Hotel business in Saudi Arabia

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Table of Contents

Hospitality Review
Demographic and Political Background to tourism
Tourism sector Privatization
Tourism Growth
Saudi Higher Tourism Commission (HCT)
Works Cited

Hospitality Review

The Kingdom has a potential for tourism development. Top managers must understand what differentiates their hotels from others and must understand the need of the visitors in their hotels (market) (Abu-Nasr 19). If these two elements in hotel industry are clear, hotel managers will be able to develop a strategic plan for their hotels in the kingdom, thus creating a market niche for themselves.

Each year, Saudi Arabia plays host to thousands and thousands of religious tourists who flock to the Kingdom to perform the yearly pilgrimage of Umrah as well as Hajj ((Hospitality Valuation Services International 18). In the next 10 years, the number of pilgrims arriving in Saudi Arabia is expected to increase to almost 15 million. With this, hotel industry will experience shortage in accommodating as a result of the large visitors coming into the Kingdom.

An examination of Kingdom’s historical GDO and RevPAR reveals linkages between the kingdom’s economic performance and its hospitality industry (Hospitality Valuation Services International 23). A relationship nearing 100 per cent suggests that Kingdom’s hospitality sector is dependent on the local economy, whereas correlation of 50 per cent closer ties with the international market (Melikian 24).

City Correlation between City/Town	Correlation between RevPAR and GDP
Medina	5.6 per cent
Riyadh	-15.0 per cent
Jeddah	65.2 per cent
Makkah	28.4 per cent
Khobar	19.3 per cent

The above analysis discloses that hotels (restaurants) in Medina, Makkah, Khobar and Riyadh are dependent upon their source markets. While hotels (restaurants) in Jeddah are dependent on the local economy. For Medina and Makkah, hotels are dependent on high proportion of visitors that are largely composed of pilgrims which are not dependant on external financial forces (Hospitality Valuation Services International 25).

Demographic and Political Background to tourism

The population in Saudi Arabia is reported to increase rapidly. It is estimated the number of people in the Kingdom to have reached 21 million people. Half of the population is composed of indigenous people who are under the age of 18. At moment the country’s growth rate in terms of population is higher.

It has been estimated that the tourism sector could generate revenue or income of 3 billion dollars within four years when the country’s rules and issuance of tourist visa are relaxed (Hospitality Valuation Services International 26). Currently, the Saudi’s government through Seventh Development Plan (2000-2005) has set a goal of developing tourism and leisure industry to be among the major economic sectors in the country.

The strategic plan sees the need to diversify and expand hospitality facilities in the country. Additionally, private sector is being encouraged by the government to set more hospitality projects. In the past 5 years, approximately 5.3 billion dollars has been spent by the private sector in the setting up of leisure and tourism and amusement projects in the country (Melikian 29).

The Saudi’s government in 2001 announced the creation of the HCT (Saudi Higher Tourism Commission) as the first step in encouraging local tourists. Through this board, Visa regulations have been simplified to encourage international or foreign tourists to visit the Kingdom.

Pilgrims coming for annual Umrah or Hajj now can freely travel to other parts of the kingdom outside the traditional cities of Medinah and Makkah. All these new regulations are being introduced by the Saudi’s government gradually, and when they are fully implemented it will go a long way to encourage investment in the Kingdom’s tourism sector (Melikian 35).

Tourism sector Privatization

Three years ago the Saudi’s government privatized 21 sectors in the tourism sector; including government owned hotels and restaurants. Since 2000, major investment projects have been initiated in the tourism sector. Many of these projects are found in the grey areas between business, tourist and residential accommodation, and civic and tourist recreational provision.

A notable achievement that has been made so far by the Saudi’s government is the development of more than 60 theme parks throughout the Kingdom. The verdant Southern region of the Kingdom has been seen to attract approximately 3 million tourists annually and most recently it launched a nine-week summer festival. Assets of the country’s tourism company Syahya include resorts and hotels on Asir’s Red Sea coastline such as Al Habala, Al Sooda, Abha and Dourat which are linked by a cable car system (World Tourism Organization 45).

Tourism Growth

Saudi Arabia is a very fast-growing market in Middle East. Every 16 million tourist use Accor properties and Saudi Arabia is among the prime growth areas for the company. At the moment major international hospitality companies are planning to invest in the Kingdom. For example, Accor properties are planning to add more than 20,000 new rooms over the next four years. At the moment, the company starts to construct six new hotels in the kingdom.

The Kingdom’s Royal family has realized the goodness of aligning with major tourism companies. Most recently, Starwood Hotels announced its plans to expand its hotel business in the Saudi Arabia hotel sector with the opening of one new hotel in Jeddah. Also, the company is planning to build a 500 room hotel in the holy city of Madinah (World Tourism Organization 47).

Saudi Higher Tourism Commission (HCT)

The most undoubtedly creating by the Saudi’s government was the creation of Saudi Higher Tourism Commission (HCT) in 2001. Under the direction of Sultan bin Salman, Saudi Higher Tourism Commission (HCT) appointed a United Kingdom consulting firm to carry a 20-month feasibility study on the tourism sector in the Kingdom, beginning with many attractions that are largely unknown to the rest of the world.

In 1998 was another important year, when the government allowed tour operator Bale Worldwide from U.K to bring tourism groups to the Kingdom. It was a one week package features highlights such as visiting the Navatean rock tombs, hotel stay in Madinah, and visitation to villagers in Wadi Thama. Such visitations have been deemed officially successful, as reflected by the changes in the tourism sector in the Kingdom such as relaxation of visa rules (World Tourism Organization 49).

On the positive side about tourism development in the Kingdom, it is highly unlikely the new investment laws will be an impediment to the increased foreign investment in the tourism sector in the kingdom. At the moment, the Saudi’s government is planning to privatize or partial privatize Saudi Arabian Airlines and some business units in the tourism sector (Hospitality Valuation Services International 28).

For Medina and Makkah, hotels are dependent on high proportion of visitors that are largely composed of pilgrims that are not dependant on external financial forces (Hospitality Valuation Services International 25). Therefore, Saudi’s government should rely on the visitors coming into the kingdom.

Works Cited

Abu-Nasr, Donna. Digging up the Saudi past: Some would rather not. New York: Associated Press, 2009. Print.

Hospitality Valuation Services International. Middle East Tourism: Trends and Opportunities. New York: HVS International Publisher, 2005. Print.

Melikian, Souren. Routes of Arabia’ Exhibition at Louvre Is Startling. New York: World Tourism Organization, 2010.Print.

World Tourism Organization. Outbound Tourism from Saudi Arabia. New York: World Tourism Organization, 2003. Print.

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