Eyeing new source markets and the city’s shift towards the mid-market segment from Richard Stolz, Associate Director – Global Strategy Group of KPMG Lower Gulf Limited
Considering tourism in the UAE as a whole, it becomes evident that Dubai is the leading destination, with approximately 15.9 million international travelers visiting the emirate in 2018. The city accounts for 74 percent of all international visitors coming to the UAE with 21.3 million international visitors having traveled to the emirates in 2018. Compared to Dubai, Abu Dhabi accounts for 11 percent of international tourist arrivals, Sharjah nine percent and Ras Al Khaimah three percent, respectively. With Expo 2020 Dubai around the corner, international tourist arrivals to the emirate are expected to grow further, albeit initial forecasts on expected visitor volumes have softened since Dubai was awarded host city for the mega event in 2013. Still, Expo 2020 is one of the most anticipated events in the regional tourism calendar and it is expected to have a positive impact on the local economy.
In terms of hotel establishments, the city operates as the country’s powerhouse. In 2018, Dubai was home to 716 hotels offering almost 116,000 keys. Furthermore, average hotel occupancy in the same year was 76 percent (compared to 79 percent in 2014) with an average stay of 3.5 days per visit (versus 2.6 days in Abu Dhabi).
After two decades of tremendous growth, adding supply capacity to Dubai’s landscape (i.e., hotels, entertainment, retail and theme park attractions) one might argue that the local tourism and hospitality sector reached a certain level of maturity with specific consideration given to the shift in tourist profiles visiting the city.
Historically, countries such as India, KSA and Western Europe (primarily the UK) were key source markets for Dubai. Examining traveler profiles between the late 90s through the mid-2000s, a large share of Dubai’s visitors were categorized by a high spend per capita per visit, fueling the city with sufficient purchasing/buying power. Over recent years these patterns seem to be shifting to include an increasing component of mid-market tourism segments flocking to the city. The Chinese travel segment has experienced the highest growth rate, with a compound annual growth rate (CAGR) of 25 percent from 2014-2018, followed by Russia with a CAGR of 13 percent for the same period. In total numbers 857,000 Chinese tourists visited Dubai in 2018. This number is set to grow to 1.27 million in 2023 with a CAGR of eight percent. A similar pattern can be seen for the Russian market—678,000 visitors in 2018 and 1.6 million expected in 2023 (CAGR of 12 percent).
Certain key factors drive growth from emerging source markets:
• Relaxed visa requirements, such as visa on arrival for Chinese and Russian nationals
• Introduction of additional and direct airline routes to Russia and China
• A government initiative called ‘Hala China’ which is aimed at exploring opportunities to attract Chinese visitors
Nevertheless, India still remains one of Dubai’s strongest source markets with slightly more than two million visits in 2018 and a CAGR of 12 percent (2014-2018).
Taking these aspects into account, one could argue that tourist profiles are shifting. Compared to 10-15 years ago, when tourists tended to be affluent with substantial spending power, today’s visitor profiles and spending patterns increasingly lean toward the mid-market segment. As indicated, it is expected that Dubai’s future key tourism growth markets will be shifting toward the East – in particular welcoming visitors from the Indian subcontinent, China and Russia (including the wider CIS). A fair share of these visitors will be first-time travelers to Dubai, keen to explore landmarks such as Burj Khalifa, Dubai Mall, The Palm and Burj Al Arab.
Given the shift in demographics, one could argue that while the actual volume of tourists visiting Dubai will certainly increase, it remains to be seen how tourist spend patterns will evolve over time with regards to the growing segment of first-time travelers visiting the city. Spending may well be more thinly spread across the vast supply of tourism and hospitality offerings that emerged in the city over recent years.
Going forward, with current and future hotel, retail and entertainment offerings in mind, the emirate may need to monitor and manage its supply and demand effectively. A risk of oversupply in hospitality and tourism offerings with softening demand in the short- to medium-term is certainly a scenario to be avoided. Dubai’s tourist numbers will go up but value (the actual spend per tourist) is likely to grow at a slower rate. This should be considered by players in the hospitality and tourism sector when setting the agenda for the years ahead.
home.kpmg
Dubai’s maturing hospitality industry
Eyeing new source markets and the city’s shift towards the mid-market segment from Richard Stolz, Associate Director – Global Strategy Group of KPMG Lower Gulf Limited
Considering tourism in the UAE as a whole, it becomes evident that Dubai is the leading destination, with approximately 15.9 million international travelers visiting the emirate in 2018. The city accounts for 74 percent of all international visitors coming to the UAE with 21.3 million international visitors having traveled to the emirates in 2018. Compared to Dubai, Abu Dhabi accounts for 11 percent of international tourist arrivals, Sharjah nine percent and Ras Al Khaimah three percent, respectively. With Expo 2020 Dubai around the corner, international tourist arrivals to the emirate are expected to grow further, albeit initial forecasts on expected visitor volumes have softened since Dubai was awarded host city for the mega event in 2013. Still, Expo 2020 is one of the most anticipated events in the regional tourism calendar and it is expected to have a positive impact on the local economy.
In terms of hotel establishments, the city operates as the country’s powerhouse. In 2018, Dubai was home to 716 hotels offering almost 116,000 keys. Furthermore, average hotel occupancy in the same year was 76 percent (compared to 79 percent in 2014) with an average stay of 3.5 days per visit (versus 2.6 days in Abu Dhabi).
After two decades of tremendous growth, adding supply capacity to Dubai’s landscape (i.e., hotels, entertainment, retail and theme park attractions) one might argue that the local tourism and hospitality sector reached a certain level of maturity with specific consideration given to the shift in tourist profiles visiting the city.
Historically, countries such as India, KSA and Western Europe (primarily the UK) were key source markets for Dubai. Examining traveler profiles between the late 90s through the mid-2000s, a large share of Dubai’s visitors were categorized by a high spend per capita per visit, fueling the city with sufficient purchasing/buying power. Over recent years these patterns seem to be shifting to include an increasing component of mid-market tourism segments flocking to the city. The Chinese travel segment has experienced the highest growth rate, with a compound annual growth rate (CAGR) of 25 percent from 2014-2018, followed by Russia with a CAGR of 13 percent for the same period. In total numbers 857,000 Chinese tourists visited Dubai in 2018. This number is set to grow to 1.27 million in 2023 with a CAGR of eight percent. A similar pattern can be seen for the Russian market—678,000 visitors in 2018 and 1.6 million expected in 2023 (CAGR of 12 percent).
Certain key factors drive growth from emerging source markets:
• Relaxed visa requirements, such as visa on arrival for Chinese and Russian nationals
• Introduction of additional and direct airline routes to Russia and China
• A government initiative called ‘Hala China’ which is aimed at exploring opportunities to attract Chinese visitors
Nevertheless, India still remains one of Dubai’s strongest source markets with slightly more than two million visits in 2018 and a CAGR of 12 percent (2014-2018).
Taking these aspects into account, one could argue that tourist profiles are shifting. Compared to 10-15 years ago, when tourists tended to be affluent with substantial spending power, today’s visitor profiles and spending patterns increasingly lean toward the mid-market segment. As indicated, it is expected that Dubai’s future key tourism growth markets will be shifting toward the East – in particular welcoming visitors from the Indian subcontinent, China and Russia (including the wider CIS). A fair share of these visitors will be first-time travelers to Dubai, keen to explore landmarks such as Burj Khalifa, Dubai Mall, The Palm and Burj Al Arab.
Given the shift in demographics, one could argue that while the actual volume of tourists visiting Dubai will certainly increase, it remains to be seen how tourist spend patterns will evolve over time with regards to the growing segment of first-time travelers visiting the city. Spending may well be more thinly spread across the vast supply of tourism and hospitality offerings that emerged in the city over recent years.
Going forward, with current and future hotel, retail and entertainment offerings in mind, the emirate may need to monitor and manage its supply and demand effectively. A risk of oversupply in hospitality and tourism offerings with softening demand in the short- to medium-term is certainly a scenario to be avoided. Dubai’s tourist numbers will go up but value (the actual spend per tourist) is likely to grow at a slower rate. This should be considered by players in the hospitality and tourism sector when setting the agenda for the years ahead.
home.kpmg
Associate Director – Global Strategy Group
KPMG Lower Gulf Limited
“Spending may well be more thinly spread across the vast supply of tourism and hospitality offerings that emerged in the city”
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