Dubai’s hotel industry had 110,000 hotel rooms completed and available by December 2019. During the year 2020 and because of the COVID Virus, Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism), announces that visitors number decrease from 36.9 million in year 2019 to 16.7 million in year 2020, despite the fact that prices has also decreased from AED 400 per nigh to AED 215 per night (contrary to the law of demand inverse relationship between price and quantity and because of the COVID -19 Condition).
According to valuation consultancy Cavendish Maxwell, 16 percent of the UAE hotels it tracked had either closed or operated at minimum capacity in June. On a room basis, 27 percent had closed in Dubai versus 8 percent in Abu Dhabi. Moreover, it has been noticed that the hotel industry had to lay off many workers due to the low business season along with cutting on expenses by closing restaurants open in the hotels.
As a trial to save the season, hotels made special offers to families and married couples who wish to be in hotel suites that respect the distancing and hygiene condition of COVID-19. They offered up to 30% prices discount on hotel rooms trying to boost the demand along with longer stays accommodation and access to special services such as Sauna, and Parks. However, demand was not very responsive to these procedures as most of the families had a cut from their income for being obliged to work from home and for less number of hours. In addition to that, when it was possible to go out, families preferred renting houses and villas rather than booking hotel rooms for spending special occasions.
The virus outbreak has battered the global aviation industry, with strict lockdown measures wiping out passenger travel demand. Global airlines are facing a severe liquidity crisis and risk of bankruptcy as revenue withers in the wake of reduced capacity or complete passenger flight suspensions. Airlines revenue fell by 5% as it carried 56 million passengers in 2020 compared to 87 Million Passengers in year 2019.
The UAE suspended all passenger flights from March 25 to limit the spread of the virus and currently operates a limited number of passenger repatriation flights and continues full cargo services. Operating costs fell 10 per cent as the airline’s fuel bill declined 15 per cent due to the lower prices of jet fuel. The drop in the energy costs offers some respite as fuel accounts for 31 per cent of the carrier’s operating cost.

END OF CASE STUDY

Dubai’s Hotel Industry is Soaring Low after COVID-19 Pandemic

QUESTIONS 1
1) Identify the determinants of supply in this case study and state whether they are shifting supply left or right.

2) Identify the determinants of demand in this case study and state whether they are shifting demand left or right.

3) What do you predict will happen to the price and quantity of hotel rooms in Dubai by 2021? Explain your answer in terms of supply and demand analysis.

4) Draw the shifts in the PPF (hotel rooms and airline seats), between 2019 and 2020 as accurately as possible given the data in the case study.

5) Calculate PED for the hotel rooms in Dubai and analyze the results.

6) What would you recommend to hotels in Dubai based on the result regarding price?

7) Explain how the crisis of COVID-19 had led to a decrease in the total cost of the aviation industry, and why this cost reduction did not help in improving the total revenue level?

8) If Total costs for Fly Dubai for example to carry 100 passengers is AED 95,000, and total costs to fly 120 passengers is AED 125,000, what is Fly Dubai’s marginal cost?

9) Identify five (5) choices in this case study, which have led to scarcity, opportunity costs or trade-offs.

10) If total costs per passenger for Fly Dubai are 70% of revenue in year 2020, and if the Total revenue for Fly Dubai was $ 50 Million in year 2019. How much profit did Fly Dubai achieve in year 2020 ( Hint: Total revenue decreases by 4% in 2020).