Palace price war as hotel revenues fall in capital

Luxury rooms in Abu Dhabi become available for less than four-star competitors amid oversupply.

Emirates Palace, Abu Dhabi's most exclusive five-star luxury hotel, has cut its rates to lower than some four-star properties in the capital, in the clearest sign yet of a price war as the industry in the city suffers steep revenue declines. Emirates Palace is offering rooms for as little as Dh600 (US$163) a night for a five-night stay, or Dh900 for a two-night stay.

By comparison, the four-star Holiday Inn was charging Dh675 a night for weekdays, while the three-star Novotel was charging Dh550 a night. The three-star Al Diar Regency offered rates of Dh500 and the two-star Al Diar Mina charged Dh400. The upscale InterContinental and Shangri-La hotels in Abu Dhabi offered rates as low as Dh900 and Dh950 respectively. "We want to have more people here so we continue to grow in our profitability," said Janet Abrahams, the director of sales and marketing at Emirates Palace. "You've got to be competitive and you've got to offer good value."

Ms Abrahams added the offer was largely to attract families that might not have considered Emirates Palace as a longer-stay holiday destination, despite the fact that it has its own private beach. The cut price rates came to light as it was revealed revenue per available room, the key indicator of the health of the industry, in Abu Dhabi fell 45 per cent last month to $145.94, compared with March last year, data from STR Global shows.

The decline comes after the opening of several hotels in the capital at the end of last year, including seven on Yas Island. Analysts say such an oversupply of rooms in Abu Dhabi is a major contributing factor to the decline in revenue. Room rates last month fell 27.7 per cent to $228 compared with March last year. Occupancy levels were down 24.2 per cent at 64 per cent. Abu Dhabi's decision to build hotels ahead of visitor attractions is responsible for the decline in revenues, analysts say.

"Abu Dhabi is following a very deliberate plan," said Blair Hagkull, the chairman at Jones Lang LaSalle MENA. "Fundamentally, it's building its supply before many of its attractions. In the short term there will be a hit to occupancies and rates." But Abu Dhabi's declining fortunes mark a stark contrast to the fortunes of the hotel industry elsewhere in the UAE and across the region. In Dubai, there has been a significant improvement in the performance of hotels, with lower prices in the emirate continuing to drive business.

Although average rates fell 3.2 per cent last month to $257.22, occupancy levels rose 7.8 per cent to 79 per cent, resulting in a 4.4 per cent rise in revenue per available room to $194.79. "As rates became more competitive, many people were attracted back to Dubai," Mr Hagkull said, adding that this signalled Dubai's strength as a brand and destination. The Middle East region has started to show slight signs of a recovery, with occupancy up 1.6 per cent, although average daily rates were down 5.6 per cent, resulting in a 4.1 per cent decline in revenue per available room.

"March was the second month Middle Eastern hotels reported occupancy increases and less severe average daily rate declines, indicating the region has started to recover," said Elizabeth Randall, the managing director of the London-based research firm STR Global. @Email:[e-mail]