Market Update: Saudi Arabia

Why Saudi Arabia’s new Extended Umrah Tourism Programme will increase confidence in the mammoth hotel developments underway in the holy cities of Makkah and Madinah

The Kingdom of Saudi Arabia is currently implementing the Extended Umrah Tourism Programme, announced at the end of last year, allowing foreign nationals travelling to the country for Islamic pilgrimage to stay for a longer period.

The programme will see visitors from 65 countries having their Umrah visa converted to a 30-day tourist visa following their pilgrimage.

Since Saudi Arabia does not currently issue tourist visas to visitors from any country, the programme will be one way for foreign visitors to experience the tourism offering of the Kingdom, and will be crucial to boosting inbound leisure tourism in the mean time. Religious tourism is the focus, but historic and cultural tourism will be developed side-by-side.

As reported by Arabian Business, Prince Sultan bin Salman, head of the Saudi Commission for Tourism and Antiquities (SCTA) said: “We’re now moving to Islamic history sites to revive those to make them more presentable and to create museums and experiences.”

In combination with this, religious quotas are being revised to allow more pilgrims into the country year on year.

The government is expecting to see revenues total SAR 60.9 billion (US $16.2 billion) by 2023 due to an increase in the number of Hajj and Umrah tourists. As a result, the Saudi government has outlined a plan to invest more than US $30 billion in its airports by 2020, including $10 billion in private investment.

Pascal Gauvin, Intercontinental Hotels Group chief operating officer, India, Middle East and Africa, believes that the programme is instilling confidence in hoteliers looking to expand in the holy cities of Makkah and Madinah. He says: “I see Makkah transforming tremendously and I think SCTA’s Extended Umrah Tourism Programme is a very clever way to attract people to stay for longer.”

Makkah, the Eastern Province, Riyadh and Madinah are the core travel areas of Saudi Arabia, and combined attract 86% of overall visitation to the Kingdom. The number of tourists visiting the Kingdom is expected to increase at a CAGR of 2% to 21.3 million over the next 10 years — largely attributable to the push on religious tourism.

Of overall inbound visitation, 40% is made up of religious tourists, representing the largest segment of visitors.

While Makkah and Madinah attract most of the religious tourism, and are currently experiencing heavy expansion and development as a result, Jeddah to an extent is benefiting from religious stop-over tourists, supplementing its natural market share of corporate visitors.

With a more gradual increase in supply than Riyadh, and a steady increase in demand from the corporate segment, Jeddah is currently faring well in terms of occupancy, and in February saw a 1.5% growth in occupancy to 79.3%, rising for the fourth consecutive month. Meanwhile, average room rates saw an increase of 5.2%, closing the month at US $252.2 and boosting RevPAR by 7.2% to US $199.9.

Christopher Hewett, senior consultant, TRI Hospitality Consulting comments: “The majority of demand in Jeddah is driven by the corporate segment but there is a percentage from the religious sector.

They normally travel in groups and go directly to the Holy City but on their way back they often stop in Jeddah so that helps supplement demand for accommodation within the city and as new infrastructure is developed I think you’ll see more visitors spending time in Jeddah.”

Hewett refers to the development of a Haramain high speed passenger line, Saudi Arabia’s first high-speed passenger rail line, which will link the holy cities of Makkah and Madinah.

The 480-kilometre railway line is expected to carry more than three million passengers annually and will pass through Jeddah, cutting travel time between the holy cities to just two hours.

Construction was originally scheduled for completion in January 2014 but it will most likely be finished by the end of 2015.

However, according to Sherif El Mansoury, DOSM, Rosewood Corniche, Jeddah stop-over pilgrims are generally looking for economical options for accommodation, so luxury hotels are not likely to capture much demand from the segment.

El Mansoury comments: “Some religious visitors come and stay one night coming back from or going to Makkah for Hajj and Umrah.

“However, a lot of the groups coming to Jeddah are looking for package rates so we attract very few of them – they don’t mind where they stay.”

Article continues on next page ...

TARGETING A DIVERSE MARKET
El Mansoury touches on the trend toward diversification in the Saudi market since religious tourists come from such a wide variety of backgrounds.

This is already reflected in the Makkah and Madinah pipelines, much of which are made up of budget and mid-range brands, highlighting a demand for more economic and long-stay options, especially during the religious periods of Hajj and Umrah.

IHG’s Holiday Inn Makkah Al Azizah will add 1,238 rooms to Makkah in 2015, and is one property set to significantly boost mid-market supply in the city. Gauvin says: “It is a very large hotel so customers can visit in high numbers during Hajj and Umrah.”

Additionally, 25 properties will be added to Makkah’s hotel portfolio over the next three years, four of which will have in excess of 1000 rooms. The pipeline includes Hilton Suites, adding 484 keys this year and Doubletree by Hilton with 806 rooms to open in 2016.

Hilton vice president of operations KSA, Mahmoud Mokhtar says: “In Makkah we have to target different markets, hence the existence of Conrad and Hilton Suites. Doubletree will be for another segment.”

According to FRHI Hotels & Resorts, which currently operates 3,000 rooms in Makkah under all three of its brands – Fairmont, Raffles and Swissôtel – there is still a huge demand from the luxury market.

“I can see us having something in Madinah, expanding more into the religious market,” says Raki Philips, FRHI area director sales and marketing Middle East.

“It’s only going to grow,” Philips adds. “The Kingdom is doing a great job to look at ways to improve the experience of Muslim pilgrims year round.”

Article continues on next page ...

DEVELOPMENT OF THE HOLY CITIES
With the revision of religious quotas to allow more Muslims into the Kingdom, a huge amount of investment is going on in the Holy City of Makkah, and a project for expansion of the Holy Mosque will see the site eventually accommodate two million worshippers.

However, the expansion of the Holy City is not something that is being done overnight. The government aims to ensure that health and safety regulations are upheld before more tourists are invited in.

Hewett says: “The government wants to ensure there is accommodation, infrastructure and transport to accommodate the number of visitors, and as the Holy Site expands they’ll be able to bring more pilgrims in slowly.”

Philips agrees, adding that he thinks the government is doing things the right way: “They are waiting until they have all their facilities up to scratch and that the Holy Site can accommodate this number of people so it will only grow but gradually with time.”

Following recent years during which less religious tourists have been going to the holy cities due to religious quotas and construction work around the Haram, Philips says that the next few years will see more growth.

He comments: “The Muslim population throughout the world continues to grow and as travel becomes more affordable I can only see [the segment] getting bigger.”