• GATEWAY KSA

The Future of the Saudi Hospitality & Tourism Industry - by Chandler Pfaff

Executive Summary

The Kingdom of Saudi Arabia is a beautiful country with much to offer the curious traveler. However, the tourism industry in Saudi Arabia has historically been limited to religious tourism, wherein the Islamic community from around the world gathers to worship in the two most holy cities of the faith. It is important to understand the background context of Saudi religious tourism, before fully comprehending the Kingdom’s bold new vision to transition into a broader, more leisure-oriented model for the hospitality & tourism industry. The Kingdom has already made great strides in its hospitality sector, but the future ahead entails many obstacles. Despite these challenges, the Saudis are confident in their Vision 2030 and all signs indicate that a flourishing tourism industry is on the near horizon.

Saudi Religious Tourism Provides Base for Secular Tourism

The Kingdom of Saudi Arabia holds the austere responsibility of being the geographic steward of Islam, which brings faithful worshippers from all over the world to the Kingdom. In 2016, the Kingdom received over 17 million religious visitors and experts project that religious visitation will increase to 30 million pilgrims by 2025, which will generate a significant source of income to the Kingdom. This also creates a need for the Kingdom to expand its capacity in transit and lodging to accommodate the additional volume of travelers. Most visitors are traveling as part of a pilgrimage, either the Haj or Umrah, to two of the holiest cities in Islam: Medina and Makkah (Mecca). Access to these cities typically requires traveling first to Jeddah or Riyadh and then arranging additional transportation (air, bus, or car) to the holy cities. Saudi infrastructure is organized to accommodate this influx of travelers through offsite terminals and careful logistical planning, and the Kingdom is already moving forward with ongoing developments to increase total steady-state capacity.

Although the foreign outsider might expect the Kingdom’s hospitality product and infrastructure to be highly concentrated, if not exclusively positioned, in the luxury and upper-upscale segments, the religious tourism industry creates demand for budget-minded travelers. Muslims from all over the world prepare for such a trip, which can be exceedingly expensive for many individuals and families who live far distances away or come from lower socioeconomic backgrounds. Thus, the Kingdom is already largely supplied with accommodations in the economy and midscale segments for the budget traveler, which is also important for attracting young, price-sensitive travelers to the Kingdom as it seeks to expand into secular tourism.

Saudi Secular Tourism Complements the Greater Vision 2030

The Kingdom of Saudi Arabia has ambitious plans to create a new tourism industry that targets specifically secular travelers who want to experience the richness and uniqueness of Saudi culture and landscapes. International tourism is a key component of the greater strategy of the Saudi Vision 2030, which aims to diversify the Kingdom’s economy and promote internal social progress. An increased presence from the non-Islamic international community will expose Saudis to different cultures, customs, and beliefs in a way that could potentially lead to more progressive attitudes, which is particularly important for the Kingdom’s younger generations. Roughly 70% of the Kingdom’s population is under the age of 30 and seeking greater connection to and integration with societies outside of the region. The Saudi Vision 2030 relies heavily on a gradual shift in Saudi social progressivism in order to attract a larger expatriate community to the Kingdom, particularly in the highly anticipated planned city of Neom. Similarly, the Vision 2030 relies heavily on the global community’s public perception of Saudi Arabia and the Gulf region. Positive, meaningful tourism experiences can serve as natural catalysts for improving the image of the Kingdom and eroding unfound stereotypes. In other words, the hospitality & tourism industry will play a critical role in Saudi public diplomacy—informal diplomacy through citizen interactions rather than governments—and will help to introduce the world to life in Saudi Arabia beyond false stereotypes and out of context media coverage.

The Kingdom’s hospitality & tourism development will be focused primarily in destinations along the Red Sea during the initial phases of Vision 2030, such as the picturesque city of Jeddah. Luxury hotels and resorts along the coast will provide scenic destination resorts for travelers around the world who are seeking a leisurely vacation complemented with a cultural experience of Arabic customs, cuisine, and architecture. The Saudi coastline along the Red Sea is almost entirely untouched, offering pristine beaches, unexplored snorkeling reefs, world-class scuba diving, and scenic boating and fishing excursions.

As the industry develops further, the Kingdom has numerous cultural sites and geographic landscapes to utilize as assets for a diverse travel experience. Cultural sites like Al-Ula and Mamsak highlight Saudi history and tradition, which are complemented by a growing number of museums throughout the Kingdom to provide greater context and understanding of the Kingdom’s cultural, religious, and historical roots. The desert sand dunes are a breathtaking experience that many around the world envy, and the adventure traveler will be thrilled to participate in a variety of desert activities, such as sandboarding, off-roading, hiking, and camping.

SCOT Analysis of the Future of Saudi Hospitality & Tourism

Strengths:

▪ Recent creation of tourism visa and ease of obtaining a visa

▪ Capital resources to develop efficient infrastructure and world-class properties

▪ Saudi design ability to architecturally capture Arabic style and desert aesthetics

▪ Progressive trajectory of the Kingdom will soothe the weariness of visitation

▪ Saudi culture, cuisine, and customs create an authentic experience for travelers

▪ Red Sea coastline, limitless desert space, and authentic Saudi cities and villages

▪ Abundance of undeveloped land and opportunity for space utilization

Concerns

▪ Integration of tourists with the local Saudi community

▪ Tolerance of foreign customs and behaviors by the more conservative Saudi population

▪ Expectations of tourists regarding alcohol consumption and acceptable behaviors for women

▪ Sudden influx of tourists may cause friction with local communities

Opportunities

▪ Untapped tourism market in an intriguing part of the world

▪ Large revenue potential and employment growth from travel, lodging, food & beverage, merchandise, and tourist activities

▪ Cultivate international relationships and improve public image outside of the region

▪ Competitive advantage over other resort markets with new world-class destination properties and travel experiences

▪ Incorporate hospitality & tourism strategies that align with Saudi cultural norms

Threats

▪ Competition from existing destination cities in neighboring countries (e.g. Dubai, Abu Dhabi, and Doha)

▪ Potential backlash from conservative Saudis and other conservative Islamic communities that look to the Kingdom as stewards of the two holy cities

▪ Geopolitical events and international media coverage harming the Kingdom’s public image and causing weariness among potential travelers

▪ Regional instability distracting the Kingdom from its tourism initiatives and intimidating international travelers

Recommendations

▪ As a way of ameliorating the concern of alcohol consumption, Saudi should market their destination resorts as world-class health & wellness retreats with spas, saunas, health-oriented food & beverage, mocktails, fitness centers, and sports & recreation offerings

▪ As an alternative to many stimulating experiences in other travel markets that would not be acceptable in Saudi society (clubs, alcohol, gambling, etc.), Saudi can provide equally attractive yet more acceptable visitor experiences (extreme sports, desert excursions, water activities, sporting events, etc.)

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Chandler is a graduate of Cornell University’s School of Hotel Administration within the SC Johnson College of Business. In addition to his degree in hospitality management, he received double minors in Real Estate and Arabic while graduating Magna Cum Laude in his class. During his time at Cornell, Chandler interacted with hospitality industry icons, Wall Street executives, and former heads of state. Through this exposure he developed a greater understanding of the intersection of business and international relations.

Chandler’s previous work experience includes non-profit refugee initatives, hotel food & beverage operations, hospitality research and consulting, and hotel real estate brokerage. Currently, Chandler is a real estate investment banking analyst at a leading hospitality advisory firm, Hodges Ward Elliott.

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