Hotels in the United Arab Emirates follow airlines to ask staff to take leave without pay, while the hospitality industry is battling the full impact of coronavirus on demand. The decision to sanction leave without pay will have an impact mainly on middle managers rather than on daily operations staff for now, according to hotel sources. Several properties in Dubai and Abu Dhabi are already speeding up this decision, which they say would help them cut costs considerably. Employees were asked to use all days of open compensatory leave and continue their leave without pay.
That’s not all: hotels are taking other measures to cut costs, including closing entire floors to save on utilities, temporarily freezing new hires and replacements, and postponing non-essential purchases. The UAE hotel industry responded by taking similar action in 2001, after the attacks on the World Trade Center in New York curtailed travel around the world, and in 2009-2010, when the economy was hampered by the financial crisis.
A senior hotel industry executive said that mid-range hotels are even changing their food and beverage providers to minimize costs. For example, “They buy Brazilian meat at half price instead of American or Australian meat,” he added.
Who’s not affected?
Employees at lower levels such as servers and contractors (who are there for banquet and catering services, gardening and pest control) are not affected by this decision. Employees are forced to take the option of going on vacation or facing layoffs.
Slash and then some more
In entry-level 5-star hotels, the rate has been reduced to 300 AED per night in an attempt to convince travelers to book with them. At the luxury end of the hospitality market, properties even find rates as low at 1,200 AED per night not appealing to customers. (Some hotels have countered this drop in demand by offering stay packages to UAE residents.)
“I recommend hoteliers in coronavirus affected areas to offer special discounts to attract bookings and to check all options to reduce fixed costs as soon as possible,” said Dr. Tassilo Keilmann, CEO of Wellness Heaven Hotel Guide . “Some of the hoteliers concerned have temporarily reduced their staff – if the contracts allow it. Other hoteliers have closed parts of their hotels to save energy and reduce the workload of their service staff. ”
While luxury hotels have not been significantly affected by cancellations caused by the virus epidemic, mid-level hotels targeting business travelers have been affected. With companies like McKinsey and Ernst & Young who have placed corporate travel restrictions on their staff, business travel has plummeted. This is keenly felt by the hotels.
Event cancellations have further compounded the hotel industry’s woes. With travellers from China, Italy and from within the GCC all but disappearing, hotels are among the worst hit. The general sense of caution related to travel and being in public places is weighing on occupancy and average daily rates.
A ‘war’ breaks out
The situation has inevitably sparked a price war between mid-range and luxury hotels as they try to increase the occupancy rate. Prices are falling day by day, current prices being almost on par with summer 2019 or off-peak prices. This translates into bad news for the hospitality industry as it depends too much on the winter season to reach its profitability targets.
The level of difficulty depends on the main source markets of customers. Hotels heavily dependent on Chinese and Iranian tourists are obviously the most affected. Saudi Arabia’s closure of Mecca and Medina has had an impact on hotels in the United Arab Emirates that once housed Asian Umra groups.
A hotel manager who spoke with local news said his hotel has lost bookings worth 250,000 to 300,000 AED since the beginning of this year. He added that hotels on Yas Island in Abu Dhabi were facing a 60-70% drop in occupancy. (Two hotels on Yas Island have been quarantined after two members of an Italian team scheduled to participate in the UAE Tour cycling event tested positive for coronavirus.)
More costs to clean up
Fear of the virus is forcing hotel chains to spend more on housekeeping. The Indian hotel chain OYO Hotels & Homes has invested in additional measures to increase the frequency of cleaning and disinfection of rooms and facilities.
“Although we have stopped all business travel to critical countries and monitored staff health, we are also supporting our partners by exempting commissions from newly signed hotel owners,” said Pranav Mehta, National Director – Emirates United Arab Emirates, OYO Hotels & Homes.
To cushion the impact of the Covid-19 virus on its partners, OYO has launched marketing campaigns to stimulate demand. “In terms of cancellations, we urged our partners to force customers to cancel their requests, especially those from markets affected by the virus,” he added. “Most of the refund or cancellation requests come from customers who have been affected by the cancellation of flights between China and the United Arab Emirates.
“That said, we continue to welcome a large number of guests, especially those from the region.”
No joy for holiday homes either
Vacation homes in Dubai, which over the past two years have become a serious threat to hotels, have not escaped the fallout from the virus. “This is the first month that we have seen a slight drop in rates and occupancy,” said Anna Skigin, founder of Frank Porter. “Some customers cancel and we offer refunds depending on the policy and the situation.
“Many customers are already covered by their travel insurance. We think that while people are waiting for their vacation, they will postpone it to a later date. At this point, we expect a rebound and an increase in both occupancy and price. ”