Coronavirus may leave Oman's tourism at 'once in a lifetime' low

This article above appeared in The National on 17 March 2020. As always Sebastian Castelier wrote a well researched article that clearly described the concerns facing the hospitality industry in the Sultanate of Oman.

As with all articles there is never enough space to discuss all aspects. For many hotel owners, after the health of all, the main focus is the potential upside for the industry. And yes, even after all this there will be an upside, a light at the end of the tunnel. We need to start working on addressing those issues now.

Below are the first two questions for the article, and my responses. Following that are some possible solutions.

What is the impact of the coronavirus and more recently the visa ban on hotel operations in Oman?

  • From a general perspective, the hotel industry will see an immediate drop in tourist numbers to a once in a lifetime level.  
  • Already hotels are considering closing their doors. With one month closed for coronavirus + one month for Ramadhan + four months of summer, the practical option is to close the property for six months. This will save operating costs and will allow certain planned renovations.
  • Prior to the coronavirus impact Colliers International was forecasting an ongoing drop in RevPAR for Muscat. The forecast for 2020 was a three percent drop in RevPAR.
  • Colliers forecasts for the past five years (since Feb-15) show that RevPAR has fallen nearly 50 percent.  See Colliers chart below.

  • These forecasts from Colliers are supported by historical figures from HVS which show that RevPAR in 2019 (US$ 63) is less the RevPAR in 1996 (US$ 72). These figures do not take into account inflation for the past 23 years.

  • Assuming some hotels will close for up to six months, and there was already a forecast for a drop in RevPAR for 2020, the forecast for the rest of 2020 will be at least a 60 percent drop in RevPAR.
  • Hotels that were achieving ADR of >OMR 20 three years ago are now selling rooms for OMR 5 per night. 

How much fall in profitability/revenues is forecast for Oman's tourism sector in 2020?

  • Properties were not profitable 12 months ago.
  • With a drop of more than 60 percent in RevPAR for the remainder of the year the situation will only become more desperate.

Possible solutions - The light at the end of the tunnel

  • The negative side of this is that a number of underperforming properties will not survive and Omani hotel owners will be left carrying an unacceptable debt that they incurred while trying to support the wishes of the Government. Some compensation is due to them.
  • Those properties that do survive will adopt a leaner and more focussed approach to their business.
  • Already a number of hotels have removed the international chains from the hotel and are looking at changing operators.
  • Oman hotel owners need to understand that the international chains have no particular loyalty to their hotel.  It is simply one more in an ongoing list of properties.
  • In an attempt to cut costs hotel owners should consider operating the property themselves.  No-one look after their asset as well as they will.
  • Alternatively engage a local operator who understands the market and is able to personally monitor the performance of the hotel and report directly to the owner, as required. 
  • In the right conditions, for a suitable property, a local operator can operate the hotel under a franchise agreement. Through this option the hotel owner will secure the international brand for their property at a reduced cost.
  • After the impact of the coronavirus, hotels in Oman will be more competitive in the international marketplace.  This is a positive development, and one that is desperately needed for the industry.
  • As an industry we need to be marketing our strengths to the world. To that end the tourism industry in Oman needs an independent Tourism Authority, separate from the Ministry of Tourism.  Currently MoT has too many hats to wear. MoT needs to focus on its core business of regulating and monitoring the industry.  Marketing should be left to a separate independent, industry-led body that works closely with the government and private industry.
  • MMIS is currently forming a Hotel Investment Platform (HIP) to address the specific needs of the hotel industry in Oman. Funding is being arranged to buy out selected unprofitable properties and turn them into profitable hotels.  Only a select number of properties will fall into this category.
  • MMIS is working with a Chinese hotel investment and management company to ensure that we tap into the growing Chinese tourism market (after the coronavirus has passed).

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