Hotels in arid coastal areas use mainly desalinated water for their domestic water demands, and treated wastewater for irrigating green areas. Private water companies supply these hotels with their domestic water needs. There is normally a contractual agreement stating a minimum requirement that has to be supplied by the water company and that the hotel management has to pay for regardless of its actual consumption ("contracted-for water supply"). This paper describes a model to determine what value a hotel should choose for its contracted-for water supply in order to minimize its total annual water costs. An example from an arid coastal tourism-dominated city is presented: Sharm El Sheikh, Egypt.The managers of hotels with expected high occupancy rates (74% and above) can contract for more than 80%. On the other hand, hotels with expected lower occupancy rates (60% and less) can contract for less than 70% of the peak daily domestic water demand. With a green area ratio of 40 m(2)/room or less, an on-site wastewater treatment plant can satisfy the required irrigation demand for an occupancy rate as low as 42%. Increasing the ratio of green irrigated area to 100 m(2)/room does not affect the contracted-for water supply at occupancy rates above 72%; at lower occupancy rates, however, on-site treated wastewater is insufficient for irrigating the green areas. Increasing the green irrigated area to 120 m(2)/room increases the need for additional water, either from externally sourced treated wastewater or potable water. The cost of the former is much lower than the latter (0.58 versus 1.52 to 2.14 US$/m(3) in the case study area).