Dubai braces for financial hit as coronavirus batters vital tourism

Published March 27, 2020
A tram crosses a bridge over a  canal that forms the Marina waterfront district of Dubai, United Arab Emirates. — AP
A tram crosses a bridge over a canal that forms the Marina waterfront district of Dubai, United Arab Emirates. — AP

The sundecks on Dubai’s beaches lie empty, and red flags warn visitors away from the waterfront to protect the Middle East’s tourism hub against coronavirus.

The infection is starting to deliver a painful blow to Dubai, one of the most visited cities globally, with some hotels closed and occupancy rates falling to less than 10pc in others.

Hotels are working to protect remaining staff and guests, taking their temperature and giving them hand sanitiser. Restaurants have been reconfigured to space out dining tables.

But hotel workers worry this slowdown is only the start of something more damaging, and while authorities have said beaches and pools will be closed for just two weeks, officials have indicated those restrictions could be renewed.

The outbreak has also revived concerns about the emirate’s over-leveraged state coffers. Analysts and financial industry sources say it could force the state to seek a bailout similar to the one extended by oil-rich Abu Dhabi after a 2009 financial crisis.

“We expect difficult times to last for months, probably the whole of 2020,” a manager at one of Dubai’s most renowned hotels told Reuters on condition his establishment not be identified.

He was checking on a British family of three seated poolside, among the handful of guests still remaining at the 500-room establishment.

The hotel put 300 employees on unpaid leave and shut its pool bar and beach club, after the pandemic hit global travel and led the United Arab Emirates to close most public venues.

Flights halted

The hotel, which has reduced staffing to 20pc, is among hundreds of similar establishments facing similar strains in Dubai, where tourism accounts for more than 11pc of GDP and supports the retail, transport and construction sectors.

The World Travel & Tourism Council said Dubai was the third largest city in the world in attracting direct international tourism spending, with $28 billion in 2019. More than 16 million tourists visited the city last year, the government said.

State-owned Emirates airline, which posted 862 million dirhams ($234.70 million) in profits in the first half of 2019, halted passenger flights even before the UAE suspended all passenger flights, except evacuations trips, late on Tuesday.

“In a scenario where these measures (to combat the virus) last for around three to four months ... it would knock around 5-6% off of Dubai’s GDP,” said James Swanston, MENA economist at Capital Economics.

He said Dubai is the most vulnerable Middle East economy to coronavirus travel curbs and state firms could be forced into a debt restructuring or seek help from UAE capital Abu Dhabi.

Dubai’s debt burden is at around $135 billion (125% of GDP), almost half due before end-2024, Capital Economics estimates.

Abu Dhabi last year rolled over for a second time a $10 billion loan made to Dubai in the global credit crisis, which saw Dubai’s real estate market crash.

Hotel closures

Economic growth in Dubai had been sluggish due to lower oil prices and the property slump even before the outbreak.

Al Habtoor City, a group of three hotels in Dubai, said all guests were upgraded to Habtoor Palace and its other two hotels are now empty but “not shutting down completely”.

Hotel occupancy rates in the UAE, a federation of seven emirates, were down 28.2pc year-on-year in the first week of March, while revenue per available room was down 43%, preliminary data from analytics specialist STR showed.

“I’m sure more help for the hospitality industry is coming. This would help us keep jobs,” said Fredrik Reinisch, a General Manager at Al Habtoor City, referring to stimulus packages announced by the Dubai government and the UAE central bank.

The spread of the disease is also putting at risk the EXPO 2020 world fair which Dubai is preparing to host from October, with a target of 20 million tourists.

“We can confirm that some of our properties in the Middle East have temporarily closed,” Marriott International said in a statement to Reuters.

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