SARS Crisis and Iraq Conflict Contribute to Faltering Performance of Hotels in the Middle East

Recently released trading figures on the performance of hotels in the Middle East and Africa from the HotelBenchmark Survey
by Deloitte & Touche reveal the dismal performance of the industry during the first half of 2003, with occupancy levels plummeting by 8 percent, to just 54 percent. With the industry reeling from the impact of the SARS crisis in Asia and the Iraq conflict, demand faltered resulting in nearly 60 percent of the cities tracked on the survey experiencing double-digit declines in revPAR. Kuwait and Doha were the only cities to buck this trend, witnessing impressive double-digit revPAR growth. In fact, Kuwait is the only market to have consistently recorded increased occupancy and average room rate in every month during the year. Encouragingly, hotels in Manama, the Red Sea Resorts, Amman, Casablanca, Muscat, and Dubai all experienced improved trading during June, recording increases in both occupancy and average room rate compared to June 2002.
Kuwait has consistently been the star performer in the Middle East during 2003 with year-to-date revPAR increasing by over 48 percent driven by 39 percent growth in occupancy. Kuwait’s increase in occupancy has been driven by increased demand from military build up along the Kuwait-Iraq border. In June 2003, Kuwait witnessed a surge in demand with hotels reporting 87 percent growth in occupancy, resulting in an incredible 107 percent rise in revPAR compared to the same period last year. Hotels in Doha and Amman also fared well during the first half of 2003. In Doha, the 20 percent growth in revPAR was fuelled by increases in both occupancy and average rate. In Amman, although occupancy fell 4 percent, hotels managed to increase average rates by 10 percent, which contributed to the 6 percent growth in RevPAR.

Hotels in Manama reported revPAR growth of 11 percent in June 2003 predominantly due to an increase in room rate of 9 percent, although occupancy levels also grew at the modest rate of 2 percent. In Muscat demand from the leisure market has fallen but this has been substituted by increased military-related business. In June revPAR increased by 17 percent fuelled by an 11 percent growth in occupancy.

Hotels in Saudi Arabia came under severe pressure due to declines in both occupancy and average rate. Occupancy in Makkah fell 7 percent during the first six months of 2003, however this is due in part to increased new supply in the city. Consequently, revPAR fell 6 percent during this period. Riyadh and Jeddah too witnessed a decline in revPAR during the first half of the year reporting falls of 14 percent and 5 percent respectively. Recent intelligence information that British aircraft are a possible terrorist target has resulted in British Airways withdrawing their service, which is likely to impact demand from overseas business travellers.

Hoteliers in the United Arab Emirates witnessed a good start to 2003 with a double-digit revPAR growth in the early months of the year. However, the industry was affected by the SARS crisis in the second half of March coupled with the start of the war in Iraq, which led to a fall in occupancy levels. Hotels responded by lowering room rates, which adversely affected revPAR. Encouragingly, the market rallied in June predominantly due to a return in corporate business and international and intra-regional travel. Hotels on Jumeirah Beach turned in one of the best performances across the region in June with revPAR improving 16 percent compared to the same period in the previous year. Growth was primarily due to an 11 percent increase in average room rates. Hotels in Dubai City Centre also experienced 14 percent growth revPAR as occupancy levels grew 12 percent.

All markets across Egypt with the exception of Hurghada posted negative revPAR growth during the first six months of 2003, when measured in US dollars, as occupancy levels tumbled. However, in local currency the markets performed well due to double-digit growth in average room rates. Alexandria was the worst performing market in Egypt during the first six months of 2003, with revPAR falling 30 percent. In Cairo and Luxor, revPAR fell 14 percent and 17 percent respectively. Hoteliers witnessed a change in fortune in June with hotels in Hurghada, the Red Sea Resorts and Sharm El-Sheikh finally posting positive revPAR growth, in US dollar terms, due to an increase in average rates.


Commenting on the results Nader Srouji, Partner-in-Charge for Management Solutions at Deloitte & Touche Middle East, said, `The markets have started recovering since June and we believe that the year-end results should be significantly better than the half-yearly performance. The region’s governments are aggressively promoting the tourism sector and this should pay dividends in the years to come. Much will depend, however, on the economic conditions in Europe and North America and the impact of any further global crises, coupled with improvement in the political climate and prospect in the Middle East’.