Market Update: Egypt from the ashes
All the evidence seems to point to an upswing after some tough years
It has been a monumentally tough four years for Egypt, but genuine optimism abounds for the first time. And rather than blind faith, this time there are facts to support a real upswing, as Hotelier discovers
The challenges faced by Egypt’s hospitality sector in the last four years are well documented. A plunge in key numerical markers —made even more shocking thanks to the record-breaking heights of 2010 — have been thwarted in their recovery due to numerous headline-generating events. And this is an industry that accounts for around 12% of the country’s workforce; if hospitality suffers, so does a great deal of the population.
As Marc Descrozaille, regional director of The Rezidor Hotel Group for the UAE, Egypt, Oman and Jordan rightfully asserts: “When we talk about Egypt we need to clearly distinguish between the period before the revolution, up until 2010, and afterwards. In 2010, 15 million international tourists visited Egypt, yet in 2013 this figure fell to 9.5 million, which had a drastic negative impact for the country’s 1100 hotels.”
The Arab Spring in January 2011, followed by the Muslim Brotherhood regime and then the second revolution in June 2013 were all factors in the battering of Egypt’s tourism industry. But Descrozaille believes, like many others, that since the election of the new president, Abdel Fattah el-Sisi, in May 2014, the country has stabilised and a genuine recovery is underway.
Of course it is possible to treat Egypt as a single tourism entity, but it is made up of very different destinations with unique offerings. Therefore, the impact of disruption and the pace of recovery have been varied. Cairo in particular has “suffered immensely” due to the revolution, says Descrozaille.
The capital represents all major segments of clients including leisure, tours, corporate and MICE. Filippo Sona, director — head of hotels (MENA region) Colliers International says Cairo’s attempt to discount rates post 2011 to reignite demand “was unsuccessful”.
“As a result, hoteliers opted for higher ADR levels in order to salvage RevPAR, a strategy that resulted in growing revenues,” he says.
“Despite faltering occupancy levels (reaching 40% in 2013), ADR increased by 15.9% in 2013 and a further 1% YTD in July 2014 when compared with the same period a year before.”
Sharm el-Sheikh noted a year-on-year decrease in occupancy, while Hurghada witnessed a 2.8% increase in July 2014. Alexandria has a similar profile of clientele to Cairo, with a majority of visitors coming from the domestic market. But as a general picture, the main visiting demographics are from Russia and the key source markets of Europe, followed by Egyptians and, more recently, GCC and Arab visitors.
Of course the damaging events of the past years have not been taken without a response from the tourism industry, and from the government.
As Descrozaille states, throughout the period of unrest, The Ministry of Tourism of Egypt tried to convey the message that, while there were issues in Cairo, the rest of the country — and in particular the Red Sea area — was safe, with no risk for tourists.
“This was regularly contradicted by major civil unrest and demonstrations in Cairo. In addition, the attack of a bus in the Sinai region in 2013, which killed several tourists, had a major negative impact on tourism,” he adds.
Public authorities worked extensively in strengthening commercial relationships with regional and international countries, according to Sona.
The Egyptian tourism authorities emphasised coastal resort areas as the safest places in Egypt, “resulting in the growth of tourist arrivals from the Russian market”.
The industry itself has continued with traditional methods at trade shows and sales missions to the European market.
According to Stephen Banks, VP of sales and marketing for Mövenpick in Africa, predominantly European tour operators contract rooms nine months ahead and “have to commit to charter flight capacities, which affect the amount or holidaymakers coming to the destination,” he comments.
“For the hotels’ part, we have increased promotion to the local markets of corporate, meetings and business events and local leisure business, which increased during the latter half of 2013 and 2014.”
It would also be wrong to ignore the obvious heavy discounting that has taken place across the complete spectrum of product in Egypt.
Rashid Aboobacker, senior consultant at TRI Consulting, highlights that, although these initiatives appear to have helped hotels improve occupancy levels in specific markets, “it has also caused a notable drop in rates, revenues and profitability for operators, which in turn has had a knock-on effect on the quality of product and service to some extent”.
It would appear by all accounts that the situation for hoteliers is improving. Ulrich T. Eckhardt, president of India, Middle East and Africa, Kempinski Hotels, says there has been a “steady improvement in the flow of guests”.
“Our hotel in Cairo — Kempinski Nile Hotel — has been over budget for the past four months with a revenue increase of almost 32% compared to last year’s figure,” he says.
“Our resort in Soma Bay has witnessed a significant increase, with almost a 40% increase compared to 2013 and it has attracted new segments and nationalities that are eager to come and explore Soma Bay, an upscale Red Sea enclave.”
October also saw the return of GCC visitors celebrating Eid. Sona notes that the Russian market, Egypt’s biggest source market, is expected to see a cumulative increase of 38% from 2014 to 2018.
Eckhardt explains that MICE remains a segment on which hoteliers are currently focusing as they work to regrow their base of demand.
In 2013, MICE demand represented 54% of inbound business arrivals, “or a total of 1.1 million visitors to hotels in Cairo”.
Anecdotally, Banks provides an insight into what numerous hoteliers across Egypt are encountering. He says “forward bookings have increased” and there is an expectation that “the winter season of 2014 will be the strongest for three years and 2015 will be on the way to recovery”.
While 2010 levels are a way off yet, many estimates are suggesting 2016/17 as a potential target for hitting those halcyon levels, evidence that an upswing is mounting.
Aboobacker says most of the indicators appear to be pointing towards “an imminent recovery in the tourism demand in Egypt” although this will heavily depend on the improvement in the security situation and political stability.
“While arrivals have improved already in the last few months, we expect demand to recover more substantially once the remaining travel advisories are lifted and charter flights make their way back to Egypt in the coming months.”
Descrozaille is in little doubt, asserting that “there is certainly concrete evidence that a recovery is underway.”
“The Cairo market in August increased by 220% compared to the same period in 2013,” he comments.
But while Egypt appears to bounce back quickly after negative events, the revolution is having a more prolonged effect on a speedy recovery.
The fact remains, however that the figures are in ascendency, which is great news for Egyptian hoteliers.
So with the facts backing up a clear notion of a recovery in Egypt’s hospitality sector, are hoteliers optimistic?
We have been here before with Egypt and the clouds have rolled over just as the sun appeared to be breaking through.
TRI Consulting is certainly optimistic, according to Aboobacker, who says that he expects the sector to rebound in the coming months, “once the new government finds its feet and wins the confidence of the Egyptian population and the international community”.
“Egypt is, and is expected to remain, one of the most popular tourist destinations in the region, given the strong patronage from European and Russian tourists, and the GCC/Arab tourists,” he continues.
“The country’s effort to diversify the target market by attracting more tourists from Asian growth markets, such as India and China is also likely to contribute to further growth in demand in the future.”
It is a similar message from Colliers International, and Sona believes the national infrastructure programme that was initiated by President El-Sisi will contribute to the development and marketing of new resort areas.
“Therefore, by developing coastal areas, Egypt can position tourism as the catalyst for a brighter future,” he asserts.
Kempinski remains confident in Egypt as a destination for both business and leisure travel and based on the
success of its existing stock in the country, Eckhardt says the plan is to expand further.
“Kempinski Hotel Royal Maxim, our second hotel in Cairo and third in Egypt, is due to open early next year in a premium location near the airport in up-and-coming New Cairo,” he states.
“Cairo remains an economic hub for the region and investors are eager to explore new opportunities within the Egyptian market. We have seen an upswing in both corporate and leisure travel, which shows the strength of the destination.”
The company has also put in place an area director of sales and marketing to build on the synergies between the three properties.
For Banks, reasons to be optimistic include “a movement to bring more consistency to quality standards, especially in independently run hotels”.
“We see a change as staff are starting to receive higher salaries,” he comments.
“With other increases in recent months, prices will have to increase and bring along with this increased standards and quality without affecting the value for money that the destination has become synonymous with,” he adds.
Descrozaille is adamant that “now is the time for major campaigns in Europe and the Arab world to bring back the tourists, and we are in full support”.
“For the first time in four years, I have to say I am very optimistic about Egypt’s hotel industry,” he concludes.