;

… And History Repeats Itself…What can we learn from this?

HVS Press Release
The 2003 edition of HVS International’s report on Trends and Opportunities for Hotels in the Middle East, published today, confirms that hotels throughout the region experienced a flat trend in RevPAR performance in 2002. Analysed and written by Elie Younes and Dominique Bourdais, the survey reports on a sample of 100, mostly branded, first class hotels. These hotels represent more than 30,000 rooms in ten countries throughout the Middle East. The authors comment that the events of 11 September and the global economic slowdown had a detrimental impact on the tourism industry in the Middle East in 2001; however, tourist arrivals in the region showed some growth in 2002, demonstrating once again the industry’s strong resilience to downturns. After experiencing a considerable decline in tourist arrivals of approximately 8% in 2001, tourism in the Middle East experienced a recovery in 2002 (despite the political turmoil), registering growth of approximately 7%. According to the WTO, in that year the Middle East accounted for 3% of the total number of worldwide tourist arrivals. The report confirms that regionwide hotel occupancy increased by two percentage points in 2002 to 66%, largely due to the increased intra-regional visitation, as well as the continued private and public investment in the tourism industry. Particularly noteworthy were destinations such as the Red Sea, Doha, Cairo Pyramids, Dubai and Beirut, which all showed fairly strong growth in occupancy levels in 2002. On the other hand, average rates fell by approximately 4%, to US$81. This fall was attributable mainly to the global economic downturn, which had a negative impact on the spending power of business and leisure travellers, the increased hotel supply in the region and increased regional and international competition. Overall, the decline in average rates offset the increase in occupancy levels, which led to a flat trend in overall RevPAR. Elie Younes, joint author of the report, commented, “despite the continuation of the political tension throughout 2002, most governments remain committed to the diversification of their economies and various touristic projects are planned in the region, notably in Dubai, Qatar and Bahrain. Hotel developments in the region continue to be geared towards five-star and four-star properties, with only 10% of the planned new branded hotel supply representing three-star and budget hotels.” Hotel owners are increasingly putting pressure on operators, especially in markets where many broadly similar brands exist. Various management contracts were transferred in 2002, especially in Lebanon, Egypt and Saudi Arabia, where some internationally branded hotels were re-flagged. Furthermore, operators originating in the Middle East are continuing to expand in the region. Brands such as Rotana, Metropolitan, Safir and Jumeirah International have aggressive plans to develop in the region. These brands will, in some instances, gain a competitive advantage over international hotel operators. “This is due to their greater willingness to bear the financial risk with the owners by taking an equity contribution in some projects”, commented Dominique Bourdais, a director of HVS International. “Due to the insignificant amount of mid-market and budget-branded hotels currently available, combined with the potential demand to absorb this type of development, there are opportunities to develop branded budget and limited service properties in some cities in the region, as well as serviced apartments”, added Elie Younes. Looking forward, HVS International anticipates a slight slowdown in tourism to the Middle East in the first two quarters of 2003, as a consequence of the war in Iraq, followed by a recovery in late 2003 or in early 2004. However, the level of investment in the hotel and tourism sectors is not likely to contract due to the risk perception differential of Middle Eastern investors. “The good news is that history tells us the tourism industry in the Middle East has demonstrated strong resilience to economic downturns whatever the outcome and duration of the conflict were”, concluded Dominique Bourdais. Copies of HVS International’s Middle East Hotels – Trends and Opportunities 2003 report are available, free of charge, from HVS International, 14 Hallam Street, London W1W 6JG, or on its website: www.hvsinternational.com. For further information, please contact: Elie Younes, Associate Tel: +44 20 7878 7728 eyounes@hvsinternational.com Dominique Bourdais, Director Tel: +44 20 7878 7721 dbourdais@hvsinternational.com Or by fax on +44 20 7436 3386 # # #