Hotels in Abu Dhabi have discounted room rates by as much as 15 per cent, indicating that the global financial crisis is beginning to affect the core market of business tourism. The move follows steep discounts introduced by hotels in Dubai in December, where rates have come down by as much as 60 per cent to shore up the hard-hit leisure segment. The rate cuts have helped to boost occupancy levels, but analysts say the strategy threatens profits.
The shortage of hotel rooms in Abu Dhabi last year enabled hoteliers to keep prices at a premium, but as companies cut their travel budgets in the wake of the crisis, demand has eased this year, sector observers say. "We have cut our room rates by 15 per cent this year because our rates last year were simply not logical to have during this economic crisis," said Jihad al Attar, the director of sales at Millennium Hotel Abu Dhabi.
The Millennium was now offering rooms for about Dh1,100 (US$272) a night, down from Dh1,500 last year, said Mr al Attar. "Since the beginning of the year, demand has eased off by 10 per cent to 20 per cent, which is something we did not expect at all." Business tourism in Abu Dhabi accounts for about 80 per cent of occupancies at hotels, according to the Abu Dhabi Tourism Authority (ADTA). "In the wake of this crisis, the leisure segment is more vulnerable compared to business travel," said Gerhard Hardick, the chief operating officer of Roya International, a Dubai-based hospitality consultancy firm.
However, Mr Hardick was optimistic about Abu Dhabi's hotel performance, saying the shortage of rooms in the emirate would help to keep rates at healthy levels. "Ironically, the shortage of hotel rooms in Abu Dhabi, which was once a problem, is now helping hotels in this situation because demand is always going to be greater than the supply." he said. Sheikh Sultan bin Tahnoon, the chairman of the ADTA, said in November that the emirate planned to offer more than 26,000 hotel rooms by the end of 2012. The significant hotel expansion is part of the authority's five-year plan which aims to see 2.7 million guests visiting the capital's cultural offerings, such as the planned branches of the Louvre and Guggenheim museums.
Noel Massoud, an Abu Dhabi-based hospitality consultant and the former general manger of the Emirates Palace hotel, said the "unreasonable" rates that were being charged by hotels in the emirate last year were no longer acceptable. "Last year, hotels used to take advantage of the situation and charge guests as much as they wanted because, at the end of the day, it's a business and they want to make as much profits as possible," said Mr Massoud. "But now I think that the tables have turned and we will start to see a correction in the unreasonable rates that were once charged."
Abu Dhabi's hotels were rated the fifth-most expensive in the world last year, rising from 19th place a year earlier, according to a survey by Hogg Robinson Group (HRG), a UK-based global travel booking agency. Room rates in Abu Dhabi increased by 36 per cent last year to reach an average of Dh1,305 a day, the study said. The same report also showed that Dubai had dropped from third place in 2007 to eighth place last year on room rates, with an average rate of Dh1,246.
Santouch Rai, the group operations manager of the Ramee Hotels and Resorts, which operates three-star and four-star properties in Abu Dhabi, said it had also cut rates by between 10 per cent and 15 per cent. "Our rate is about Dh650 a night now," he said. "Even so, the situation is so bad right now, we are not sure if we will drop our rates even further over the coming couple of months." However, some hotels have managed to raise rates, including the Emirates Palace, which this year increased its rates by 5 per cent to Dh1,800 per night, said a sales agent at the hotel.
"We have to keep up the image of the hotel and dropping rates is not the direction we will take as our occupancy is still looking very healthy in the 70s level," he said. Shady Nickola, the director of rooms at the Beach Rotana Abu Dhabi, also said the hotel's rates were slightly higher than last year. "We still find no reason to drop our rates when we can charge around Dh870 a night and still have occupancy rates in the high 80s," he said.