First Dubai hotel finance deal since the financial crisis

The announcement that Kuwait’s IFA has secured $115 million in financing for its Fairmont Palm Jumeirah hotel project, structured and arranged by Standard Chartered Bank, is a landmark as important as the cancellation of the Axiom IPO. For this is the first Dubai hotel project to be financed since the crisis hit two years ago.

The long delayed and half-built hotel on the trunk of the Palm Jumeirah will now open in the first quarter of 2012. This is surely a concrete indication of confidence returning in the Dubai hospitality sector.

2.5m more guests

According to a report from Deloitte this week Dubai will need to find another 2.5 million tourists per annum over the next five years to fill the 15,000 rooms it has under construction. That will take annual tourist footfall from 9.5 to 12 million.

This is a challenge but far from impossible given the record of the recent past. The attraction of winter sunshine and luxury hotels and shopping is a proven formula for success, though the focus has now shifted to attracting more guests from Russia and India than the traditional markets of Europe.

One approach is to tempt more transit passengers at the Dubai airport to stop in the city. Presently only 20 per cent actually stay in Dubai. The hotel sector is constantly looking at its value proposition to see if it can do better.

Certainly price will be important but average revenue per room is still relatively high at around $240 per night in Dubai, so there is room for discounting if necessary. Some other costs like the high price of alcohol might also be adjusted to attract more guests.

Scruffy town

The city infrastructure also needs finishing off. Getting the Fairmont on the Palm completed is one step forward. But there are too many half-built projects and road improvement schemes that never seem to get finished. Dubai looks a bit tatty round the edges and some of this is not expensive work, just a matter of prioritization and execution.

There is also room for innovation in entertaining tourists. Where are the coach trips to the fantastic new Ferrari World theme park this side of Abu Dhabi? It is only an hour away. Abu Dhabi has made this huge, uncommercial prestige investment why not use its as a national asset?

Clearly Standard Chartered Bank is convinced enough by the future of Dubai’s tourism sector, which was the first sector to pick up after the crisis, to start putting its money into these projects. But these are commercially viable projects in prime locations not the madness of the Dubailand theme park, leave that to Ferrari World with Abu Dhabi to pick up the bill.