The Qatar Tourism Authority (QTA) has threatened to take legal action against several local hotels that apparently increased their room rates by 400 to 1,200 percent beyond the maximum allowable rate earlier this month.

The spike in prices appeared to coincide with an influx of visitors from Saudi Arabia, during a school holiday from March 19 to 28. The neighboring country is one of Qatar’s largest source of tourists.

In a statement published in Arabic on Twitter over the weekend, QTA said:

“The exaggerated increase in the prices” created “a negative image about the tourism industry in the state and the national economy, especially since it coincides with the season for receiving tourists and visitors from the Gulf countries.

These irresponsible actions on behalf of some hotels and hotel apartments could waste the efforts exerted by the partners and employees of the tourism sector and QTA to promote Qatar as a vacation hub.”

Several tourists from Saudi Arabia have been quoted in Al Raya complaining about the hike in hotel prices. They said some hotels were charging more than QR6,000 (US$1,648) a night, which they called “an unprecedented rate in the Gulf countries,” according to the local newspaper.

The QTA said it monitors room prices online and sent a warning to several hotels, instructing them to reduce their rates. It also has set up a team to investigate “the continuance of the violation by any hotel.”

The statement added that legal action would be taken against hotels that continue to increase their prices without permission.

Regulation

Hotels in Qatar must have maximum room rates approved by QTA annually, according to Amin Al Darawsheh, sales director at the Torch Doha Hotel.

Speaking to Doha News, he said QTA takes several factors into consideration when setting prices, including how many stars a hotel carries and the extent of the services offered.

He added that hotel prices usually increase when demand is high, and when there are lots of last-minute bookings, which operators usually see in the case of visitors from Gulf countries.

According to Darawsheh, rates tend to fluctuate throughout the year due to changing seasonal demand. The Torch – which is a five-star property – charged a maximum of QR1,200 ($330) a night in March and was fully booked this month.

But Al Darawsheh said he saw room rates at some competing hotels climb to QR9,000 ($2,471) per night, which he called “unrealistic” and “greedy.”

“Increasing prices that much is bad for (any hotel’s) reputation and damages efforts to attract (tourists). These hotels should be punished,” he added.

Handball boost

This isn’t the first time that hotels in Qatar have appeared to increase room rates in response to rising demand.

The average daily room rate in January was QR994 ($273), according to a recent report from business consulting firm Ernst & Young (EY).

That’s up nearly 12 percent from QR889 ($244) a year earlier, a jump that EY attributes to the Men’s Handball World Championship hosted by Qatar that month.

Outside of the tournament, however, hotel room rates have held steady in Qatar as new lower-priced, mid-range options for travelers put pressure on luxury properties to keep their fees in check, EY said.

“The increase in internationally operated three and four-star hotels meant that it became more difficult for five-star hotels to justify their premium room rates,” Yousef Wahbah, EY’s head of real estate transactions for the MENA region, said in a statement.

This diversification of the market represents a significant shift in Qatar’s hotel industry, which has historically been dominated by luxury properties catering to business travelers and well-heeled tourists.

But despite the opening of new lower-cost hotels in Qatar, 2014 was still a healthy year for the sector, EY said. Doha’s hotel room occupancy rate of 70 percent was one of the highest in the region, which helped boost revenue per available room by 13.4 percent, EY said.

The company said the short-term outlook for the country’s hospitality sector is rosy as the QTA increases its marketing efforts and works with local businesses to diversify the country’s attractions.

The number of visitors to Qatar is already growing rapidly. Last year, 2.83 million tourists visited Qatar, up 8.2 percent over 2013, according to QTA figures.

“Qatar’s hospitality industry is expected to thrive in 2015 and beyond,” Wahbah stated.

Others, however, don’t share his optimism in the long run.

Last fall, business advisory firm Deloitte said although the number of visitors to Qatar is increasing rapidly, the number of hotels is growing even faster as hospitality businesses construct new accommodations to meet demand for 2022 World Cup.

Deloitte questioned whether there would be sufficient demand for these hotel rooms in the run-up to the tournament, as well as in the years directly afterwards.

Thoughts?