United Arab Emirates

Tourism Overview Q3 2010

Tourism Overview After a difficult year for tourism in 2009, particularly in terms of foreign visitor arrivals, the recovery in the sector in the latter part of the year has continued into 2010. In Abu Dhabi in the first four months of 2010, there was a 16% year-on-year (y-o-y) increase in tourist numbers to over 620,000 (including strong domestic tourism). In Sharjah, 402,000 tourists stayed in the emirate's hotels and apartments in Q110, a rebound of just over 9% y-o-y. In Dubai, although final data on arrivals for 2009 is still pending, there is some evidence that last year's downturn may have bottomed out in the early months of 2010.

Hospitality Despite incomplete 2009 hospitality sector data, press releases indicate a tentative recovery in occupancy rates and revenue per available room at some of Dubai's hotels in Q110. After a rebound in Q409, data from Abu Dhabi for January-April 2010 show over 1.68mn guest nights, up by a healthy 10% y-o-y. In April, tourist numbers rose by 12% y-o-y, with arrivals from two key source markets, the UK and Saudi Arabia, up by 23% and 24% y-o-y respectively. In Sharjah, data for Q110 show that the total number of occupied room nights in hotel establishments rose to 414,700, an increase of nearly 8% y-o-y. The overall occupancy rate was 70%, a slight increase from Q109.

Airport Passenger Traffic In Q110, there was a rebound, with passenger numbers rising by nearly 14% y-o-y. Despite the tourism downturn last year, Dubai International Airport recorded growth in passenger traffic of just over 9% y-o-y, similar to 2008, with a total of 40.9mn passengers after growth recovered in the latter part of the year. Figures for the first four months of 2010 show stronger growth of almost 19% y-o-y.

Strong economic growth in the Middle East has supported favourable visitor arrival growth in the UAE in recent years. One of the key drivers of growth in visitor arrivals from other Middle Eastern states has been the high oil price and the effect this has on real incomes. Compared with the buoyant growth experienced in the years prior to 2009, we anticipate a weaker scenario for visitor arrivals to the UAE from other Middle Eastern states in 2010 and 2011, based on our short-term Brent crude oil price forecasts (see Global Assumptions). In the Middle East as a whole, we forecast real GDP growth of 3.6% in 2010 (revised up slightly this quarter), after an estimated 1.1% in 2009 and 5.6% in 2008.

Arrivals

Table: Arrivals Data, 2007-2014

2007 2008 2009e 2010f 2011f 2012f 2013f 2014f

Tourists ('000) 8,797 9,468 9,111 9,787 10,534 11,438 12,381 13,358

% change y-o-y 9 8 -4 7 8 9 8 8

e/f = BMI estimate/forecast. Notes: Number of tourists was forecast using global data. Source: World Tourism Organisation (UNWTO)

According to the Dubai government's Department of Tourism and Commerce Marketing (DTCM) -- the principal authority for the planning, supervision and development of tourism in the emirate -- in 2007, 6.9mn people stayed at hotels and hotel apartments in Dubai, which essentially represents visitor arrivals in the emirate and accounts for the majority of visitor arrivals in UAE as a whole, up by 8% y-o-y from just over 6.4mn.

As part of an aggressive marketing strategy by the DTCM, Dubai is making considerable strides in promoting itself as a tourist destination. In particular, it is likely to substantially increase the number of visitors from East Asia in the coming years.

For the UAE as a whole, BMI's estimate for growth in foreign visitor arrivals in 2007 is 9% y-o-y to 8.8mn arrivals, while for 2008 we estimate annual growth of 8%, to 9.47mn visitors. Our growth estimate for arrivals in 2009 remains unchanged at -4% y-o-y to 9.11mn visitors, although we await data on arrivals to Dubai for H209. The poor outturn for the sector in 2009 was due to the impact of severe recession in the US and key European economies -- North America and Europe together accounted for an estimated 46% of total arrivals to the UAE in 2008 -- and a significant slowdown in growth in the Middle East.

Relatively strong recovery in arrivals growth is anticipated in 2010, with growth also picking up slightly in 2011 and 2012. These forecasts are based on economic recovery in major source markets, with the eurozone tentatively emerging from recession in 2010 and growth there edging up to 1.6% in 2011, while in the Middle East, we forecast a relatively strong rebound in economic growth from 2010 (see Global Assumptions).

Commercial Travel Overview

Airports

The agency governing aviation in the UAE is the General Civil Aviation Authority (GCAA), which presides over the airports in Abu Dhabi, Al Ain, Dubai, Sharjah, Ras al-Khaimah and Fujairah. The existing international airports all have ambitious expansion plans.

Over 40 passenger carriers operating scheduled flights from about 90 destinations worldwide service Abu Dhabi International Airport. After very strong growth of 31% y-o-y in total passenger traffic at the airport in 2007, to over 6.9mn people, similar growth was recorded in 2008, with total traffic reaching over 9mn passengers (up by 30% y-o-y). The buoyancy of growth achieved at the airport was largely due to the expansion of the national carrier, Etihad

Airways -- one of the fastest growing airlines in the world. Following renovation and expansion of the main terminal and the creation of a second one, almost doubling annual passenger capacity between 2005 and 2006 to 6.8mn, development is underway on the Midfield Terminal Complex, which will bring the airport's overall capacity to 20mn passengers by 2010 (the facility's flexible design will allow for gradual expansion to an

ultimate level of over 50mn passengers per annum). The new complex includes the construction of an interim terminal for Etihad Airways, a second runway (which opened in October 2008), a state of the art air traffic control system, new cargo facilities and an airport FTZ. The Abu Dhabi Airports Company (ADAC) has received bids for the construction of the new terminal. In 2009, in line with poor tourism, there was a moderation in growth of total passenger traffic, which was up by 7.5% y-o-y. During Q110 there was a rebound, with passenger numbers rising by nearly 14% y-o-y.

Dubai International Airport is one of the busiest in the region. In 2007, it was the fastest growing airport with an annual increase of 19.3%. Growth in passenger traffic slowed in 2008 but remained strong at 9% y-o-y, with over 37.4mn passengers. A similar growth rate was achieved in 2009, despite the tourism downturn, with passenger numbers totalling 40.9mn after growth recovered in the latter part of the year. The al-Maktoum International Airport, under construction in Jebel Ali, south of Dubai, is destined to be the largest airport in the world, handling 120mn passengers per year. The airport will cost US$10bn and is scheduled to be fully operational by 2017.

Ras al-Khaimah International Airport is planning an expansion programme that will include new departure and arrivals halls, accommodation and duty-free shopping facilities.

Commercial Airlines

The expansion of local airlines is one of the key engines for growth in tourism. Major commercial airlines operating in the UAE include Emirates, Etihad Airways and Air Arabia.

Emirates is owned by the Dubai government and based at Dubai International Airport. The airline expects to carry more than 48mn passengers each year by 2020. Much of Emirates' capital expenditure is taken up by investment plans that will oversee the expansion of its fleet to 150 planes by 2010. In a difficult year for most airlines, The Emirates Group recorded net profit of AED4.2bn (US$1.1bn) in the financial year ending March 2010, up by 248% on the previous year. During the same period, the airline carried 27.5mn passengers, an increase of over 20% y-o-y. This follows increases in passenger traffic of 7% and 21% y-o-y in the two previous reporting periods.

Table: Key Players -- UAE Commercial Airlines, 2009 (unless stated)

Annual sales, US$mn Passengers carried, mn Year est. No. of employees Fleet size

Emirates 12,400 27.5 1985 50,000 145

Etihad Airways 2,500 (2008) 6.3 2003 +7,800 (H110) 53

Air Arabia 545 4.1 2003 1,100 20

Source: BMI, company data

Hospitality Overview

Market Overview -- Hospitality

Accommodation in the UAE is of a very high standard and many of the world's top hotel chains run five-star establishments in the major emirates. Among the major international hotel brands operating in the country are Hilton, Sheraton, InterContinental Hotels Group (IHG), Hyatt, Le Méridien, Marriott, Accor, Starwood Hotels & Resorts Worldwide and Ramada. At the top end of the market are projects such as 'the world's finest hotel' Burj al-Arab, the Jumeirah Beach Hotel (both owned by Jumeirah Group) and the traditional Royal Mirage Hotel (owned by One&Only). There are also a number of locally run properties suitable for tourists and business travellers.

Abu Dhabi National Hotels (ADNH) plays an important role in the promotion of tourism in Abu Dhabi. It has four hotels in the emirate (the Hilton International, the Sheraton, Le Meridien and Hilton International Resort at Al Ain) and manages several others in Abu Dhabi and Fujairah through its al-Diar Hotels division.

In September 2008, the organisation established to support, regulate and standardise tourism initiatives in Ras al-Khaimah, RAK Tourism, announced that nearly two-dozen five-star hotels and several more premium hotel and hotel apartment operators are poised to start operations in the emirate within the next five years, as it continues to benefit from an unprecedented tourism boom. The new hotels are expected to more than double the current supply of hotel rooms (over 1,800) in Ras al-Khaimah. RAK Tourism anticipates 2.5mn tourists by 2012.

Accommodation Developments

In February 2010, Starwood Hotels & Resorts opened the 45-storey 422-room Grosvenor House, a Luxury Collection Hotel, in Dubai -- the group's Luxury Collection brand debut in the UAE. Once a second tower is completed and opened in 2011, the hotel will have 745 rooms.

The luxury Armani Hotel Dubai in the Burj Khalifa opened in March 2010. The hotel was developed under collaboration between Giorgio Armani and Emaar. The Burj Khalifa, previously called Burj Dubai, is the tallest building in the world and opened in January 2010.

In March 2010, IHG had opened the 381-room Holiday Inn Express Dubai Airport -- the group's fourth Holiday Inn Express property in Dubai. Ishraq Gulf Real Estate Holding

Company will operate and manage the new hotel.

Thai hospitality group Anantara Hotels, Resorts & Spas will manage two new luxury lodges on Sir Bani Yas Island, Abu Dhabi: the al-Barai Lodge and the al-Yamm Lodge. Both 30-unit lodges are expected to open at the end of 2010, bringing Anantara's portfolio in the emirate to four.

Four Seasons Hotels and Resorts will open the Four Seasons Hotel Abu Dhabi at Sowwah Island in 2013, with around 200 rooms and 125 residences.

A fourth Premier Inn in the UAE is being built in Abu Dhabi. The 242-room hotel, part of the mixed-use development Capital Centre, will reportedly cost AED120mn and is scheduled for completion by September 2011.

In April 2010, it was reported that Starwood Hotels & Resorts Worldwide and Abu Dhabi-based private investment firm International Capital Trading (ICT) are to develop the 281-room St Regis Abu Dhabi as part of ICT's mixed-use Nation Towers development. This will be the second St. Regis hotel for Abu Dhabi.

In May 2010, Middle Eastern retail conglomerate the Landmark Group launched its mid-market hotel brand Citymax Hotels, with the opening of the 378-room Citymax al-Barsha, in Dubai. Later in the year, the 693-room Citymax Bur Dubai and the 260-room Citymax Sharjah are also expected to open. The group targets the opening of 20 Citymax hotels across the Gulf region.

In April 2010, Banyan Tree Hotels & Resorts opened its first property in the UAE, the 101-villa Banyan Tree Al Wadi, in Ras al-Khaimah.

It was reported that Jumeirah Group is to launch the brand Venu later in 2010, in the Middle East, North Africa and Eastern Europe.

Rotana will manage three new properties in the Abu Dubai National Exhibition Company (ADNEC)'s mixed-use Capital Centre development, in Abu Dhabi. The Capital Centre Rotana and the Centro Capital Centre (both 300-rooms) are under construction and scheduled to open in 2011, while construction on the 200-room Centre Arjaan by Rotana is due to start later in 2010 and should be completed in 2012.

Starwood Hotels & Resorts plans to open its first W-branded property in Abu Dhabi. The company has signed an agreement with the UAE-based Belbadi, which will see the 350-room W Abu Dhabi hotel open as part of the mixed-use al-Bateen Wharf project in Abu Dhabi in 2013. This will be Starwood's third W hotel in the Middle East.

In May 2010, Hospitality Management Holdings' (HMH) new Corp Executive brand debuted in Dubai. The Corp Executive Hotel Apartments -- al-Barsha, which has 143 one and two-bedroom apartments, is owned by Dubai's al-Shafar General Contracting and was built at a cost of AED190mn.

It was reported in February 2009 that Abu Dhabi's National Corporation for Tourism &

Hotels (NCT&H) is to invest AED600mn (US$163mn) in the construction of the 250-room five-star Hotel Le Bristol Abu Dhabi in the al-Bateen region. The hotel, set to open in 2012, will be managed by the Oetker Hotel Collection.

Also in February, ADNH said that construction of the luxury ADNH Resort and Spa in Abu Dhabi -- to be operated by Marriott International -- is on schedule to open by the middle of 2010. In Ras al-Khaimah, Rotana has opened its first property, the Cove Rotana Resort, part of a luxury resort built by Orascom Hotels and Development. The resort has 202 hotel rooms and 76 villas.

Shangri-La Hotels & Resorts has opened its second hotel in Abu Dhabi in Q309. The group signed a management agreement with Abu Dhabi-based al-Jaber Group for the 301-room Traders Hotel, Qaryat al-Beri, joining its sister property, the 214-room Shangri-La Hotel, Qaryat al-Beri that opened in 2007. This will be Shangri-La's third hotel in the UAE (including the 301-room Shangri-La Hotel, Dubai).

Hilton has announced the addition of Denizen Hotels to its global brands. The new lifestyle brand is designed to cater for 'globally conscious modern travellers'. Hilton is in negotiations to introduce the brand around the world, with Abu Dhabi among the initial target locations.

Kor Hotel Management is to operate a five-star hotel on Sowwah Island, at the core of Abu Dhabi's new Central Business District. The Viceroy Abu Dhabi will be the flagship of the Viceroy brand in the Middle East. The hotel is currently in its preliminary design phase and will have a maximum of 250 rooms and branded residences

Table: Selected Accommodation Projects In The UAE

Company Hotel/project name Rooms Investment

(US$bn) Open

Tourism Development & Investment Co (TDIC) Desert Islands 4,000 3.0

From 2007

IFA Hotels & Resorts/Nakheel Extension to Kingdom of

Sheba na 1.0 na

Emaar Properties Burj Khalifa 2,000 4.1 Jan

2010

Rezidor Hotel Group/TDIC Regent Emirates Pearl 365 na 2010

Hard Rock Hotels Hard Rock Hotel Dubai 350 rooms, 100 serviced

apartments 1.0 2011

na = not available. Source: BMI

Tourism Infrastructure

The UAE has an extensive coastline, sandy beaches and varied landscape. The offering for tourists, in terms of activities, ranges from powerboat races and sand-skiing to shopping and golf. In addition, the country's cultural heritage, accessible in the many cultural centres, and traditional sports such as falconry, camel racing and horse racing, have been attractions for tourists. The UAE is also a highly sought after venue for conferences, regional and international exhibitions and major sports events such as the Dubai World Cup horse race, the Dubai Desert Classic golf tournament, the Abu Dhabi Formula One grand prix, polo and cricket competitions.

While Dubai is clearly at the forefront of the UAE's tourism expansion, Abu Dhabi, Sharjah, Ras al-Khaimah, Ajman, Umm al-Quwain and Fujairah have all made significant strides with their tourism programmes. Brand new and recently renovated hotels can be found throughout the UAE.

ADNH, established in 1978, plays an important role in the promotion of tourism in Abu Dhabi. ADNH owns or manages a number of hotels in the emirate, as well as a number of tourism outlets such as the Abu Dhabi Ice Rink. It also supervises the duty-free complexes at Abu Dhabi and Al Ain international airports and is involved in the development of several new facilities. The company operates divisions for hotel management, catering and contract services, purchasing and tourism services and provides transport services through al-Ghazal, a wholly-owned subsidiary.

The UAE has been commended for the imaginative and creative nature of recent developments. The saturation of Dubai's beachfront, for instance, led to the conception of The Palm Islands, a massive offshore development consisting of three manmade islands, which are approaching completion. Each island will add about 160km of shoreline to Dubai.

The Palms will accommodate a number of new hotels, residential villas, shoreline apartments, marinas, water parks, restaurants, shopping malls, sports facilities, health spas and cinemas. Nakheel and Kerzner International entered into a joint venture to develop a US$650mn, 2,000-room resort and water park on the Palm Jumeirah, one the palm tree-shaped artificial islands. The first phase involved construction of a 1,000-room hotel and water theme park on 2.4km of beachfront. Construction of the Palm Jumeirah began in 2001 and is almost complete. The first residents arrived in 2006. Construction of Palm Jebel Ali began in October 2002 but was hit by project delays at the end of 2008 due to the sharp downturn in the construction sector. Work on the third and largest island, Palm Deira, began in November 2004.

Other projects include The World, a cluster of 250 manmade islands off the Jumeirah coastline between Burj al-Arab and Port Rashid. Each of these islands will be sold to private developers.

The biggest terrestrial tourism development in the UAE, the AED18bn (US$4.9bn) Dubailand, is also underway. Constructed on an 185mn m2 area, the development is expected to attract 200,000 visitors per day and will boast the biggest shopping complex in the world, the Mall of Arabia. The Dubai government intends to spend AED2.6bn on developing the project's infrastructure and is inviting participation by national and international developers to create the main attractions at the leisure centre. The Dubai Development and Investment Authority (DDIA) will manage the project, which will include a US$1.7bn 'golf city' comprising of five courses, an academy and a luxury resort. UAE construction firm BENAA won the contract to develop the resort.

The Dubai government announced in January 2009 that it would increase spending on transport, such as new road building and improvements to port facilities. A feasibility study is being undertaken to build a high-speed rail network between Abu Dhabi and Dubai, passing through newly developed areas along the coast between the two cities and connecting with Dubai's new metro system, which is under construction. There are also plans for an emirates-wide freight and passenger rail network. In early 2010, it was reported that the first contract for the 1,500km long rail network could be awarded by the end of the year. The entire network could cost up to AED40bn.

Ras al-Khaimah plans to rebuild its old city and reclaim land for housing and tourism projects. In November 2003, the emirate had entered the freehold property business with the launch of Noor, an AED3.67bn tourism project that will develop a new 850-hectare area of reclaimed land. The project is part of the emirate's 2015 structural plan, which includes development projects such as the Ras al-Khaimah--Sharjah Ring Road, the al-Hamra Fort Resort, al-Murjan Island, the Khor al-Qarm (Jazerah al-Hamrah) resort development, Tower Links Golf Club, the al-Shamal area subdivision, the al-Khabil area subdivision, Hulaya Island and Ras al-Khaimah International Airport.