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Middle East - Regional hospitality sector sees boom in growth

Tourism increases by 24 percent so far this year
Middle Eastern states see a rise in the number of visitors and indicators look good for the travel industry in the coming years

Despite the ongoing tensions in Iraq and Palestine, the Middle East region continues to attract a record numbers of tourists. According to the World Tourism Organization (WTO), the region enjoyed a 24 percent increase in tourist arrivals in the first eight months of this year on top of the 10.3 percent increase recorded in 2003, with the total number of tourists reaching 43 million.

The Middle East has seen the second highest rate of growth in tourism in any region this year, with only the Far East recording faster rates of expansion.

Syria saw a 52 percent rise in arrivals in the first eight months of 2004, compared to the same period a year ago. Egypt's overall tourist number rose by 49 percent, Lebanon's by 30 percent, Bahrain by 19 percent, Jordan by 18 percent and Dubai by 9 percent. It is especially important to note that growth in intra-regional tourism accounted for nearly 42 percent of total tourist arrivals. The region's travel and tourist market is forecast by WTO to grow at an annual rate of 7.1 percent until 2020.

There are several reasons why intra-regional tourism is picking up, some are due to "push" factors, keeping people away from the traditional destinations of the U.S. and Europe, where it has become more difficult for Arabs to get tourist visas.

There are also "pull" factors attracting more Arab tourists to regional destinations. These include better tourism infrastructure such as hotels, theme parks, resort projects, shopping centers, etc., and better roads and airports which make it easier for tourists to travel to neighboring countries by car or plane. There are also better promotions and package tours for the price-sensitive tourists.

Arab countries are adopting various strategies to differentiate themselves when targeting regional tourism. Dubai has become the commercial, convention and shopping center of the region. It boasts 272 hotels with 30,000 rooms. Dubailand, a $19 billion theme park twice the size of Disney World in Florida is being built. Jordan is promoting its natural reserves, its rich historical and archeological treasuries such as Petra and the Dead Sea and its friendly environment to attract family-related tourism. Lebanon is promoting its ski resorts and beach outlets, always capitalizing on its more relaxed attitudes toward fun and entertainment. Syria is known for its low prices and laid back atmosphere. Egypt is promoting its beach resorts on the "Red Sea Riviera" and Cairo's vibrant nightlife. Even Saudi Arabia is introducing its "Umra-plus" which combines the minor pilgrimage to Mecca and Medina with leisure in the kingdom's other main cities.

Arab tourists, especially those from the Gulf, are recognized to be good spenders. They are not so keen on visiting historical sites, preferring instead destinations that provide fun, relaxation, shopping and family entertainment. Arab tourists are repeat customers that tend to revisit regularly if they like the place. According to the World Tourism Organization, Gulf nationals and expatriates living in the GCC countries spent last year around $30 billion on travel and accommodation expenses abroad. This corresponds to a per capita expenditure of $1,874 per trip, compared to the European per capita expenditure of $936 per trip.

The shift in patterns of Middle East tourism over the past two years in favor of Arab travelers staying within the region looks set to continue. Once visitors discover a country and enjoy their stay, the number of repeat customers will start to swell, providing a larger tourist base for that country. Those Arab countries which realize the importance of this shift stand a good chance to benefit. Dubai's motto - "if we build it tourists will come" - appears to be succeeding. Facilitating travel between the Arab countries, especially waiving visa requirements, will greatly enhance intra-regional tourism.

Catering to Arab visitors and especially those from the Gulf requires a different setup than the one catering to Western tourists. Good infrastructure (hotels, entertainment parks, shopping centers, restaurants, sports attraction, etc), a friendly and service-oriented population, lively nightlife and above all a relaxed attitude toward fun and entertainment are the main attraction for Arab tourists.

The vast majority of hotels under development in the region are five-star facilities, but real estate investors are diversifying their portfolios, increasingly opting for mixed-use developments (hotels, serviced apartments, resorts, convention centers etc.) in order to mitigate risk and provide less volatile sources of revenue than stand-alone hotels. At the same time, greater attention is being paid to the development of branded limited-service hotels within the region. The first Ibis hotel opened in Dubai in 2003, while the Starwood Hotels & Resorts is launching in Cairo its first Westin-branded hotel in the region. Marriott is also planning to introduce its Residence Inn and Courtyard Hotels in several Middle Eastern countries.

A survey carried by U.K.- based HVS International of 120 hotels in the region reveals that although overall occupancy levels increased by only 2 percent to 67 percent last year, average room rates rose by 6 percent to $86. In addition, 2003 saw an average year on year increase in revenue per available room rates. All indicators point to a much better performance this year, with average occupancy levels rising above 70 percent, and exceeding 80 percent in places like Dubai.

Another 10 percent increase in revenues per available room is projected for 2004. The structural change that took place in the region's tourist market suggests that hotels are likely to continue to do well is the foreseeable future.

There are 17 hotel and tourism companies listed on the region's stock markets, whose performance so far this year has been quite strong, following relatively subdued results in 2003. For example, the Hotels and Resort Company listed on the Saudi stock market saw its shares appreciate by 70 percent so far this year. The shares of Salalah Hilton also posted good gains, up 60 percent from the beginning of the year. The shares of Zara which owns seven hotels in Jordan rose by 16 percent so for this year and the company that owns the Marriott hotels in Jordan saw its shares rising by 53.5 percent since the beginning of this year.

To conclude, the strong growth in the region's tourism sector expected for the coming five to 10 years should reflect positively on the travel, hotel and tourism industry. The surge in activities will open up vast opportunities for investment, both local and regional, with at least 600 hotels forecast to be built in the region by the year 2010.

This represents one of the most valuable long term investments available worldwide in the hospitality sector. Mostly Arab investors have so far been taking advantage of the surge in regional tourism to build hotels and other facilities. European and American operators continue to shy away from providing equity stake in hotel assets, however, Asian and regional operators are increasingly willing to offer equity in order to boost their presence and brand awareness within the region. This trend is likely to continue.

Henry T. Azzam is chief executive officer at Jordinvest in Amman

Beirut,11 29 2004
Henri T. Azzam
The Daily Star
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