A slice of Saudi Arabia

With a predicted increase in visitors over the next four years, and hotel chains clamouring for a piece of the pie, Saudi Arabia’s tourism industry is set to boom says Harriet Sinclair

The Kingdom of Saudi Arabia has long been a draw for religious tourists visiting the holy cities of Makkah and Madinah; but with the number of hotels in these cities on the rise, and a predicated increase in the number of both business and leisure travellers, tourism in Saudi Arabia is set to boom.

During 2009 the number of business travellers to the Kingdom stood at 3.96 million, while leisure travellers accounted for 13 million visitors. However, these figures are to be dwarfed over the next four years, according to global information publisher Euromonitor International — which forecasts business arrivals for 2014 of 7.5 million and puts leisure arrivals at a staggering 22.7 million visitors.

According to Jones Lang LaSalle Hotels senior vice president Chiheb Ben-Mahmoud, the Saudi Arabian market is characterised by two factors — the large size of the domestic tourist market, and the importance of Hajj and Umrah.
“Domestic tourism plays an essential role in the Saudi Arabian hospitality sector,” explains Ben-Mahmoud.

“As of 2009, there were 33.5 million domestic visitors’ trips taken within Saudi Arabia. Of these trips, almost 32 million were tourist overnight trips, generating 198.5 million room nights. With the impressive efforts of the SCTA in promoting domestic tourism, these numbers are bound to grow and will have an impact on hotel occupancy rates, albeit in school holiday periods.”

“In 2009, there were 10.9 million international tourist (overnight) trips to the Kingdom of Saudi Arabia; of these 47% were for Hajj and Umrah purposes (5.1 million arrivals out of a total 8.3 million Hajj and Umrah visitors, the difference being the 3.2 million of Hajj and Umrah pilgrims from Saudi Arabia).”

It is these two unique factors which make the Saudi Arabian market one of the most complex settings, Ben–Mahmoud stresses, as both segments are in transition and are driven by different forces — domestic tourism is emerging and demand moving to higher quality standards, while Hajj and Umrah figures are more governed by government imposed regulations, due to the strategy of upgrading the infrastructure and addressing the safety and security needs.

The increasing number of visitors may go some way towards explaining the attraction Saudi Arabia holds for hoteliers. With business arrivals potentially doubling over the next four years, and leisure arrivals increasing by almost 10,000 visitors, there is ample opportunity for brands to enter the KSA market over the coming years.

“There are opportunities in Saudi Arabia because the number of international hotels is still somehow limited, so opportunities are there,” explains Rosewood Corniche managing director Hans Peter Leitzke.

“One of the reasons for our growth in a sense is that a pretty large number of our guests are actually coming from within the Kingdom; we actually have a lot of traffic between Riyadh and Jeddah and vice versa, so the feeder market or the traffic is within, and this helps to sustain a certain level of occupancy,” he adds.

Internal travel is an important aspect of the Saudi Arabian market, as many Saudi Nationals choose to take holidays in KSA, as well as travelling to the holy cities for Hajj and Umrah, asserts Michel Noblet, chief executive officer of HMH — which is opening a number of hotels in the country in the next two years.

“The strength of Saudi Arabia is that it is the biggest market in the Gulf, so they rely on the domestic market and the domestic market is very powerful so all the cities in the Kingdom, let’s say they develop good business. It’s like India – the strength is the domestic market. They don’t depend on international visitors,” he explains.

Jeff Strachan, vice president sales and marketing, Middle East and Africa, Marriott International, adds: “The Saudi Arabia market will continue to grow exponentially over the next few years. Let us not forget that the population growth within the Kingdom is enormous and, therefore, you will start to see the quick emergence of secondary cities and also suburban areas around the major cities”.

These locations and their demand generators are perfectly suited to Marriott’s Residence Inn brand, which is set to enter the Middle East at Jizan on the Red Sea in 2012, Strachan explains.

Joining Marriott in targeted expansion in Saudi Arabia over the next three years are major international players in the hotel industry, such as IHG, Hilton, Mövenpick, and Starwood, as well as Middle Eastern companies Rotana and HMH — all of whom are looking to capitalise on the predicated increase of visitors to the Kingdom.

Jean-Paul Herzog, president, Hilton Worldwide, MEA explains that part of the draw of Saudi Arabia is the diverse set of visitors, ranging from business tourists to religious tourists, with varying requirements and budgets.

The cross-section of visitors to the Kingdom has also opened up Saudi Arabia beyond simply religious travel over the past decade, throwing up other markets of interest to investors and operators.

“In recent years, Saudi Arabia has been proactive in highlighting its numerous attractions including its rich cultural heritage, historic sites, antiquities and resorts spread across the country,” says Herzog.

“Some regions that have attracted considerable interest over the past year include: Jeddah, which is multi-faceted in its offerings —Jeddah has Balad, the old town, with its ancient buildings and traditional souks, as well as the Corniche; Madain Saleh, one of the best known archaeological sites in Saudi Arabia; Abha, located in Asir in the south; and Janadriyah Festival, a national heritage site located 45 kilometres outside Riyadh.”

Of course the most well known market in Saudi Arabia is religious tourism, and many of the recently opened hotels — such as the highly anticipated Fairmont Raffles Hotels International (FRHI) properties; Makkah Clock Royal Tower — A Fairmont Hotel and Raffles Makkah Palace, as well as Mövenpick Hajjar Tower Makkah — have concentrated on this.

The opening of these hotels, as well as the upcoming FRHI property — Swissôtel Makkah, which is set to open in 2011 — has increased the number of rooms in Makkah by 1000, and with other brands following suit in the holy city, there is no doubt that this remains the key market in the Kingdom.

Mohammed Arkobi, vice president and managing director of Makkah FRHI, says: “In Makkah I think there is room for everybody because, after seven years, Makkah can accommodate 10 million people at the same time, so there is a potential for everyone —it is growing and booming very, very fast and I think that the good market for the hotel industry will be Saudi Arabia in the next five to six years.”

This opinion is shared by Raffles Makkah Palace general manager Nasir Saudi, who adds: “Now we have more supply coming up in the area but the demand is always high; and no matter what supply you put in Makkah, the demand will always be high.”

Recession-Proof

However, it is not just the attraction of the holy cities which has piqued the interest of hoteliers in the country — the relatively low impact of the recession on KSA, compared with other countries in the region and globally, has made it an attractive prospect for potential investors.

“For several years the development in Saudi Arabia was not very active, there was not a very high level of development, of hospitality. However, recently, with the boom of the oil we have witnessed and the economy in Saudi Arabia making it the largest and wealthiest country, the growth — whether in demographic or in government — is phenomenal, so based on that the country needs hotels that are of international standard and you don’t find that easily in this region,” explains Golden Tulip senior vice president and managing director MENA, Amine Moukarzel.

“A couple of hotel companies see a great niche in that market place and the Saudi Arabian market place is still in need [of high-quality hotels] and this is definitely due to the healthy economy, to the large country, different cities and large network,” he adds.

As well as existing brands, several new players are planning properties in the Kingdom, with Shaza hotels — a joint venture between Kempinksi and Shaza — choosing Madinah as the location for its first hotel, set to open imminently, and the first Saudi Arabian hotel brand currently being developed by Abdul Latif Jameel Real Estate Investment Company (ALJREIC).

“The tourism industry in Saudi Arabia presents growth potential and is growing at a rapid pace with investments flowing into the country,” says Mohannad Mohanna, chief executive officer, ALJREIC.

“Several big projects are springing up throughout the Kingdom.  The tourism industry is receiving huge investments owing to the surging demand, and the huge amount of revenue is generated by the tourism projects rapidly cropping up. Many businessmen and investors are focusing on this sector and are lining up to launch their projects worth billions of Riyal. Abdul Latif Jameel Real Estate is proud to invest in the hotel development and management industry in the Kingdom and is aiming to create the first Saudi-origin hotel brand, create new job opportunities for Saudi nationals and contribute positively to the well being of the community,” Mohanna adds.

Quality Product

The healthy economy and the addition of new hotels to the Saudi Arabian market is also encouraging existing hotels to improve the quality of their product, with Four Seasons Hotel Riyadh recently undergoing a renovation to bring the property up to the standard which visitors to Saudi Arabia, and internal travellers, now expect from hotels in the Kingdom.

Four Seasons Riyadh general manager Rami Sayess reveals: “The renovation discussions started almost three years ago and what triggered that are a few things. First of all, although the hotel is only seven years old, things are moving very fast in terms of technology, in terms of new designs and guest expectations — so we saw an opportunity that, especially with the economic crisis hitting in 2008-2009, we thought it was better to use that soft few years to try and complete that renovation during that time and also what really helped us is the support we have received from the ownership of the group who strongly believe in the product and in its potential to grow further.”

This focus on quality is in line with the vision of the Saudi Commission for Tourism and Antiquities (SCTA), as its vice president investment Dr Salah Al Bukkayet, explains: “Right now our focus is domestic tourism and religious tourism. And the reason we are focusing on domestic tourism is because of the fact that we are exporting a lot of tourists with a lot of money.

“The reason that Saudi Arabian tourists are travelling abroad is because the tourism offering in the country is just not acceptable to them both from a quality and a price point of view. So for us it’s not logical to invite somebody to come when the tourism offering is not satisfactory to your own. They have to travel abroad to get this kind of experience so our focus right now over the next three to five years is product development, product development and product development,” continues Al Bukkayet.

“We need to develop our tourism facilities from a quantity and a quality point of view to the level that we think is satisfactory to our own tourists, because international tourists are by definition very experienced and they know what to expect when they come to another area.

“So we would like to focus right now on improving our tourism offering as a country, and once we have reached that level of conviction that we are now ready to attract international tourists, then we will have no problems. We have an expat community of more than six million living within the country and they travel within Saudi Arabia and we have no issues with them,” asserts Al Bukkayet.

Tourist Arrivals

Increased flight routes to the Kingdom will assist in this ultimate focus on foreign visitors. Emirates Airline is currently increasing its presence in the Kingdom — raising its weekly number of flights to Riyadh and Jeddah to 12, and operations between the UAE and KSA by 71%, also increasing the economic ties between the two countries.

“The introduction of an additional 3770 seats per week on the two routes will further enhance the passenger movement between the two countries. Business and leisure travellers in Saudi Arabia are seeking connectivity to key commercial and leisure centres in Europe, as well as to the Americas and Australasia — and these new flights will help expedite their journey. Religious based travel to Saudi Arabia also continues to grow exponentially each year, with these additional flights set to add some much needed capacity for inbound traffic,” says Ahmed Khoory, Emirates senior vice president commercial operations, Gulf, Middle East and Iran.

Emirates remains committed to the Saudi market with a total of 38 flights per week to four cites including; Riyadh, Jeddah, Dammam and Al Medina al Munawarah.

Although there has been an increase in flights across the country, and visitor numbers are predicted to rise, challenges still remain in the Saudi Arabian market; visa regulations have long been notoriously stringent — something the aspiring hotelier branching in to KSA must consider in terms of acquiring visas for staff members — and regulations laid out by the government will see a five year plan requiring hotels to reach Saudisation figures of 80% by 2015.

However, the situation is not entirely bleak, with several hoteliers reporting relaxation of visa regulations, and others reporting successful Saudisation figures of 32% (the current requirement) and above.

“Visas are not necessarily a deterrent for people to come,” argues Rosewood’s Leitzke.

“It’s just a process and it can be tedious and complicated at times but I think that the process has improved, Saudi Arabia starts to open up a little bit. You hear now that there are some group visas being made available, tourism starts to increase and again we can look at the religious travel alone and this is also on the upward trend and a lot of things are being done in Makkah itself — new hotels are being built, faculties are modernised, upgraded and so forth,” he adds.

It seems that hoteliers are right to be looking at securing new flags in the Kingdom — with ease of travel improving, visitor numbers predicted to almost double over the next four years, and the internal markets of Makkah and Madinah guaranteed to attract visitors regardless of the state of the global economy; this market is one which will continue make a huge impact on the Middle East’s tourism industry.

As HMH’s Noblet concludes; “Saudi Arabia is the biggest market in the Gulf — simple as that.”