Outbound travel takes off in the UAE

Published in Gulf News, 20 April 2016

Whether it’s Riyadh or Rome, UAE residents are spending more when they’re abroad and this opens up opportunities for banks catering to their wanderlust.

When economic conditions worsen it’s natural for people to cut back on spending, and travel is often among the areas first affected. That doesn’t seem to be the case in the UAE though. The nature of the country’s population, with its overwhelming majority of expatriates, means it doesn’t react like most markets. These days, demand for travel is still on the rise.

Nikola Kosutic, Research Manager at Euromonitor International, says the number of outbound trips from the UAE increased by 5 per cent to 3.5 million last year, with those travellers spending Dh71 billion, up 10 per cent on 2014. “UAE residents travelled for longer and spent more in 2015.” 

The trend appears to be continuing this year. Industry executives say bookings can dip because of events such as the recent terrorist attacks in Brussels but the pipeline remains healthy. “We did see a small drop in bookings over Easter, primarily linked to the terrorism incidents in Belgium, but we are seeing a lot of leisure enquiries and bookings,” explains Premjit Bangara, General Manager for Travel at Dubai-based Sharaf Travel Services.

Key markets

Indeed, the World Travel and Tourism Council forecasts that outbound travel spending will continue to growing in the coming years, reaching Dh157 billion by 2025.

The most important market for UAE travellers is Saudi Arabia, which accounts for 39 per cent of all trips, says Kosutic. After that comes the UK with 7 per cent. Other key markets include Asian destinations such as Thailand, Malaysia and India, European countries including France, Germany and Switzerland, as well as the US and Australia. 

The tastes of UAE residents are broadening, however, not least because of the growing range of destinations served by Emirates, Etihad and Fly Dubai. Bangara says his firm has seen a rise in interest in European destinations such as Croatia and Georgia, and South American countries such as Argentina and Peru.

However, there are some contradictory trends at play. Low oil prices and weak economic growth are denting confidence locally, but the strong US dollar — to which the UAE dirham is pegged — means some destinations are now less expensive than they were in the past.

“There have been a series of macroeconomic events over the past few years that impacted the UAE travel sector, but the overall effect has been positive, mainly due to the strong dollar,” says Kosutic. “We saw a 19 per cent increase in outbound trips to Europe in 2013-15.”

However, some of those same trends are hurting inbound tourism. In 2015, the UAE received 20 million international visitors, with 14 million of them going to Dubai. Together they spent Dh54 million, with Saudi Arabia, India and the UK the three leading source markets, according to Euromonitor.

Some markets are having a tough time, though. Russia has been hit by international sanctions, low oil prices and a weakening of the rouble. That has led to a decline in its tourists coming to the UAE. Other European countries have been struggling with anaemic economic growth, although heavy promotion of the UAE as a holiday destination and the expansion of visa-on-arrival services to more nationalities means arrival numbers have remained robust.

Hit the right targets

At a time when the UAE is trying hard to diversify its economy, it’s important that it identifies what countries represent the best prospects. “We continue to see year-on-year growth in passenger numbers,” says Ahmad Al Haddabi, Chief Operations Officer at Abu Dhabi Airports, referring to traffic during February. “Traffic between India, the UK, Thailand, Australia, the US and a number of others all witnessed increased passenger figures.”

When people are travelling, one increasingly popular option is to take prepaid travel cards with them. Money can be placed onto these in advance and then used to pay for goods and services when abroad, or to withdraw cash from ATMs, much like a regular bank card. A single card can hold several currencies.

One advantage is it removes any concern about shifting exchange rates, as the rate is locked in at the point when the money is loaded onto the card. Usage charges are also fixed and, as the cards are based on chip-and-PIN technology, it is safer than carrying cash.

These cards are issued by banks and many currency exchange houses. It is still relatively early days though. There were 190,000 prepaid travel cards in circulation in the UAE last year, according to Euromonitor. That means only a small fraction of travellers used them.

“This certainly is a growing trend as the world moves to cashless transactions,” says Bangara. “With more aggressive marketing from companies we will see stronger adoption rates in the coming months.”

It’s not the only option that banks offer to travelling customers. Some also offer credit cards that are tailored to appeal to those going abroad. For example, Abu Dhabi Islamic Bank has its Rotana Rewards card, which offers discounts for hotel and restaurant bookings and access to airport lounges and it has a card linked to Etihad’s loyalty programme. Emirates NBD has something similar with Emirates. 

Such cards can help banks generate more fee income: something that is much needed in the current economic environment. The continued growth of the travel market means it ought to be a reliable area of growth for years to come — whether or not the wider economy rebounds quickly.