23 October 2008

Does the current economic crisis augment the risks to growth for KuwaitÃ¢â¬â¢s travel industry?

TravelMole Guest Comment by Euromonitor International industry analyst Nadejda Popova

As the financial crisis deepens, there are growing concerns over the impact on the global travel and tourism industry.

How is this impacting the oil rich emirate of Kuwait? Protecting, but not fully isolating, the oil-rich emirate of Kuwait from the global economic troubles is the cash excess from its oil exports.

In the short-term, Kuwait is able to resist the global crisis given its cash excess from oil imports.

Troubled by high inflation (11.9% in April 2008), the vulnerability of the countryÃ¢â¬â¢s travel industry may increase substantially.

At risk is the financial support for large-scale development and tourism projects, part of a 20-year tourism master plan developed in coordination with the World Tourism Organisation and United Nations Development Programme.

During the last few years, the travel and tourism industry in the Gulf Co-operation Council has been regarded as a crucial economic activity.

In line with the strategies to develop their tourism sectors, substantial investments were made by Gulf countries based on the oil boom and petroleum export, which triggered an impressive increase of leisure and business tourists.

In 2008, there were more than 23 million international arrivals to the GCC Ã¢'â¬ with Saudi Arabia (over 9 million arrivals) and the UAE leading the way, followed by Oman.

The UAE and Oman are regarded as the fastest growing destinations in the region, as arrivals to the UAE are expected to grow 7.5% a year on average to reach more than 12 million by 2012. Arrivals to Oman are expected to grow 25% on average each year to reach more than six million by 2012.

In an effort to decrease the level of dependency on oil, Kuwait has begun diversifying sources of national income by increasing investments abroad, especially in overseas tourism industries. However, on a national level the country has been developing its tourism industry much slower than other countries in the region. The Kuwaiti inbound tourism sector is expected to reach compound annual growth of only 4% in volume and 5% in constant value terms.

Indeed, the Kuwaiti tourism industry is regarded as a niche market with almost non-existent marketing activity for increasing its popularity and competitiveness in the global travel and tourism industry.

Kuwait positions itself as an inbound GCC tourist destination. Key impetus is given to family holiday destination for citizens from neighbouring countries.

Though the strategy of market diversification away from oil has been extremely valuable, there is a need for creating more opportunities for incoming tourists from countries outside the GCC area.

Development of the domestic market and promotion of a sustainable tourism industry along with tapping more into the business market are of great importance. For example, the estimate for average inbound expenditure per trip is US$4,325.

This high value outlines some of the great opportunities for growth and profitability for the travel and tourism industry, if fully explored. Improving the infrastructure and business environment will help increase demand for accommodations, restaurants and transportation, as well as popularise the country as a MICE centre for international and regional business events.

Moreover, the successful execution of long-term development plans will be a source for strategic growth, boosting KuwaitÃ¢â¬â¢s profile as an attractive destination.

For example, the government needs to finalise the privatisation of the national Kuwait Airways in time for when Wataniya Airways, the newest Kuwaiti low-cost airline, will commence its services in January 2009, joining Jazeera Airways in the market.

This will increase air fare competition, contribute to industry consolidation and attract more tourists into the country Ã¢â¬' all positive drivers for future development.