The pandemic and rampant inflation means the Kingdom’s tourism projects need a plan B
The COVID-19 pandemic sent the tourist industry into a once in a generation crash, but just as it was beginning to recover a new threat of rampant inflation looks set to significantly disrupt demand again.
The global supply chain has been hit by the health crisis, leading to shortages and price hikes around the world, which have been exacerbated by the Russia-Ukraine war. Global food prices have jumped by 72 percent over the last two years, while international oil prices are up threefold. Rising prices for essentials have squeezed consumers in developed nations, and led to unrest across a range of developing economies.
In the US inflation hit 8.5 percent, a 50-year high, while in German producer price inflation is running at some 25 percent, the highest rate since the 1950s, with the war in Europe squeezing its gas and food supplies. There have also been big jumps in the cost of living in the UK, China and India. While countries such as Sri Lanka, Pakistan and Peru have seen protests over rising food and fuel costs.
Rising prices, geopolitical tensions and supply chain shortages may soften demand from customers in Europe and the US, which are historically the biggest source of tourists to the Middle East. Add Russia, Canada, Japan, India and China to this mix, and this accounts for nearly 60 percent of all international tourists who come to the Gulf and 70 percent of all international visitors' spending.
A report published by European Travel Corporation in April found that despite these uncertainties there is still an appetite for travel with 77 percent of Europeans eager to go on holiday this summer. However, 56 percent of them say they are likely to visit another European country, while 31 percent will staycation.
This means that in the Middle East tourists are likely to be local, or come from other Gulf Cooperation Council countries this year, with gradual growth expected from medium and long haul markets in 2023 and 2024. But as many tourist resorts in Saudi Arabia are preparing for launch in 2022 and 2023, it is prudent that these resorts have to come up with a plan B.
Many experts argue that a tourist strategy in the Kingdom based on domestic and regional visitors is at best a short-term stop-gap that cannot grow into a profitable business in the long run.
But I believe the opposite. Not only will recovery start with local tourists, but they will also become a strong foundation for the Kingdom in the run-up to the country’s Vision 2030 plan for social and economic reform. The country’s giga and mega projects need income security, and that will mean reducing their reliance on international tourists and boosting demand from local and regional visitors.
A renewed focus on domestic visitors is just the beginning. Once overall growth in the tourist market returns, a loyal domestic and regional visitor base will still be important. Local visitors can build a life-long connection with destinations and cost less to reach. They also have a higher risk tolerance given their familiarity with local customs, health care systems and safety protocols.
In the short term, an unabashed focus on domestic and regional visitors may be a great opportunity to nurture domestic resorts that go on to become global brands over time. Vision 2030 at its core is a domestic strategy and Saudi Arabia needs to embrace this.
• Aradhana Khowala is a global authority on the luxury travel and tourism industries having worked across 75 countries. She is currently the chair of the global advisory board of The Red Sea Development Company.