B2B | 9 issues still confronting the Oman hospitality industry

Colliers | MENA Hotel Forecasts 1611 (Page 1 Nov-16)

The Sultanate of Oman consistently receives positive international media coverage. Recently two news reports promoted the tourism offerings from the Sultanate to a potential market of more than 90 million people.

Oman was listed as #8 in the Lonely Planet Best in Travel 2017 - Top Countries, and last month the The New York Times published a very positive article about Oman under the heading “A Carefree Getaway Just Off the Persian Gulf”.

As the tourism industry in the Sultanate of Oman matures and expands, such positive and high profile articles are exposing Oman to a potential new market of millions. These articles clearly support the international marketing efforts of His Majesty’s Government, particularly the Ministry of Tourism.

Recent trends

Everyone who has visited Oman is aware of the many and varied attractions that clearly establish Oman as a premier tourist destination. At the same time the commercial realities of life in a region so dependent on a high oil price are being felt by everyone living and working in Oman. 

Colliers | MENA Hotel Forecasts 1611 (Forecast Table Nov-16)

The hospitality industry in particular is experiencing one of the worst periods in the past decade. With more than 1,200 new hotel keys in the past 12 months (Cluttons | Muscat Property Market Outlook) and a drop in corporate and leisure tourists in the same period, hotels have experienced declining occupancy levels. To compete in such a market hotels have been offering significant discounts which has led to a major drop in RevPAR (Revenue Per Available Room), a common industry indicator.

According to a recent presentation from STR Global RevPAR in Muscat has dropped 20 percent in the past year and is at a level not seen since 2007. Please click here if you wish to receive a copy of the presentation from STR Global.

Looking forward

Each month Colliers International EMEA sends out the MENA Hotel Forecasts. The key performance indicator in these forecasts is RevPAR. In general, the hospitality industry finds the forecasts and analysis from private and industry organisations such as STR Global, Cluttons and Colliers to be more attuned to the industry than any other source.

Past reports from Colliers highlight that RevPAR has been declining in Muscat for all of 2016. In the most recent issue the full year forecast suggests that RevPAR will decline by a further 17 percent.

These forecasts are based on projections from current properties. Cluttons reports that there will be a 50 percent increase in hotel keys over 2017 and 2018. Unless there is a significant increase in tourism numbers over the next two years the impact of the increased hotel keys will only exacerbate the falling RevPAR.

How these figures can be read

  • The hospitality industry in the MENA region is clearly in a cycle of declining occupancy. To compensate for the loss of business, the industry is reducing room rates, which simply compounds the drop in RevPAR.
  • This regional decline in business is a direct result of the lower oil price and the ongoing security concerns for the region as a whole.
  • Muscat is negatively impacted by the same issues. Further complicating matters in Muscat has been a substantial increase in the number of hotel rooms. So an increase in rooms at a time of less tourists (business or leisure) clearly leads to a drop in RevPAR. 
  • On top of this, it is standard business practice for new hotels to enter the market with lower room rates. This is designed to promote their property and to generate immediate interest. All this puts strong downward pressure on RevPAR.

Note

  • The oil price might rise and the security concerns might diminish, but it is very difficult to reduce the number of hotel rooms.

9 issues still confronting the Oman hospitality industry

  1. Muscat will continue to experience declining RevPAR until the end of 2017.
  2. For the next year a large number of uncompetitive hotels will fail. This has already started with many hotels facing financial pressure. By 2018 the industry will be far more stabilised, profitable and competitive.
  3. All countries in MENA need a vibrant and growing tourism industry, both as a source of future employment for the youth of the country and as a logical attempt to diversify away from a dependence on the petroleum industry.
  4. Oman is better able to develop a robust tourism industry than many other countries because of its natural and cultural advantages. In this area we are blessed - but we need to promote ourselves a lot more.
  5. For the tourism industry in Oman to compete internationally, all hotels have to embrace the lower room rates and accept them as the norm. There will be no returning to the higher rates once enjoyed.
  6. The current focus of developing large hotel apartments (and the resultant fewer rooms) will need to stop. Operators of hotel apartments will face increased financial pressure to compete in this new commercial reality.
  7. Market forces will demand more mid-range hotels with a greater number of rooms and more competitive prices.
  8. These same forces will ensure that quality properties will survive better in the market. A “quality property” is not an expensive five star property, rather it is a mid-range property that has been purpose built to international standards.
  9. The ongoing shakeup in the industry will mean that all hotels will need to be professionally managed and marketed. Essentially, the industry will need to become more competitive and professional.

Mac Thomson
CEO, MMIS LLC
Mac@MMIS.co

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