The Middle East's cruise sector is lagging behind global competitors as it seeks to navigate the challenging waters of the Red Sea crisis, but industry experts said the region still has major potential for growth.
Major cruise operators have adjusted itineraries or cancelled voyages amid attacks by Yemen's Houthi rebels on commercial vessels in the key shipping route.
Dave Goodger, managing director of EMEA Tourism Economics, an Oxford Economics company, said deployment to the Red Sea is down on last year and occupancy is a bit lower, but that the industry was “very resilient”.
“There is this perception of risk and [tourism is] driven by perceptions,” Mr Goodger said during a panel discussion at the Arabian Travel Market exhibition in Dubai, which ends on Thursday.
People in the region need to be more aware that they can cruise in our own backyard. They don't need to fly six hours to the Med or 15 hours to the Caribbean
Saud Hareb Almheiri
“When there are adverse effects, people tend to stay away, but travellers come back.
“There is an impact today, but that's not to say it'll impact the industry tomorrow.”
'We are very confident'
While cruise travel is outpacing wider demand for international travel around the world, with the exception of Asia, the Middle East's recovery is slower, according to Tourism Economics's latest report.
Whereas cruise occupancy is at 111 per cent in the Caribbean, for example, and 107 per cent in the Mediterranean, it's at 90 per cent in the Middle East and Africa, it found.
The longer-run potential is clear for the region, however, once safe passage through the Suez Canal is possible, the report added.
Turky Kari, executive director of marketing and corporate communications at Saudi Arabia's Aroya Cruises, said once its first ship sets sail in December, it will go through the Red Sea.
“We are very confident and all Red Sea authorities and the Saudi government support this 100 per cent,” he said.
Aroya comes under the management of Saudi Arabia's Public Investment Fund’s cruise company, Cruise Saudi. It plans to launch three cruise ships within 10 years, as well as add seven new ports by 2030 and reach 1.3 million passengers per year.
Its first cruises will last three nights, departing from Jeddah and then spending a day at sea followed by a private island along the Red Sea coast. A seven-night cruise will follow in January, taking in Jeddah, Ain Sokhna and Sharm El Sheikh in Egypt, and Aqaba, Jordan. Aroya also has plans to cruise across the Gulf and the Mediterranean.
A stronger GCC cruise sector
The potential within the region's cruise sector is “huge”, said Saud Hareb Almheiri, cruise tourism and yachting lead at Dubai Department of Economy and Tourism. “But people in the region need to be more aware that they can cruise in our own backyard. They don't need to fly six hours to the Med or 15 hours to the Caribbean.”
This is why Cruise Arabian Alliance was set up in March, to foster co-operation in the region as the countries work together to maintain service levels and educate the market.
“We're strong, but we're stronger together,” said Mr Almheiri.
Lakshmi Durai, chief executive of Middle East cruise agency CruiseExplore, said the more cruise liners there are in the region, the better for the sector. “One cruise line is not competitive to another cruise line,” she said. “There is a huge number of people who take land vacations every year from here. Instead of a staycation, why not a cruisecation?
“Cruises are very easy to sell. They're all inclusive, it's one vacation to see multiple locations, there are no flight costs. Cruising in the Gulf is a fantastic winter vacation.”
Partnerships and packages are key
Opportunities extend beyond regular holidays, added Mr Kari, who said Cruise Saudi is also looking at developing wedding packages.
Mr Almheiri believes events at sea is another area for growth. “The awareness is not there at the moment, but I believe strongly it'll happen in the near future,” he said. “Holding events at sea will be something different, maybe for smaller cruise ships rather than the larger ships.”
International cruise liners have also shown interest in extending the season through the summer, added Mr Almheiri.
Mr Goodger's findings showed greater demand for longer cruises, but also strong demand for shorter cruises. “The key is to offer a lot of different packages to cater to different ways people can travel,” he said.
“People also spend a night in a destination before or after they cruise, so land tourism can complement, destination benefits can support the port destination by having that infrastructure.”
Partnerships are key, agreed Mr Almheiri. “There has been more happening in this ecosystem in the past year and a half spurred by demand and raised interest,” he said.
This includes Emirates' new two-year partnership with MSC Cruises, which allows passengers to book fly-cruise holiday packages that include return flights from 21 airports across Europe and South America. The agreement was made on Wednesday at Arabian Travel Market.
Ultimately, the future of the industry is bright, Mr Goodger said. “There are two words I use in general when focusing on travel as a whole, with a lot of economic disruptions, and that's cautious optimism,” he said. “But when talking about cruising, it's optimism.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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