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High oil prices have yet to trickle down to the travel industry

United Arab Emirates: Monday, June 23 - 2008 @ 12:06

As far as the Middle East is concerned, there is no evidence that high oil prices have led to a slowdown in the travel industry, says John Podaras, Operations Manager at TRI Hospitality Consulting.

Hotel occupancy rates continue to be strong, and flights to the region were up 12% in April compared to the previous year.

But the fact that the industry has so far been immune to a downturn is puzzling. ‘It is bizarre that no one has really felt [the impact of high oil prices] yet,’ he says.

However, it would appear that hotels may face challenging times ahead when you combine high oil prices with other economic woes such as a credit crunch, rising food costs, and declining consumer confidence.

Podaras says he has talked to some hotel executives in the region who are beginning to worry about the possibility of a slowdown. ‘Hotels are becoming more apprehensive. Oil price is just one factor,’ Podaras says.

Another worrying factor for the industry is that so many new hotels are due to come online in the near future, which means competition will increase dramatically. ‘Logically, [these factors] have to start biting, but no one knows when,’ he explains.

Business travel remains strong

One reason that the industry has kept pace in Dubai is because the emirate is a business destination, and over half of the demand for hotels in Dubai is for business travel, notes Guy Wilkinson, a partner at Specialist Hotel & Property Development Advisers. ‘For corporate travellers this is a boom time. I don’t see them travelling less often,’ he says.

Another key factor working in Dubai’s favour is that it is a strong market for intra-GCC travellers, and these people are the ones who are benefiting from the oil boom.

Outside the region is where the impact of oil is hitting hardest, and there is no denying that some people from Europe and elsewhere will be less inclined to travel because it is getting more costly.

However, tourists are still attracted to Dubai because it is perceived as a good value in terms of the quality that you get, Wilkinson says. He says that room rates are rising because demand is so high, not because of high oil prices.

Summer travel still buoyant

One expert argues that it may be too early to measure the impact of high fuel prices on the region’s travel industry. Melwyn D’Souza, Operations Manager at Al Futtaim Travel in Dubai, agrees that there has been no noticeable dip in travellers across the region, but says summer is not the best time to gauge any impact because it is high season for outbound travel.

‘Many people may have made their bookings in January of February for their summer travel back home to Europe. These summer trips are often yearly commitments and people plan them far in advance,’ he explained.

A better time to measure oil’s impact will be after August. ‘One thing to watch for will be whether companies start to reduce their business travel,’ he said. ‘With the fare hikes, some companies may be maxing out their budgets earlier than usual.’

Among the region’s airlines, Emirates has raised its fares the most, upping them three times this year for a total of nearly 30%. Most other airlines in the region have increased their fares only once and within a range of between 5-12%.

Asked if customers are more likely to use low-cost carriers to save on fares, D’Souza says it is a misconception that low-cost carriers have the lowest fares. ‘Interestingly, many people do not realize that low-cost carriers are not really low cost,’ he says. ‘It is just a mind set that these carriers create.’

Depending on the time period, seat designation, and other factors, low-cost carrier fares may actually be higher than fares at regular carriers. ‘Especially during high-periods, low cost carriers are on par with regular carriers, if not higher,’ he contends.

See also:
Staffing could be the roadblock to UAE’s hotel industry
Timeshares poised to capture UAE holiday market

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Monday, June 23- 2008 @ 12:06 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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