local hoteliers will soon need to respond to softening demand or risk being undermined by aggressive discounting in other parts of the world.

“Hoteliers need to get smarter in the way they view pricing, so to offer more one-off deals with certain restrictions for times when hotels are particularly busy, which people like us can put into the market in a very controllable way,” he said. “It’s a way of adjusting prices to reflect the economic period but not necessarily abandoning yield as a goal either.”

The Gulf has, to a degree, been a victim of its own success. Over the last nine years RevPAR (revenue per available room), an industry benchmark used to compare hotels, has grown in some Gulf markets by as much as 20 percent. According to a report released last week by consultancy firm Jones Lang LaSalle Hotels, this has led to inflated hotel rates that are unlikely to survive the recession.

“This extended period of strong growth has resulted in levels of performance that are unsustainable in the long term,” analysts wrote. “Room rates in some markets have reached levels that have become quite uncompetitive relative to more mature hotel markets overseas.”

This forecast has been borne out by the slew of results revealed at last week’s ATM.

Chris Cahill, chief operating operator at Fairmont Raffles Hotels International said RevPAR was down 25-30 percent at the Fairmont in Dubai year-on-year. Over at luxury hotel chain Jumeirah, operator of the seven-star Burj Al Arab, room revenues are down 20 percent.Vice-executive chairman and COO of Rotana Hotels & Resorts, Imad Elias, said occupancy at the chain’s Dubai hotels had slumped 25 percent.

According to Hotels.com data, Dubai’s room rates remain some of the highest in the world, costing an average $281 per night. Abu Dhabi’s rates are even higher at $299 per night, making it the site’s second most expensive destination behind Russia’s capital, Moscow.

In context, the average room cost in New York is $250, in London $164 and Paris $196.

Worldwide, room prices were down 12 percent on average in the fourth-quarter of 2008 year-on-year. By comparison, Dubai’s rates had dropped just eight percent.

Prices aside, Dubai remains the most popular inbound destination in the Middle East by Hotels.com traffic, followed by Abu Dhabi, Cairo, Beirut, Muscat and Sharm El Sheikh.

Arthur de Haast, global CEO of Jones Lang LaSalle, argues that Gulf hotels will need to offer creative deals to maintain demand as the credit crunch bites in the west.

“This is going to be a challenging year for hotels and this summer is going to be quite hard as feeder markets like Europe suffer.”

In spite of the crash, de Haast warns that slashing rates could cause complications once the market recovers. For example, should rates be lowered to $300 per night, he said, customers will be unwilling to pay $600 once the market picks up.

For his part, Pocklington has pegged the rise of low-cost airlines in the Gulf as the driver most likely to reshape the region’s hotel prices, should the recession fail to.

“It has clearly positioned itself as a high-end hotel market [but] the thing that might change that is if low-cost airlift comes into play,” he said.

“Should that happen, there will be a very clear demand for budget hotel accommodation and we’ve seen that happen in a lot of European cities.”

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