The company that manages Abu Dhabi's biggest hotel has warned against five-star properties cutting their rates in the face of increased competition, amid fears that price wars in the capital could deepen.
Six luxury hotels have opened in the capital over the past few months and more will launch in the coming months, fuelling concerns that profitability, which has already fallen sharply, could decline further.
"The price war exists," said Ali Hamad Lakhraim, the president and chief executive of Millennium & Copthorne Hotels for the Middle East and Africa, which operates the Grand Millennium Al Wahda in the capital. "In some cases you have five-star hotels competing with three-star prices. This is mainly created by general managers trying to fill hotels." Profitability has already fallen by 50 per cent from peaks in 2008 for many UAE hotels because of the global economic downturn and new supply, Mr Lakhraim said.
"General managers need to be well controlled, either by their companies or by their owners," he said.
"If a hotel which is 10 years old has to compete with a brand-new, newly opened hotel at the same level, the competition is not there really because the guest will probably choose the new hotel."
But Mr Lakhraim admits his company is also likely to be guilty of being dragged into the price war.
"In some cases I will have to cut prices as well, if I have to survive … For others who are opening new - they don't have clients, they don't have the loyalty or the people who are used to the hotel, and their depreciation and costs are very high. They can go and start harming the market, but then they wake up and realise that this is wrong, because it doesn't cover their expenses."
Hotels that have opened recently in Abu Dhabi include the Jumeirah at Etihad Towers and a Westin resort at Abu Dhabi Golf Club. Properties slated to open this year include the brand names Ritz-Carlton, Sofitel and the Anantara Eastern Mangroves hotel.
Philippe Anric, the general manager of the Centro Al Manhalin Abu Dhabi, a three-star hotel that opened in November, says that hotels in the city are having to compete much harder for business.
"It can be a challenge if some hoteliers start to panic," he said. "I'm afraid about the domino effect, where everybody is going to start to reduce the price - the five-star starting to chase the market of the fours and the fours starting to chase the threes. I hope it's not going to happen."
Analysts said the new supply would prompt many hotels to review various options to compete.
"It's a real conundrum," said Gavin Samson, the director for the hospitality property advisory firm Christie + Co, Mena. "The fear of both owners and operators is that obviously when new supply comes to the market in Abu Dhabi and Dubai's case - but particularly Abu Dhabi at the moment - these properties are driven by the need to generate revenue and to get market share and drive occupancy so they are going to reduce rates.
"The dilemma for the older properties is how do you compete with the brand-new boys on the block? Reduce room rates … or you have to consider the question of do I refurbish, do I reposition, do I take on another brand?"