Hotel & Hospitality Industry in the Middle East: UAE Growth

Introduction and Industry Overview

Some of the fastest-growing travel and tourism destinations to have emerged in recent years are the Middle East in general and Abu Dhabi, capital of the United Arab Emirates, in particular. Despite the potential of external threats in the region, the hotel and hospitality industry has enjoyed a booming business as hoteliers, restaurateurs, and others seek to capitalize on this growth in an increasingly affluent part of the world. While there are a number of constraints to doing business in the United Arab Emirates, all signs point to continued expansion, and many international chains have already invested heavily in Abu Dhabi in an attempt to gain market share while conditions are favorable.

Clearly, time is of the essence, but it is important to identify the characteristics of the market and what can be reasonably expected from a venture capital investment in the hotel and hospitality industry in the UAE today. This paper provides an overview of the international hotel and hospitality industry and the travel and tourism sector that accounts for the lion's share of its revenues, followed by an assessment of initiatives underway in the region that reflect current trends. A summary of research findings and recommendations is presented in the concluding section.

Given its enormous economic impact, it is little wonder that the hotel and hospitality industry has attracted a growing amount of interest from both researchers and practitioners alike. Nevertheless, the harsh realities of real-world management in this industry frequently elude academicians, and the need for more research in this area is clear. In this regard, Montgomery, Lipschutz, and Brehmer (2005) emphasize that "in general, research enquiry about the hotel and hospitality industry and its participants is steadily accruing, although in a fairly haphazard fashion. Its development has often been reported as being hindered by a lack of understanding and communication between academics and practitioners. Gaining access to key participants within organizations is problematic, and using methodologies that are deemed useful for hotel practitioners are seen to be of key importance" (p. 343).

There are also recent trends in the hotel and hospitality industry suggesting that targeting a specific market has assumed new relevance and importance, with more and more hotels and restaurants adopting a "one-size-fits-all" approach to service delivery. In their book Tourism and Postcolonialism: Contested Discourses, Identities and Representations, Hall and Tucker (2004) report that the same forces driving globalization are having a homogenizing effect on the industry: "Global culture may be comforting for the contrast-avoider tourists, but for the contrast-seeker tourists it is experientially unexciting. Beachfront resorts, shopping arcades of chain stores, international airports, urban waterfront developments, hotels and restaurants are all essentially replications of each other, part of an international, corporate hotel and hospitality industry, and a standardized architecture and urban planning" (p. 176).

In many cases this standardization is what some customers want during a business or leisure trip, but standing out from the mainstream crowd has become especially difficult — and more important than ever. As Hall and Tucker (2004) further note, "This is global culture masquerading as local culture. Attempts to create difference — with theme parks, waterfront redevelopments, landmark public buildings designed by celebrity architects — become but further reminders of global culture and of the futility of repetitive attempts at differentiation" (p. 176). The "McDonaldization" of the hotel and hospitality industry has not been without advantages for international travelers, with English widely spoken and familiar fast-food outlets readily available; however, an increasing number of both Western and Arab travelers are seeking something distinctly different, even if it costs more.

Travel and Tourism Trends in the Middle East

According to statistics announced at the 2006 annual World Travel Market, Middle Eastern tourism continues to be one of the most dynamic sectors, with growth of 18%, compared to the Americas (+11%), Africa (+8%), and Europe (+5%) (cited in Wells, 2006). In her study "Middle East Destinations Lead the Field," Wells (2006) reports that the international travel and tourism industry enjoyed continuing growth following a pattern that began in 2004. In fact, 2005 represented the best year ever for the industry. An analysis released by the United Nations specialist agency, the World Tourism Organisation (UNWTO), noted that the number of international tourist arrivals recorded worldwide grew by 5.5% to exceed 800 million travelers for the first time. The UNWTO's estimate of 808 million international tourist arrivals in 2005 represents an increase from 766 million in 2004 — an annual increase of 5.5% as well as a consolidation of the spectacular 10% growth recorded in 2004 (Wells, 2006).

In spite of the turbulent nature of some parts of the Middle East, the vast majority of international travelers have not been dissuaded from visiting the UAE, Egypt, Lebanon, and neighboring countries. As Wells (2006) reports, "It is evident that travelers to the Middle East have been undeterred by external threats, such as the bomb attacks in Turkey, Egypt, and Jordan, possibly reckoning that they are, on balance, probably as much at risk at home as they are abroad. At the global level the impact of these isolated events has been negligible. They may have led to temporary shifts in travel flows, but they have not stopped people travelling" (p. 48). Although there have been some downturns in tourism at the local level, Wells suggests that in most cases these have been relatively brief. As WTO Secretary-General Francesco Frangialli observed, "The tourism sector has gained substantially in resilience over the past years. In spite of the turbulent environment we live in nowadays, destinations worldwide added some 100 million international arrivals between 2002 and 2005" (quoted in Wells, 2006, p. 48).

The Middle East travel and tourism industry is estimated to have generated $108.5 billion of economic activity in 2004 and is forecast to grow to $193 billion by 2014 (Wells, 2006). The industry is expected to enjoy continuing healthy growth of approximately 4% per year in real terms between 2005 and 2014. According to Wells (2006), "The support of most governments, the permanent development of tourism infrastructures, and significant public and private sector investment in tourism has paid off. Additionally, the low-cost airline phenomenon and the increasing cooperation regarding border facilities among countries in the region all serve to reinforce intra-regional as well as domestic traffic" (p. 48).

There are also plans for continuing investment. Capital investment in the Middle East tourism industry was estimated at $19.7 billion in 2005 and is expected to reach $33.9 billion by 2015, representing a 2.7% addition to regional gross domestic product (GDP) in 2005 (Wells, 2006). An important initiative launched in support of the travel and tourism industry was the creation of an Arab tourism bank wholly dedicated to the sector. According to Wells (2006), "The International Tourism Bank (ITB), based in Bahrain with a paid-up capital of $1 billion and issued capital of $2 billion, due to start operating in 2006, will be the first-ever bank dedicated to the tourism sector" (p. 48). The bank's founders expect the ITB to provide a new dimension to regional tourism by helping develop individual projects and assisting in the consolidation of the Arab tourism sector through investment, services, and technical support (Wells, 2006).

Based on projected growth in arrivals of 18% to a total of over 35 million, the region became the fourth most visited in the world, surpassing for the first time the volume of tourists to Africa (estimated at 33 million arrivals in 2004) (Wells, 2006). As Wells notes, "Morocco, Tunisia, and in particular Egypt are now considered a competitive threat to the more mature tourist destinations in the euro zone, including London, Paris, Venice, and Rome" (2006, p. 48).

Tourism Growth Across the Region

All Middle East countries for which data were available showed positive results without exception. The biggest increase in absolute terms was recorded by Egypt, which saw visitor arrivals grow by more than 2 million (+34%) to over 8 million (including approximately 5% same-day visitors). The country benefited — like other sun-and-sea destinations in North Africa and non-euro Europe — from the strength of the eurozone currency. In addition, more than 6 million travelers visited Syria, and Saudi Arabia reported an increase of 17%, in line with the regional average (Wells, 2006).

Lebanon enjoyed a considerable increase (+26%) on the already positive trend experienced in 2003, despite a politically difficult period following the assassination of former Prime Minister Rafiq Hariri. Lebanon's Minister of Tourism, Joseph Sarkis, described the new Beirut government's commitment to "enhancing the promotion of tourism in different sectors and encouraging investments in the country, in order to make Lebanon a first-class tourism destination in the Middle East" (quoted in Wells, 2006, p. 48).

Jordan also experienced healthy growth in tourism, overcoming losses from 2003. Mazen Homoud, managing director of Jordan's Tourism Board, declared at the World Travel Market, "As with all the countries that have seen terrorist attacks, the resilience and the professionalism of the industry is already shining through and Jordan is back on track" (quoted in Wells, 2006, p. 48). Inbound arrivals to Jordan increased by 21% to 2.8 million in 2004 and by a further 9% in the first half of 2005. It is worth noting that not all these visitors were regular tourists: "Jordan's capital Amman has become the centre for many companies and agencies working to re-build Iraq; this business visitor sector has become the country's second-highest earner of foreign exchange — contributing $803 million, or 10% of Jordan's GDP in 2004" (Wells, 2006, p. 49).

Egypt's tourist sector continued to generate healthy figures, producing $6 billion in 2004. Tourism Minister Ahmed el Maghraby announced plans to add another 10,000 hotel rooms to the current inventory over the next decade to accommodate continually increasing demand, stating that "Egypt has marvellous potential and can attract 14 million tourists a year." A major new tourism development zone is focused on the Red Sea riviera between Hurghada and Safaga. Additionally, the new Cultural Heritage and Tourism Organisation of Iran exhibited for the first time at the World Travel Market in London in November 2005, signaling Iran's determination to make an impact on the international tourism stage (Wells, 2006).

Tourism in Oman has also experienced healthy growth, due in large part to the political stability provided by Sultan Qaboos, who celebrated the 35th anniversary of his accession to the throne in 2006 (Wells, 2006). The Chedi hotel in Muscat was recognized with a Condé Nast Traveller readers' award, listed among the magazine's top ten best resorts and top ten best spa resorts in the Middle East, Africa, and Indian Ocean at the eighth annual awards ceremony in London in September 2005. Meanwhile, the beachside Shangri-La hotel resort, just outside Muscat, was also attracting the luxury market with a seven-star property (Wells, 2006).

Beyond these destinations, there are additional sources of visitors to the region. Each year, tens of millions of religious pilgrims visit holy sites such as Jerusalem and Mecca. As Wells (2006) points out, "Pilgrimage is big business. Syria and Saudi Arabia are currently leading the way in their expanding religious tourism sectors. Iran is also aiming to dedicate tourism investment to this sector, assessing that Hajj pilgrims might consider visiting some of the Islamic Republic's important religious locations on their way to Mecca" (p. 49). Saudi Arabia is one of the largest outbound markets, with tourists from the Kingdom spending around $6.7 billion each year on overseas travel — approximately 5% of the country's GDP. Travelers from the UAE spend more than $4.9 billion, representing an average of $1,700 per trip, which is $500 higher than the European average (Wells, 2006).

Conclusion

The research showed that the travel and tourism industry is one of the largest industries in the world, and despite some rocky times following the terrorist attacks of September 11, 2001, more and more people are taking to the skies for business purposes or to visit exotic destinations. The research also showed that the region experiencing the most growth in recent years has been the Middle East in general, with some of the hottest destinations being in the United Arab Emirates and its surrounding environs. The massive infusion of petrodollars has allowed these former desert kingdoms to make the investments in infrastructure needed to sustain this healthy growth rate, and all signs point to the UAE as one of the major tourist destinations of the coming decades. Perhaps most importantly, numerous opportunities for investment were identified across the region, with many international players targeting specific niche markets — including economy-minded travelers — alongside the established luxury segment. As the evidence makes clear, time is of the essence, and the window for early-mover advantage in this rapidly evolving market remains open, but not indefinitely.

References

Hall, C. M., & Tucker, H. (2004). Tourism and postcolonialism: Contested discourses, identities and representations. New York: Routledge.

Montgomery, H., Lipschutz, R., & Brehmer, B. (2005). How professionals make decisions. Mahwah, NJ: Lawrence Erlbaum Associates.

Salloum, H. (2001, June). Exploring the United Arab Emirates. Contemporary Review, 278(1625), 364.

Sheller, M., & Urry, J. (2004). Tourism mobilities: Places to play, places in play. London: Routledge.

UAE. (2007). U.S. Government: CIA world factbook. Retrieved December 7, 2007, from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html

Wells, R. (2006, April). Middle East destinations lead the field. The Middle East, 366, 48.