Tourists are no strangers to the shores of Arabia, but never in history have they been so critical to the future of the region. Alongside the second oil windfall, the region identified the sector and worked upon it as a key component of economic diversification. Since then the Middle East has already spent millions on building infrastructure and grooming destinations to keep the numbers flowing in. But with the financial downturn throwing a spanner in the works and projections going haywire, the ensuing months are certain to be a test of the region’s ability to stay the course and meet its long-term tourism objectives. With a high dependency on intra-regional travel of over 40 percent and growing, the region cannot afford to roll up its welcome carpet.

Fortunately, with a lot of momentum gathered in recent years, the tourism sector enters this phase of uncertainty from a position of strength. An Alpen Capital report, citing the International Monetary Fund (IMF), says international tourist arrivals in the Middle East more than doubled from 24.4 million in 2000 to 52.9 million in 2008. With a compound annual growth rate of 11.7 percent, that is more than double the world international tourist arrivals (4.4 percent) over the same period. The WTO data says international tourism receipts in the region grew by 25.5 percent, from $27.3 billion in 2005 to $34.2 billion in 2007, and are expected to reach $38 billion in 2008. According to a Euromonitor International report - “Future Trends for Travel in the Middle East” - a total of 67 million arrivals to MENA brought $50 billion worth of incoming receipts during 2008. Clearly there is a lot at stake, and the region can ill-afford to lose ground at a time of crisis.

Refreshingly, sector stakeholders are displaying more realism than they have been known for. They are willing to make short-term adjustments to achieve broader objectives. Hoteliers are openly admitting a drop in occupancy, authorities are cutting tourist projections, and airlines are launching budget brands. Hotel owners and management companies are being advised to assist each other in promoting destination tourism and not just rely on government marketing. The focus is therefore shifting towards maximizing revenue streams and greater efficiency at lower costs, even though key drivers are very much part of the equation. The reason is simple. Around 68 percent of the population of the GCC are aged under 35, and there is still a positive regional GDP growth compared to other parts of the world. The liquid assets in the form of oil reserves that provide a cash buffer during boom times are now proving a valuable resource for the region in the current crisis. More importantly, government investment in infrastructure is set to keep the momentum going.

Correction time. The sector is still nervous, though - awaiting good news with bated breath even as short-term projections spread further gloom. Independent observers are revising tourist target numbers in places such as Dubai. “The 10 million visitors by 2010 [in Dubai] is not achievable in the current climate. However, it will be by 2013 once the global economy recovers and developed countries’ growth stabilizes, leading to improved consumer confidence,” says Caroline Bremner, the global travel and tourism manager at Euromonitor International. The source of tourism dollars is still not being properly tapped. The United Kingdom will continue to be the region’s leading source market, whereas key alternative source markets with emerging middle classes remain negligible, even as China, Brazil, Eastern Europe and Latin America offer long-term potential, according to Euromonitor.

Government support notwithstanding, hotel occupancy rates have been falling significantly in Dubai - to 73 percent in the first quarter of 2009 from almost 90 percent last year (according to one estimate). To tide over this situation, different players are trying different prescriptions. “First we launched a 20 million savings campaign in our net profit line,” says Marko Hytonen, the area vice president for the Middle East and Egypt at Rezidor, the multi-brand hotel management company. His company then followed up with another initiative to save 10 million more so as to stay in line with the drop in revenues. “It has been a bit of a corporate diet. We still keep the muscle but we trim the extra fats,” Hytonen says candidly.

Rezidor’s biggest drop has come about in Dubai. “During the first quarter we have lost 36 percent in revenue per available room in Dubai,” he says, and the average house rates have also definitely decreased in the city. “It definitely is correction time, there is no question about it.” Rezidor currently operates in 20 countries, has 5,000 hotel rooms in operation and is in the process of adding another 5,000 rooms and 18 hotels over the next five years.

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