Long-term strategy for strong tourism sector in Oman

The year 2015 unfolded as a banner one for tourism in Oman. Record visitor numbers and media coverage are tokens of the rising star of tourism in the sultanate, which is seeking to outgrow its status as niche luxury destination.

While there are clear benefits to this development in terms of employment, tourism revenues and the sultanate’s international profile, it also makes this a time of key decisions in terms of the sector’s future. Cognisant of this, the Omani government is finalising the next steps of its long-term tourism development strategy.

In Good Health

Despite falling oil prices and rising regional uncertainty (which led to extra caution among many consumers and businesses), numbers for the sector in 2015 are surprisingly healthy, growing on the back of a very strong year in 2014. Oman’s main tourism gateway is Muscat International Airport (MIA), formerly Seeb International Airport, which is conveniently located just 32 km from the centre of the capital.

Figures from the National Centre for Statistics and Information (NCSI) for the first seven months of 2015 show a total of 5.21m passengers passing through MIA on international flights, plus 499,553 more on domestic flights. Both figures are substantially up on the first seven months of 2014, when the respective numbers were 4.65m and 454,079. This represented a year-on-year increase of around 12% in international and 10% in domestic passenger numbers.

Meanwhile, at Salalah in the southern governorate of Dhofar, the country’s second major flight destination also saw an increase in passenger numbers. Between the old Salalah Airport and the newly opened Salalah International Airport (SAIA), the total international passenger throughput was 178,855 in the first seven months of 2015, up from 131,786 in the same period the year before. Domestic numbers rose from 319,132 to 360,204, giving respective percentage increases of 35.7% and 12.7%. Both MIA and SAIA are managed and operated by government-owned Oman Airports Management Company (OAMC).

A new terminal for MIA is currently under construction, with an expected capacity of 12m passengers per annum and further potential to accommodate up to four times that number. The expansion project includes an extension of the existing runway to 4 km, plus a 4 km runway at the new terminal. This will mean a future airport with two runways each capable of handling Airbus A380s, the largest passenger jet currently in operation. The new terminal will also have around 18,000 sq metres of commercial space, with tenders for duty free, luxury retail concessions and food and beverage contracts issued in August 2015. The expanded airport is planned to open in 2017, absent any delays in construction.

SAIA, meanwhile, saw its new venue open in June 2015. The OR300m ($776.7m) project had seen the construction of a terminal capable of handling 1m passengers per annum, with future expansion plans to extend capacity to 6m passengers annually. The airport also has a runway capable of handling Airbus A380s, and a gross floor area in the terminal of 65,638 sq metres.

Looking to hotel guest numbers and occupancy rates, the most recent NCSI data for establishments in the three- to five-star range for the January-May 2015 period is useful. This data shows that numbers were down, year-on-year, during these five months, from 516,962 in January-May 2014 to 516,481 in the same period of 2015.

From And To

In terms of the countries of origin, however, there were some significant improvements in certain national groups, broadly reflective of global economic trends, as Western markets have recovered, while emerging markets have faced challenging times. The number of hotel guests from Europe went up from 161,081 in January-May 2014 to 185,940 in the first five months of 2015, while the number of American guests also rose, from 17,548 to 20,278. The main declines were in Asian hotel guests – down from 81,744 to 59,722 – and amongst Omanis themselves – down from 159,638 to 149,403.

Clearly, these figures also show that the European market is the largest, with Europeans, like other northern visitors, travelling mostly during their own winter: European hotel guest numbers reached 44,108 in March 2015, for example, falling to 27,072 in May 2015.

A major season for visitors to Salalah and the south is the khareef, which extends from the end of July to the beginning of September, when the Indian Ocean monsoon visits the shores of Dhofar, temporarily turning the coastal plain of the governorate green and providing a welcome respite from soaring temperatures elsewhere in the Gulf. While also attracting visitors from other GCC and Arab countries, this season is particularly popular with Omani visitors. Indeed, NCSI figures recorded that between June 21 and August 31, 2015, 502,089 people visited Dhofar for khareef, an increase on 417,019 at the same point in 2014. Of these, 371,931 were from Oman, constituting 72% of the total visitors, an increase of 17.3% on the same period of the previous year.

Forms Of Entry

Other major entryways to Oman for international visitors include the land border with the UAE (it is roughly a four-hour drive between Muscat and Dubai) and the sultanate’s seaports. The latter have all been undergoing a major reorganisation in recent times, with Port Sultan Qaboos (PSQ) – previously Muscat’s main commercial port – now dedicated to passenger traffic. Other ports such as Sohar and Salalah also feature on a number of international cruise ship itineraries, as does the port of Khasab in the Musandam exclave, the Omani governorate on the According to Ministry of Transport and Communications (MoTC) figures, the total number of inbound and outbound tourists visiting PSQ in the first five months of 2015 was 239,964, up from 197,786 in January to May 2014. This was a 21% increase, with 64 cruise ships having called at the port during this time period.

A new logo and brand identity for the port are in development, hoping to consolidate momentum from the 2014 formation of Cruise Arabia, which partners with bodies in Qatar, Dubai and Abu Dhabi to promote cruise tourism in the Gulf.

NCSI data showed some 8447 people had arrived by cruise ship during May 2015 alone, with 41.1% of them from the US, making this the preferred mode of travel to Oman for Americans. Incoming cruise ship dockings were up 3.7% on April 2015.

Planned upgrades to facilities at Salalah are set to further expand Omani cruise tourism, with plans for phase three of the port expansion announced in August 2015. Phase three will include a dedicated cruise terminal, while wider channels and a dredging of the turning basin will enable the port to accommodate larger vessels. The Port of Khasab is also likely to see changes ahead: the MoTC is currently considering a proposal from the Port Services Corporation to assume full management and operation of the facility.

New Direction

The key government institution for the sector is the Ministry of Tourism (MoT), headed by Ahmed bin Nasser bin Hamad Al Mahrizi. The MoT is responsible for tourism promotion, planning, development, administration and quality management in the sultanate.

Under the ministry’s planning mandate, it has commissioned Spanish consultancy firm THR Innovative Tourism Advisors to prepare a new tourism strategy, which runs from 2015 to 2040. After receiving Cabinet approval, the strategy is due to be launched by the end of 2015.

The plan’s parameters envisage long-term and sustainable growth in terms of the sector’s contribution to GDP. Under Oman’s current national development plan, Vision 2020, a major effort is being made to diversify the economy away from a dependency on oil and gas. Tourism is seen as an important element of this strategy, encouraging economic growth across the country, expanding the services sector and building up the private sector. The long-term successor to this plan, Vision 2040, is currently in the process of being finalised and is likely to continue to recognise tourism’s importance to the economy.

Contribution

Indeed, according to data from the World Travel & Tourism Council (WTTC), the direct contribution to GDP by the tourism sector in Oman was OR765.1m ($2bn), or 2.6%, in 2014. However, when indirect contributions are taken into account, the figure rises to OR1.70bn ($4.4bn), or 5.7% of GDP. Both these figures have shown steady year-on-year growth since the start of the decade, and the WTTC predicts that direct contributions will continue to grow by around 6.1% per annum through to 2025, while indirect contributions will grow some 6.2% per annum. By 2025, this would give the sector a direct GDP contribution of 3.3% of GDP and an indirect contribution of 7.3%.

Nonetheless, WTTC figures also show that Omani tourism, while growing fast, is still below the regional and international average in terms of economic contribution, standing at 81st in the world in terms of the size of tourism’s contribution, and seventh of the 10 Middle Eastern countries featured in the survey.

Job provision is a major incentive behind the development of a new strategy for tourism. Oman has a young population (20% are under the age of 25), and there is a growing need to create jobs. Tourism has been identified as a sector that could be a source of significant employment. The WTTC estimates that in 2014, 44,500 jobs were directly generated by the sector – 2.8% of total employment. Again, when indirect employment estimates are factored in, the number swells to 90,500, or 5.7% of total employment. The WTTC forecasts that by 2025, tourism will account for 72,000 jobs directly and 143,000 jobs indirectly – an annual increase of some 3.8% on both counts.

The new strategy for tourism will place a major emphasis on promoting Oman as a destination to international visitors. The figures show how important foreign visitor expenditure is to the sector and to its growing contribution to GDP. The WTTC calculated that in 2014, foreign spending generated 60.7% of the sector’s contribution to national wealth, with domestic tourists accounting for the remainder. With the help of the 2015-40 strategy, foreign spending is forecast to grow by some 7.1% per annum up to 2025, with domestic spending to grow by around 3.9%. This represents a new avenue for growth in the Omani tourism sector.

New Regulations

The new strategy is also expected to revamp some of the existing regulations governing the sector. Among the topics likely to be up for review are land development agreements, ownership of property by non-Omanis in integrated tourism complexes (ITCs) and possible methods and legislation for dealing with suspended or delayed projects.

THR Innovative Tourism Advisors may also seek to take a fresh look at the administrative and organisational structure of the sector. The MoT is currently the regulator, policy maker and promoter, and there is discussion among industry stakeholders as to whether the latter function should be distributed more widely. Another key body in the sector is Omran, the government’s tourism investment arm. Omran is involved in major developments such as the Oman Convention and Exhibition Centre and the Hay Al Irfan Urban Development, while also listing 11 hotels and resorts amongst its assets. These include the Intercontinental Hotel Muscat, the Crowne Plaza in Duqm and the Alila Jabal Akhdar resort in the Hajar Mountains. Omran also has three new subsidiaries: the Oman Heritage Development Company (OHDC), The Oman Project Management & Development Company (OPMDC) and the National Omani Hospitality Company (NOHC). The OHDC focuses on the management and upkeep of the sultanate’s culture and heritage sites, with the aim of creating authentic and quintessentially Omani experiences for tourists. The OPMDC specialises in developing and executing tourism projects. Initially it will be working with OMRAN and the MoT on projects in the hospitality sector. The NOHC is a dedicated hospital operator company and manages some of Oman’s most exclusive properties. It is responsible for Oman’s first home-grown hotel chain, Atana, which seeks to blend age-old local traditions with contemporary culture. It currently has two locations – Atana Khasab and Atana Musandam.

Connectivity

The development of transport links to and within the sultanate will be vital to the future expansion of Oman’s tourism sector. In this regard, OAMC is involved in the development of a number of regional airports. Sites nominated for these include Ras Al Hadd, Duqm and Sohar.

Duqm, where an entirely new port city is being constructed in central-eastern Oman, has had its new airport up and running since 2014. Four weekly flights from Muscat began in July 2014, and the Duqm Special Economic Zone Authority and others are lobbying for this to be increased. A new passenger terminal is still to come and will have a capacity of 500,000 passengers a year, as well as two boarding bridges, gate lounges and duty free areas. The 4-km runway is capable of handling wide-bodied jets, a feature which allows for the possibility of Duqm Airport receiving international flights at some point in the not-so-distant future.

Sohar, meanwhile, located some 220 km northwest of Muscat, is the centre of another fast-expanding port and free zone project. A new airport at Sohar landed its first commercial flight in November 2014, preceding the construction of its terminal building. Scheduled for completion in 2016, the terminal will have a capacity of 0.5m passengers per annum and facilities for cargo. The airport hopes to act not only as a way to give business passengers easy access to the Sohar port and free zone, but as a connection for tourists heading to the north of the country too.

An additional regional airport is being built at Ras Al Hadd, near Sur, on the coast south of Muscat. Ras Al Hadd already has an established tourism sector, based around its marine life: the beaches there are home to seven different species of turtle. As of summer 2015, the new runway had been completed, but work on the rest of the airport facilities and the airport’s opening was being tied to further tourism development in the area.

Oman Air

The national carrier, Oman Air, was established in 1993, operating its first domestic flights from Muscat to Salalah and its first international route from Muscat to Dubai. In 2007 the government announced it was pulling out of Gulf Air – the joint venture airline it had formerly shared with Abu Dhabi, Bahrain and Qatar – and increasing its stake in Oman Air.

A major expansion in routes and planes followed, along with a steady increase in the government’s stake, with this now standing at 99.825%. Data in the airline’s 2014 annual report shows that it carried more than 5.1m passengers that year on 23,500 round trips and had a capacity of 15.2bn available seat km. The airline stated in the annual report that it made a contribution of OR420m ($1.1bn) to the sultanate’s GDP in 2014.

Oman Air’s fleet stood at 32 aircraft in 2014, but a new development plan begun in 2013 will see the airline investing in more narrow- and wide-bodied aircraft. The 2020 target is for a fleet of 25 wide-body and 45 narrow-body planes. Oman Air has nine codeshare partnerships currently, giving it access to a total of 56 global destinations. As Oman Air CEO Paul Gregorowitsch told OBG, “Route planning is also a big determinant in expanding market share. [In 2015], 56% of our flights have connections in under two hours, with aims to increase this to 90% by the end of 2016.”

The future may be a more competitive one for the airline, as in May 2015, Oman’s aviation sector regulator, the Public Authority for Civil Aviation, began a request for information process to test market interest in establishing a low-cost carrier that would compete with the airline. Such a newcomer would face an Oman Air that has increased its share of departure capacity from the sultanate’s airports from 24.7% in 2006 to 55% today, with capacity predicted to grow by 15.9% for 2015.

Nonetheless, with the total capacity of Oman’s airports increasing by some 88.8% between 2005 and 2014 – an annual average growth rate of 9.9% – and capacity at Muscat and Salalah due to rise 16.9% and 12.3%, respectively, in 2015, there is likely to be enough space to go around.

Getting Around

Once in the sultanate, visitors have a wide range of destinations to choose from. While domestic air routes are one way to get to these, another popular means of transport within the country is fast ferry.

The National Ferries Company (NFC) operates five scheduled services currently: Muscat-Khasab, Khasab-Lima, Shinas-Khasab, Shannah-Masirah and Shinas-Dibba-Khasab. Australian-built catamaran fast ferries ply the main routes, travelling at top speeds of around 55 km per hour, with capacity for 208 passengers and 56 vehicles. In February 2015 the NFC also carried out a trial run to the Iranian port of Bahman, on Qeshm Island. Many hope that increased rapprochement between the West and Iran may lead to a resumption of ferry services across the Strait of Hormuz in the near future.

For many, though, travel within Oman is likely to be by road, at least until the arrival of the Oman Rail project. This latter venture is part of a planned rail network that will eventually link all the GCC countries. A first stretch of rail is due to be laid between Sohar and the UAE border at Al Buraimi, with a contract for the construction of this due to be awarded in the fourth quarter of 2015, according to press reports. The contract will include track and stations, freight yards and maintenance areas. In the longer run, trains are expected to run as far south as Salalah, as well as to Duqm.

In terms of road transport, new roads are being laid, while major improvements to a number of existing highways are also under way. The Al Batinah Expressway saw its first section open in June 2015, with the road set to eventually link Muscat to the UAE border at Khatmat Malaha. Roads through the UAE should then provide a speedier land route north to the Musandam exclave.

Other road projects of significance to tourists include improvements around Sur, Ibri and Mirbat. Many other areas of the country are also being improved: in March 2015 alone, the government signed OR376m ($973.5m) worth of road contracts. Additionally, a road linking Oman and Saudi Arabia opened in October 2015 (see Regions chapter). This road will reduce the travel distance between the two countries by 800 km, as previously, the only route was via the UAE.

Cultural Landscape

Arriving at the destination, visitors to Oman are often struck not only by the beauty of their surroundings, but also the hospitality of the Omanis. As exemplified by the good relations between its religious and ethnic groups, the sultanate is noted for its tolerant attitudes. The preservation of the country’s natural surroundings and cultural traditions has allowed it to keep much of the spirit of “Old Arabia”. Tourism has been deliberately kept at the high end, with marketing aimed at visitors who are interested in engaging with the local culture, nature and history.

Muscat offers forts and museums, as well as business and entertainment venues, while the north of the country presents opportunities for adventure holidays, such as the stark, craggy peaks of Musandam or the Hajar Mountains. The ancient capital of Oman, Nizwa, is rich in historical and cultural highlights, and was selected as “Capital of Islamic Culture in the Arab Region” for 2015, while further south, the Wahiba Sands present desert landscapes and the offshore island of Masirah, known for its marine wildlife.

Salalah is also a vibrant city with fine beaches, while inland, the Jebel Akhtar Mountains come to life during the khareef period. Further inland begins the largest continuous sand desert in the world, the Rub’ Al Khali (Empty Quarter).

Each of these areas offers the potential for the clustering of sights and activities, an approach that is becoming increasingly popular with tour organisers. Debate continues over the merits of the clustering approach to development, which groups together infrastructure and vacation packages around a series of related sites.

At the same time, “Gaps have been identified in destination management,” Zoltan Kali, Omran’s chief strategy officer, told OBG. “You have to make sure that when the tourist arrives, the taxi is there and the whole package of facilities and opportunities is presented and can be accessed. Facilitating the experiences of tourists is something that cuts across the whole of society.”

Ensuring that this level of continuity exists in visitor experience and tourist infrastructure throughout the country is still a work in progress. This is an area that usually calls for large private sector involvement, though the sector is currently being steered by public bodies. Omran, a public sector entity, is responsible for around 30% of the country’s available and projected hotel room numbers. Oman Air, the state-owned airline, consistently ranks as the nation’s most popular carrier for domestic flights and is still expanding capacity.

Outlook

Encouraging more private sector involvement is likely to be a target in the new strategic plan. The sector might also look to fill in its destination management gaps through public and private investment, in order to improve that “last mile” of travel experience.

Meanwhile, the debate continues over whether Oman should move its focus away from higher-end tourism to a more mass-market approach. Certainly, the region is not standing still on this, with Dubai already attracting a reputation as a mass tourism destination and other Gulf countries anxious to promote themselves, too.

At the same time, achieving a balance between preserving what makes Oman special and generating a bigger contribution to GDP through diversification will require further careful planning and a thoughtful rollout process.

In the shorter term, much will depend on the fortunes of the oil price in the year ahead, in terms of regional investor sentiment, along with the fate of the global economy at a time of renewed concerns over growth. Regional political instability will also be a factor – although there may be a strong upside, if Iran begins to move out of its current isolation. For Oman too, the overall fundamentals remain strong, with today’s major investments in infrastructure likely to pay off in the medium to longer term, with some benefits already visible.