A growing number of hotel companies are signing deals to open new properties in Saudi Arabia to meet the rising influx of pilgrims that travel to the holy cities of Mecca and Medina, as well as the kingdom's strong domestic tourism

market.Approximately six million pilgrims enter Saudi for Haj and Umrah pilgrimages each year, creating a huge demand driver for hotels in the kingdom. Hotels in the holy cities typically struggle to meet demand during the holy month of Ramadan, and this year will be no exception.

"The fact that Ramadan is falling in the middle of the summer holiday means there will be too much unmet demand," according to Nasser Al-Tayyar, Chairman of Saudi-based Al-Tayyar Travel and Tourism Company. "Most hotels in the holy cities are already fully booked with availability concentrated in the hotels located in the outskirts of the cities."

With demand outstripping supply during the holy month, hotels are able charge up to five times their normal rate, he noted. 

Increase in domestic Saudi travel

Another factor boosting tourism is the rise of domestic travel within the kingdom, which is growing in tandem with an increase disposable income in the country. The rise in oil prices is expected to help the Saudi economy grow 7.5% this year, up from 3.5% in 2010, according to the International Monetary Fund.

Saudis will also benefit from the government's pledge to inject billions of dollars in investment on various projects throughout the kingdom in the wake of the protests in the region. Hotels in the kingdom have also benefitted from the Arab spring as it has prompted many locals to take their holidays within country rather than travel to some of the hotspots in the region. 

Data from STR Global for the month of May showed that hotels in the kingdom enjoyed a 17.6% increase in room occupancy and a 25.3% rise in revenue per available room compared with the same month last year, and experts say this trend is likely to continue this summer. 

"Saudis who normally travel to Egypt in summer will most likely turn to Abha, Baha, and Taif, the main summer resorts of KSA," Al-Tayyer told AMEInfo.com. "We expect that domestic travel will increase by 30% this year."

Global hotel operators finalise local projects

With demand for hotel rooms on the rise, Saudi Arabia is seeing a sharp increase in hotel projects. Last month, Saudi's Jabal Omar Development Company signed deals with Hilton Worldwide, Hyatt International and Marriott International to manage 12 hotels at its $5.5bn project in Mecca. A total of 26 new hotels are slated to be built at the mega development, which will add 13,000 more rooms to the Saudi market.

Starwood Hotels & Resorts Worldwide also recently announced plans to open two hotels in Medina, while Accor Middle East has said it to plans open three new hotels in the kingdom by the end of 2012. Accor has also signed management contracts on a further two hotels, potentially adding five new properties to its existing portfolio of ten hotels in the country. 

The French-based hotel firm believes the Saudi market is maturing. "While most of the high-quality hotel supply had been developed so far in the 5-star segment, and to a lesser extent in the 4-star segment, Accor is seeing the emergence of a real demand for other products, for instance in the economy 3-star segment, which is for the moment only fulfilled by a local and unbranded hotel supply, most of the time lacking high-quality standards," the company said in a statement.

Fairmont Hotels & Resorts is also active in the kingdom, having opened the Makkah Clock Royal Tower last November. The hotel is the focal point of the iconic Abraj Al Bait Complex, which is part of the King Abdul Aziz Endowment Project whose mandate is to upgrade the precincts of the Two Holy Mosques. 

The tower is the tallest concrete building in the world, rising 76 stories and housing 858 rooms and suites. Its 40-metre clock is visible from 17 kilometres away and is more than five times larger than Big Ben in London. 

Fairmont has also recently signed an agreement to open a new luxury hotel in Riyadh slated to open in 2012. "Today, the government and other key partners in KSA are expending tremendous energy and capital to develop both the domestic tourism market as well business travel and religious tourism meaning an influx of public and private investment is creating tremendous opportunity to capture both business and leisure travel," said David Roberts, Fairmont's executive vice president of operations for the Middle East, North Africa and Asia Pacific. "We anticipate seeing another three to five additional hotels joining our brand there over the coming years as the kingdom is a key strategic destination for us."