Tourism receipts growing despite concerns over regional instability

Firmly anchored to some of the world’s most unique and iconic assets, Jordan’s tourism industry also benefits from a number of competitive advantages. These include the kingdom’s proximity to large regional feeder markets, diverse landscapes and climates, and the presence of major historical and religious sites. However, regional instability has presented a number of challenges in recent years, mainly when it comes to tourism arrivals.

Nonetheless, in a world of considerable uncertainty, and as one of the most imperative services sectors, tourism receipts have continued to grow and the industry is working on diversifying its range of source markets. Tourism will continue to be a vitally important pillar of Jordan’s economy. The coming years are set to see a number of new hotel, tourism and real estate mega-projects come on-line, which should further support sector growth.

Sector Performance

According to the Jordan Tourism Board (JTB) the total number of tourist arrivals in 2014 stood at 5.33m, down by 1.2% from 2013 figures. The number included 3.99m overnight visitors, whose numbers rose by 1.1% year-on-year (y-o-y), and 1.34m day trippers, down by 7.4% from the previous year. Total tourism revenue in 2014 reached JD3.11bn ($4.38bn), an increase from JD2.92bn ($4.11bn) in 2013.

The largest source market for overnight visitors in 2014 was the Jordanian emigrant community, accounting for 30% of the total, followed by non-Gulf Arab states accounting for 27.6% (with most visitors coming from Palestine, Iraq and Syria, in that order) and Gulf countries (with most visitors coming from Saudi Arabia) with 17.3%. European countries represented 13.3% of the total.

In regards to longer-term trends, figures from the Ministry of Tourism and Antiquities (MoTA) reveal that Jordan has seen a significant drop in tourism arrivals since the start of the Arab Spring in 2011; visitor numbers fell from 8.25m to 5.33m between 2010 and 2014, down 35%. However, as was the case in 2014, the bulk of this decrease has taken place among day-trip visitors to the kingdom, largely as a result of the conflict in neighbouring Syria, which began in 2011. The number of day-trip visitors from the country fell from 2.02m in 2010 to 344,415 in 2013, with Syrian tourists being replaced by an inflow of refugees. By contrast, the number of overnight visitors fell over the period by a less dramatic 12%, from 4.56m to 3.99m. European overnight visitor numbers witnessed the largest proportional fall, by 28.8%, followed by Gulf country nationals’ visitor numbers falling by 25.8%. Visitor numbers from another major source market, non-Gulf Arab countries, fell by 8.2%, though the country’s largest source market, namely Jordanian expatriates, grew by 2.2%. Despite the fall in arrivals, tourism revenues rose over the period, from JD2.42bn ($3.41bn) in 2010 to JD3.11bn ($4.38bn) in 2014.

Regional Fallout

One of the reasons for the fall in European visitor numbers in particular has been the impact of regional unrest, especially the political strife in Egypt and the conflict in Syria, which has affected the perception of stability and security in the region as a whole. As a result, a substantial share of travellers on package tours, who often visit multiple countries in the Middle East on the same trip, have been lost to other destinations. This regional instability has continued to affect the sector over the last year. Visitor numbers in July 2014 fell by 17.8% y-o-y, likely due to the eruption of war between Israel and Hamas in the Gaza Strip. Visitor numbers also fell in the last three months of 2014 – by around 6.5%, including a 4.3% drop in the number of overnight visitors – and again in January 2015, by 2.5% (including a 2.1% decrease in overnight visitors). While arrivals numbers for the second quarter of 2015 were not available at the time of writing, Queen Alia International Airport (QAIA) saw a 16% drop in traffic in February alone.

Hotel operators blamed these falls on a combination of cancelled winter bookings following the Gaza conflict as well as the rise of terrorist group Islamic State (IS) in Syria and Iraq, Jordan’s role in airstrikes against the group and its murder of a Jordanian pilot in February. “Political issues such as the conflict with IS and the Gaza war had a very bad impact on European business in particular,” said Yassar Al Majali, general manager of the Jordan Hotel Association.

It should also be noted that poor weather conditions also played a role. “Heavy snow caused a lot of disruption in January and February,” Michael Koth, director of operations and general manager, Levant, at InterContinental Amman, told OBG. The drop in the value of the Russian rouble in the first quarter of 2015 also affected the Russian market, which makes up a significant proportion of business at Dead Sea resorts in particular, though the currency has since recovered some of its value.

Diversification

As bookings from traditionally important markets fall, industry operators are seeking to compensate for this by tapping new sources, especially emerging economies. “Spain and Italy, and to a lesser extent France, used to be strong summer markets, but numbers are now much lower than during their heyday, so we are looking at new developing sources of visitors,” said Peter Hoesli, general manager and regional manager Jordan of the Mövenpick Dead Sea. “Brazil, for example, is becoming a very strong market for us, mainly for religious tourism; Algeria and India are also developing well,” he said, though he added that the decision by national flag carrier The Royal Jordanian Airlines to cancel its Mumbai and Delhi routes in September and October 2014 was hampering the development of the latter. “Our principal goal is to create a much wider selection of feeder markets so that the sector does not suffer too heavily if there are issues with one or two,” added Hoesli.

Such efforts overlap with work by the industry specialists to develop particular niche markets within the kingdom. Segments that JTB is targeting include religious tourism (for both Christians and Muslims); meetings, incentives, conferences and exhibitions; and ecotourism and adventure. “These segments have been among the least affected by negative trends and we believe that Jordan has a competitive advantage in them,” said Siham Gammoh, director of research at JTB. Industry figures say religious tourism is particularly resilient to negative trends and therefore holds substantial promise for the industry. “Religious tourists tend to continue to want to come and see the holy sites even under adverse conditions,” Hoesli told OBG.

Oversight & Development

The sector is overseen by the MoTA. A Cabinet reshuffle in March 2015 saw the reappointment of a new tourism and antiquities minister; under the previous Cabinet the minister of labour had been responsible for the sector. The new minister, Nayef Al Fayez, served in the same role under a previous government and before that as managing director of JTB.

The move was widely welcomed by the industry. “The appointment will have a positive impact, as the new minister will fight for the industry in Cabinet,” said Al Majali. “Furthermore, the new minister already understands the industry well.”

The government’s current plans for the development of the sector are outlined in its second National Tourism Strategy, which covers the period from 2011 to 2015 (the first strategy ran from 2004 to 2011). The strategy aims to lift tourism revenues to JD4.2bn ($5.91bn) annually by 2015, a target that appears unlikely to be met given 2014’s results due to the aforementioned circumstances. Other key goals of the strategy include raising competitiveness, developing the kingdom’s product offering, attracting higher-yield tourists and ensuring that the industry operating environment facilitates the development of the sector.

With regards to measures aimed at facilitating the development of the sector, industry figures argue that government-imposed costs on the sector are too high, citing, for example, the doubling of the price of a single-entry visa on arrival from JD20 ($28) to JD40 ($56) in early 2014. “The government is looking for immediate income, which is understandable, but it would be better for economic development to reduce costs such as entry visas and taxes on flights and accommodation, as this would boost tourism and thereby reduce unemployment,” Al Majali told OBG, reasoning that every hotel room in the kingdom effectively supports one job directly in the accommodation sector and, indirectly, up to five or six in other industries. JTB, meanwhile, is calling on the government to reduce the sales tax imposed on accommodation from 16% to 7%.

Promotion

JTB is the principal body responsible for promoting and marketing Jordan as a tourism destination. It is an independent organisation funded primarily by industry players, with some additional government support. The board is currently implementing a promotional strategy for the period from 2015 to 2017, key marketing-focused elements of which include stepping up campaigns that directly target consumers, such as cooperative marketing efforts with tour operators, trips for travel journalists to Jordan and television adverts when the budget is available.

Another element of the strategy is to step up social media and electronic marketing activity, including the use of web and mobile ads and search engine optimisation strategies. The strategy will also seek to address concerns and perceptions that Jordan, as a Middle Eastern country, is unsafe for tourists by underlying its stability and security.

However, industry figures argue that such efforts are constrained by the board’s limited budget for promotion activities. “JTB’s funds are very low compared to promotion agencies in countries such as Egypt and Turkey, which are competing for the same clientele,” said Hoesli.

Koth argued that the industry also needs to consolidate the focus of marketing efforts as long as promotional funds remain limited. “Right now might not be the best time to step up international marketing efforts, but additional promotion could, for example, focus on expatriate Jordanians in the Gulf, who know that the country is safe and who are easily able to come to Amman for a few days,” he said.

Transport Links

Expanding transport and, in particular, air links to Jordan will play a major role in the development of the sector. Under its 2015-17 strategy, JTB is seeking to attract new charter and low-cost airlines to the kingdom, as well as longhaul carriers from emerging feeder markets such as Latin America and Japan, by offering to undertake joint marketing efforts with them, among other incentives. The strategy also promotes offering direct financial support to charter, low-cost carriers as well as airlines from new tourism destinations that are not serviced by The Royal Jordanian Airlines.

The hotel sector is keen to see more routes launched in order to diversify and open up its market. “The government needs to remove taxes on charter and low-cost flights,” said Al Majali, citing easyJet’s decision to close its route to the country in May 2014 due to these taxes. “Israel recently reduced taxes on charter flights and many travel agents consequently decided to send tourists there instead. As a result, we are now seeing tourists coming to Petra from Israel for day trips rather than staying in Jordanian hotels,” he said, adding that several hotels in the town had closed in recent months. The number of foreign visitors to the ancient Nabatean city – Jordan’s biggest single tourist attraction – fell by 5.5% in 2014 to 471,500, according to figures from JTB.

That all said, the prospects for the low-cost segment received a boost in January when UAE-based budget airline Air Arabia acquired a 49% stake in Jordanian charter carrier Petra Airlines. Air Arabia plans to establish a regional hub at Amman’s QAIA for its Levantine routes and to rebrand Petra Airlines as Air Arabia Jordan. In March 2015 The Royal Jordanian Airlines also said it would provide discounted tickets to tour operators for use in package deals to support efforts to boost tourism.

Accommodation

As of September 2014 there were a total of 235 classified hotels in Jordan, containing 1130 suites, 19,193 rooms and 35,795 beds, according to figures from MoTA. The number of hotels grew from 208 in 2010, when there were 1066 suites, 16,931 rooms and 31,613 beds.

As of September 2014 there were also 150 apart-and suite-hotels, with 5170 rooms and 9989 beds, and 125 non-classified hotels with 1690 rooms and 3888 beds. Across all types of accommodation (also including backpacker hostels, motels and camp sites), the total number of rooms and beds stood at 26,967 and 51,639, respectively.

The market is weighted towards high-end accommodation; five-star hotels accounted for 42% of classified hotel rooms and suites, and four- and five-star hotels together for 62% of the total. Of the country’s major destinations, Amman had 18,937 hotel beds; Aqaba, 8950; and the Dead Sea, 3807.

Total bed nights spent in the kingdom in the first nine months of 2014 stood at 3.92m across all categories of accommodation, up 12.2% on the same period in 2013, while total room nights were 2.27m, up from 2.15m a year earlier. The classified hotels sector accounted for 2.06m room nights, giving an occupancy rate of about 37%; in the five-star segment, this rose to around 52%. Despite this tilt towards high-end establishments, Al Majali said there was room for investment in mid-tier accommodation. “There is room for branded three-star and four-star hotels in particular as they have substantially lower operating costs than five-star hotels and can therefore manage with lower occupancy levels,” he said. Indeed, industry players complain that rising costs in the form of electricity bills, among other things, are putting substantial pressure on margins, especially for high-end establishments with large grounds and high fixed costs. While hotels are working to boost energy efficiency and reduce consumption, so far the sector has yet to find a large-scale solution to the problem, and changes to the energy sector’s regulatory framework intended to diversify generation and boost competition among providers have yet to have a major impact on hotels. “A law was issued in 2014 to allow companies to build their own photovoltaic solar plants and thereby generate their own electricity; however, at the moment there is a lack of capacity in the national grid to accommodate such projects,” said Al Majali. While regional problems are putting downward pressure on tourist arrivals, they have also generated growth for high-end hotels from government and international officials coming to Jordan as part of efforts to deal with regional crises. “Diplomats and UN officials do not fully compensate for reduced leisure and business travel, but they nonetheless provide a substantial amount of business,” said Koth. “We are certain that by hosting the World Economic Forum in Dead Sea, Jordan will attract more visitors.”

Hotel Openings

The market continues to see major new high-end hotel openings. In January 2015 hotelier group Rotana announced the inauguration of its Boulevard Arjaan apart-hotel in Abdali, the new downtown district being developed in Amman.

The Starwood hotel group is also launching four new hotels in the kingdom over the next two years. In June 2016 the Westin Saraya in Aqaba is set to open, followed by the 280-room W Amman and the 260-room St. Regis Amman in September and October, respectively, The 231-room Al Manara Saraya in Aqaba will follow in January 2017. The two Aqaba establishments are both located in the Saraya resort development, one of several large-scale projects in the coastal city that will host new hotels in the coming years. The Dead Sea saw the opening of InterContinental Hotel Group’s 420-room Crowne Plaza Dead Sea in 2012, and several hotels in the Dead Sea area are expanding and upgrading their operations.

Industry figures say that such new openings threaten to push down prices. “Competition is very strong and supply is increasing as more hotels come on-line; as a result, prices are slipping in Amman, the Dead Sea and Aqaba,” Koth told OBG. “Occupancy levels are still respectable, but with demand decreasing and supply rising at the same time as the geopolitical situation appears to be worsening, we are likely to see further price consolidation.”

Religious Tourism

Jordan has invested in renovating dozens of churches and other Christian holy sites, including caves and baptism pools dating to the Byzantine period, as part of a national push to elevate the profile of Christian religious tourism in the kingdom. Every year roughly 90,000 tourists visit the baptism site of Jesus Christ, a 6-km strip of land near the Dead Sea. Visitor numbers are expected to be boosted by its designation as a UNESCO world heritage site in July of 2015.

It is not just Christian tourism that the sector is seeking to attract; the kingdom has long been an ideal place for Islamic religious tourism as well. Roughly 20% of Jordan’s visitors come from Saudi Arabia after performing the hajj pilgrimage, and the kingdom is looking to build on that number. With a wide availability of halal food and gender segregated swimming pools, Jordan has the necessary infrastructure to attract Muslim travellers looking for a holiday location that offers services in line with religious observance.

Mega-Projects

In addition to the projects outlined above, a number of large tourism and real estate development projects are under way in both Aqaba, Jordan’s only coastal city, and the Dead Sea area. These include the $1bn Ayla Oasis development in Aqaba, which is based around three man-made lagoons that will extend the kingdom’s coast by 17 km. Two of the lagoons will be open for swimming, while the third will be used for a marina. The first phase of the project, which is due to be completed in 2017, will include two hotels, namely a Hyatt Regency and a boutique hotel, as well as an 18-hole golf course designed by Greg Norman.

“The multitude of real estate development projects in Aqaba will boost aggregate demand for hotel rooms, which will, in turn, act as a catalyst for more flights and traffic coming to Aqaba,” Sahl Dudin, managing director of Ayla Oasis, told OBG.

Aqaba is also home to the Marsa Zayed mixed-use project, which will contain a cruise terminal, add 2 km to the coast and host several hotels. The Raha Village residential component of phase one of the project is due for completion in early 2016.

A third major development project in the city, Saraya Aqaba, will include a lagoon adding 1.5 km to the coastline as well as a water park and four hotels, two of which are due to open in 2016 and 2017, respectively. Meanwhile, Mahmoud Zuaiter, CEO of the Jordan Projects for Tourism Development, told OBG that the company planned to build two new hotels at the Tala Bay development in Aqaba over the coming four to five years.

The Dead Sea area is also to host a similar large development, known as Porto Dead Sea. The project, which is being built at an investment cost of $1bn by Egypt’s Amer Group, will include four five-star hotels that the firm says will increase the kingdom’s hotel capacity by 25%, as well as three shopping centres, a health and spa centre, and a large residential element. In March 2015, Amer said it had begun construction on phase one of the project, a JD150m ($211.1m), 440-room resort at the site. “Porto will just be the start – there will be many more resorts to come at the Dead Sea,” said Hoesli. “An entire tourist destination is being built here.”

Although some industry figures argue that new openings will add to pressures on the segment in the short term, Zuaiter said that the large-scale developments in Aqaba in particular will help to boost hotel occupancy rates by generating economies of scale across the tourism industry. “More hotel rooms will increase the number of flights as airlines see more opportunity for higher traffic. In this sense, competition from mega-projects in Aqaba benefits everyone, as they all contribute to the supply of rooms,” he told OBG.

Outlook

Industry figures remain hopeful that 2015 as a whole will see an improvement in visitor numbers following the downturn in late 2014. “Visitors from the Gulf and Jordanians living abroad are likely to be the main driver of growth in 2015; however we believe that other source markets including Europe and North America will see a slight recovery due to our efforts to promote Jordan as a standalone destination,” said Gammoh of JTB.

Looking towards long-term enhancements, hotel capacity is set to continue to grow at the upper end of the market as major new establishments open in Amman and mega-projects under construction in Aqaba and at the Dead Sea gather pace, which industry figures say will be mutually reinforcing. “Amman, Aqaba and the Dead Sea are all being developed simultaneously and will help to support each other in the future, particularly when the wider region becomes more stable,” Hoesli told OBG.