Saudi Arabia: a leading tourism destination

Breaking the 100 million visitors’ mark, making history, and charting a successful course towards 2030 and beyond

In February 2024, His Excellency the Minister of Tourism Ahmed bin Aqeel Al-Khateeb officially confirmed that the Kingdom of Saudi Arabia had broken the 100 million visitors mark in 2023, thereby also achieving the kingdom’s national target seven years ahead of its ambitious national strategy. As such, Saudi Arabia is increasing its target for 2030 to 150 million visitors, investing US$800 billion to support the sector, enabling new destinations, offerings, and experiences.

The cornerstone of the strategy hinges on the growth in international travels largely coming from mid-haul ranges. In 2023, inbound visits reached 27.4 million, a 65 per cent year over year growth according to the Ministry of Tourism’s February announcement.

Saudi Arabia is on an historical trajectory, setting itself solidly among the present and future leaders in the global tourism race. This new history has actually been in the making for several years, and focusing only on inbound visitors does not provide the full picture. Saudi Arabia has increased its domestic tourism since 2015, in terms of visitors, at a compounded annual growth rate of 7 per cent, and its inbound tourism by 5.4 per cent. Both figures are staggering. Domestic travel during the COVID-19 pandemic from 2019 to 2020 only saw a 11 per cent year-over-year decline, and has increased at a 23.5 per cent annual growth rate since. While the domestic travel increase this year was only 2 per cent compared to 2022, signalling a potential maturing of the domestic tourism segment, this spectacular rise is still an important part of the tourism growth story in the country.

With a population of 32 million inhabitants, the domestic overnight visitors represent a 2.42 ratio to the total population – a ratio similar to leading global tourism countries like Spain at 3.08 and France at 2.96, indicating the strength of the local tourism consumption. With more destinations to be activated in the foreseeable future, the domestic demand should continue to show a lot of strength. Up until 2022 (2023 spending statistics are not yet published at this time), we can also see that the amount spent by domestic visitors has increased faster (with 12 per cent CAGR) than inbound spend (at 2.5 per cent), though inbound contribution per visit remains over four times that of domestic visitors.

Inbound visits are still of critical importance to the kingdom, especially considering that the country aims to welcome 70 million foreign visitors by 2030 – which is four times the number of visitors it hosted in 2023.

To this end, the kingdom is sparing no expenses, investing US$800 billion to activate new destinations by building a variety of mega-projects, airports, marinas, ski resorts, and more, as well as launching programmes throughout Saudi Arabia to avoid the existing concentration in the capital, the holy sites, Jeddah, and a few other large cities.

The Saudi government is working tirelessly to accelerate the kingdom’s development and readiness both in terms of assets and legislations. With over 1,800km of pristine coast along the Red Sea, in 2022, Saudi Arabia launched a new authority to help regulate maritime and coastal tourism activities to sustainably enable the practice of activities for visitors and residents along the Red Sea. The Saudi Red Sea authority has been actively working on sustainability since its inception, collaborating with leading experts in environmental conservation and circular economy. And the Authority’s efforts are paying off, having already been recognised on 4 March this year by receiving the Game-Changer in Sustainable Tourism Award 2024.

Saudi Arabia understands that aside from the novelty, having only normalised visitors visas in 2019 – and continuing to ease the access to the kingdom ever since – it needs to provide reasons for the world to choose it as a tourism destination. To this end, beyond infrastructure investments to create state-of-the-art facilities, Saudi Arabia’s strategy also largely hinges on hosting more and more global sports, cultural events, and professional shows.

From major sporting events – such as football (including the 2034 FIFA World Cup) and motor sports to boxing, winter sports, and video games – to cultural events such as the Expo 2030, LEAP, and more, Saudi Arabia has prepared itself to be able to handle a large capacity of guests – and has been putting in the work to draw in the calibre of talent and entertainment that will attract visitors to them from across the globe.

One historical driver for inbound visits to the kingdom has been religious pilgrimages. These accounted for 60.6 per cent of the inbound visits and nearly 72.5 per cent of the inbound spend in 2018, but have been decreasing ever so slightly since, to represent only 36.1 per cent of visits and 40.9 per cent of spend in 2022, based on the Ministry’s tourism dashboard.

For Saudi Arabia, as the custodian of the two holy mosques, pilgrimages to the holy sites remain of critical importance, far beyond tourism considerations. Despite the recent decline, new hotels continue to emerge in the two holy cities, as illustrated by the opening in Madinah of the Dubai-based luxury hotel chain Jumeirah Group’s first property in Saudi Arabia in February 2024, or the Public Investment Fund (PIF) creating a dedicated development company, Rua Al Madinah, aiming at enhancing the hospitality offering in the holy city.

The second largest inbound visitor contribution to growth in 2022 came from the VFR segment, representing 30.8 per cent of all inbound visits. The importance of the VFR segment may help explain another staggering tourism figure from Saudi Arabia, which is that the average length of stay of visitors which is now close to 16.3 days – which is almost twice longer than the average stay in Spain in 2022, at 8.5 days.

The importance of VFR may also explain the growing importance of private accommodations and apartments, representing 51.9 per cent of the accommodation chosen by inbound tourists in 2022. In share of inbound spend, apartments reached 31 per cent in 2022, translating in a 11.9 per cent compounded annual growth spend since 2015. The share of private accommodations for domestic visits has also been growing representing 36 per cent of total accommodations. Apartments still represent 33 per cent of total accommodations for domestic travel, but have seen their share of accommodation go down by close to 20 per cent since 2015.

With 40 per cent of total spend, hotels remain the largest share of inbound accommodation, but the amount spent on hotels by inbound visitors in 2022 was only half of the amount spent in 2019. Still, hotels have benefited from the growth in domestic travel and represented 29 per cent of domestic visits for total accommodations in 2022. The hotel spend for domestic travel grew the fastest amongst all accommodation categories at a 17.9 per cent compounded annual growth rate since 2015. Despite the growth in domestic travel, hotels in 2022 had not yet fully recovered their recent pick performance of 2019.

In fiscal year 2023, the hotel industry continued its progression improving its average occupancy by 8 per cent, its average daily rate (ADR) by 16 per cent and revenue per available room (RevPAR) by 26 per cent according to STR Global. According to His Excellency the Minister of Tourism, Ahmed Al-Khateeb, Saudi Arabia counted roughly 280,000 hotel rooms in 2023, and is expecting to increase its room capacity by an incremental 250,000 rooms by 2030. It is therefore not surprising to see so many new hotel announcements and partnerships with major hotel brands set to launch in the kingdom.

Still, the industry will continue watching the evolution of the demand for hotels relative to other forms of accommodations. In 2023, Riyadh and Jeddah hotels showed healthy ADR and occupancy rates relative to other regional capitals and even international cities, likely comforting investors and hotel brands in the soundness of the kingdom’s hotel market.

Hotels in the kingdom will continue to be key for the success of the Saudi tourism industry. Saudi Arabia’s ambition is to attract 70 million international visitors by 2030. To this end, the kingdom can capitalise on the novelty factor and major events, but it will also need to provide global standard services – and the assurance of such services through the reputation of global hotel brands – to last. It is, therefore, not surprising that most global hotel chains plan to enter or further expand their footprint in Saudi Arabia.

Although global hotel brands with loyalty programmes, rigorous brand standards, and often beautiful and unique assets will surely continue to grow the number of visitors to the kingdom, the path to success will not be without hurdles. In a very competitive global tourism sector, guests will expect the same level of service in Saudi Arabia as they would in any other city around the world, especially as ADR mirrors longer-established premium and leading tourism destinations. Yet the race for talent in the hospitality industry on the heels of the COVID-19 crisis continues, with many key geographies reporting millions of job shortages.

In Europe for instance, Effat and Hotrec Hospitality Europe announced in their joint declaration from March 2024 that “on average the sector is currently missing between 10 per cent to 20 per cent of the workforce in the EU compared to 2019”, when the sector currently employs around 10 million hospitality professionals in the EU.

Over in Asia, The Hotel Association of India reported in March 2023 that despite recent efforts to reduce its manpower shortages, the industry still experienced a 60 per cent shortage partially driven by high attrition rates, poor skills and a negative perception from young professionals about the industry.

Meanwhile, in America, according to a press release from the American Hotel and Lodging Association in February 2024, 82 per cent of hotels surveyed in the US reported having increased wages, yet 72 per cent were still unable to fill in opened positions.

Through its Vision 2030 strategy, Saudi Arabia has set an ambition to create 1.6 million jobs in tourism. Many of the jobs in the sector have traditionally been low-skill jobs, yet the kingdom is keen to see the job creations benefit its citizens. Young Saudis are attracted by the growth in the sector, but are not eager to fill entry positions, despite often lacking the necessary skills expected by hotel chains. Roles in the sector are still stigmatised by a perception of low social status. As a result, Saudi Arabia is suffering from a shortage in technically qualified labour, particularly in critical functions such as culinary, kitchen, F&B, or sales.

The country has long offset labour shortages in entry positions with expatriate workers coming from countries like Pakistan, India, the Philippines, Egypt, Bangladesh, and Nepal. The trend is unlikely to go away short term. Yet Saudization targets are putting pressure on hoteliers to actively pursue the employment of Saudi nationals, proving difficult at times while forcing hotel brands, hospitality asset owners, and operators to carefully design their human resource strategies. Given the global shortages in manpower and skills, the kingdom will likely need to not only focus on attracting visitors but also global talent able to deliver the expected standards of quality from a tourist population with nearly endless destinations to choose from.

To achieve the 150 million visits by 2030, Saudi Arabia now counts, in part, on the rising middle classes of China and India. To capitalise on these nations’ fast-growing middle class, the country will need to adapt its offering to their preferences. Saudi Arabia has, for example, added standard Chinese as a third language in its schools following the visit of the Crown Prince Mohammed bin Salman to Beijing in 2019. The decision has been intended to bring the two trading nations closer. Her Royal Highness, the Vice-Minister of Tourism Princess Haifa Al Saud, also mentioned that the ministry was working to bring tour guides speaking Mandarin to the kingdom, to welcome Chinese tourists.

Catering to Chinese visitors may further complicate staffing considerations for hoteliers in Saudi Arabia, as their staff currently primarily communicate in Arabic and English, and cater to more Western standards of hospitality. Saudi Arabia will not be the only nation trying to court Chinese visitors, which will also likely result in an intense competition to attract talent that is able to cater to Chinese customers.

Given the strength of the domestic travel, and otherwise diverse visitors to the Saudi Arabia, and a growing expectation for personalised treatment by guests, hospitality companies will have to not only rethink their staffing priorities but also carefully design visitors journeys, and diligently execute on them.

Beyond hotels, airports will play another critical role in the country’s tourism success. Saudi Arabia needs to minimise frictions for potential travellers, and its eVisa was developed to that end.

The second hurdle is now its direct connectivity. It is therefore not surprising that Saudi Arabia is heavily investing in building new airports to enable its prioritised new destinations (such as Neom and AlUla), and increasing the capacity and modernising airports in cities like Riyadh. King Salman International Airport in Riyadh’s transformation will quadruple its capacity to reach 120 million passengers by 2030. The airport currently serves 94 destinations, compared to 258 destinations for Dubai International airport. The capacity increase should address the gap.

Such a transformation of its air connectivity also implies that Saudi Arabia will likely want to compete as a major hub, similarly to the UAE or Qatar. It will be interesting to follow how each nation’s strategy pans out, as their neighbours also invest in increasing their capacity. Dubai is investing to transform its second airport to be able to welcome 260 million annual passengers, which is twice the current capacity of the two existing main airports serving Dubai – Dubai international airport’s annual capacity is 92.5 million passengers, while Abu Dhabi’s Zayed International airport’s annual capacity is 45 million passengers.

The journey for Saudi Arabia to become a key tourism player globally is well underway, and the country is moving quickly to continue to break records. The kingdom can count on the strength of its domestic tourism, historical religious pull, and high VFR segment; yet the most exciting story for Saudi Arabia is currently around its overall transformation and efforts to attract international visitors.

As a relatively new destination with unique and pristine landscapes, brand new hotels, airports, and exciting worldly events, the country will capture the world’s imagination and drive the desire to visit. The country is confidently investing to make this journey a rapid reality. The journey will present some challenges to overcome, yet after already having achieved its target seven years ahead of plan, the kingdom’s determination is as high as ever, and the world is now carefully paying attention to Saudi Arabia.

Sports Events

Football
• FIFA World Cup, in Winter 2034

Motor Sports
• Jeddah Grand Prix, since 2021
• Dakar Rally, since 2020
• Formula-E championship with the Diriyah E-Prix, since 2018
• E1 Series speed boat racing, since February 2024
• America’s Cup Preliminary Regatta, in Winter 2023

Boxing
• Pro Fighters League (PFL) MENA, in April 2024
• One-off fights, including Francis Ngannou vs. Tyson Fury, Anthony Joshua vs. Oleksandr Usyk, and Jake Paul vs. Tommy Fury

Winter sports
• Winter Asia Games in Trojena, in 2029

Video games
• Gamers8 (to become Esports World Cup in 2024)
• New World Gaming Summit, in May 2024

Cultural Events

• World Expo, from Winter 2030
• Saudi Seasons, since 2023
• LEAP, since 2022

Words by Cedric Dallemagne, strategy director at Deloitte Middle East