First resort: Visitor numbers are recovering but remain below 2010 levels

The coastal resorts of Egypt have generally weathered the turbulence of the past few years better than Cairo and Nile Valley destinations, such as Luxor and Aswan. Resorts, particularly on the Red Sea, have thus helped the tourism sector through a difficult period, as the majority of foreign visitors to the country still come for leisure purposes, with the resorts their main destination. Furthermore, despite the political turbulence, middle-class and affluent Egyptians continue to flock to the coast. While the segment has not been unaffected by the revolution and its aftermath, and occupancy and room rates have both fallen, investment plans are still afoot at some of the bigger resorts, in anticipation of stability being restored and the market picking up again.

LOW ROOM RATES: Karim El Minabawy, the president of Egyptian tour company Emeco Travel, told OBG that overall visitor numbers at resorts continued to rise in the first four months 2013, but that they were still below 2010 levels, and that revenues continue to be affected. While resort hotels have been able to achieve occupancy rates of 50-75%, room rates have fallen significantly as hotels have looked to stimulate demand. El Minabawy said that rooms priced at $80 in 2010 fell to around $50 in 2012. Another factor is that guests are spending less in the hotels – for example, for meals at bars and cafes, and for tours. With the exception of fewer guests taking tours to places like Luxor, Cairo and St Catherine’s Monastery due to the security situation, the bulk of the drop in spending on hotel services can be attributed to the squeeze put on guests’ finances by the international economic situation.

One of the consequences of the drop in room prices has been that it has allowed five-star hotels to gain market share, as the marginal cost of a luxury room above that of one in a three- or four-star establishment has fallen. “People are willing to pay the small extra amount for a five-star hotel when the prices come down,” El Minabawy said. “The gap has been narrowed and this has squeezed lower-rated hotels. Three- and four-star hotels are becoming less interesting in terms of value for money, and thus it has mostly been hotels in lower categories that have had to close their doors.”

With visitors unfamiliar with Egypt more likely to avoid the country in the current situation, resorts are relying more heavily than normal on repeat custom – though this usually accounts for a fair chunk of business even in good times. Those who are familiar with the likes of Hurgharda and Sharm El Sheikh from previous visits are generally aware that they are safe and largely unaffected by unrest.

20 YEARS OF SUCCESS: Most of Egypt’s Red Sea resorts started to develop in the early 1990s, following government policy of building up tourism outside the Nile Valley; Sharm El Sheikh had already become a tourist destination under the Israeli occupation of the Sinai Peninsula, and a number of resorts existed on the Mediterranean. Hurgharda, Ghouna and Soma Bay started to take off in this era.

The success of Hurgharda in particular led to a move to develop further south on the Red Sea coast, an area that previously had been rather remote. The area around Marsa Alam was highlighted as having particular potential, given its natural beauty and access to the sea and coral reefs.

IMPROVED ACCESS: The problem of a lack of access was solved by the construction of Marsa Alam International Airport (MAIA) on a build-operate-transfer (BOT) model, the first BOT airport in Egypt. MAIA opened in 2003, and a decade later Marsa Alam is one of the country’s key resorts, with 20,000 hotel rooms completed and another 20,000 in the pipeline. Some $6bn in investments are expected, though the pace of hotel construction has slowed due to the uncertainty surrounding the sector.

In all, MAlA – which registered 1.2m passengers in 2012 – has helped kick-start tourism along a 200-km stretch of coast and 29,000 sq km of land, in an area that was previously lacking in economic development. Other resorts include Qusayr and Ras Baniyas. The area now has three marinas, one of which has 1000 berths, and a conference centre with capacity for 1500 delegates. One of the benefits that the region has over Sinai is that it has a great deal more space to expand – as well as being in a geopolitically less sensitive area.

Marsa Alam and its surrounding resorts cater to tourists who want adventure as well as sea, sun and sand, with diving at the reefs and desert safaris popular activities. Adel Rady, the chairman and managing director at Marsa Alam Tourism Development (MATD), which oversees the resort, told OBG that the quality of the reefs means the resorts compete with the Great Barrier Reef in Australia and the Virgin Islands as major diving destinations, but that Egypt can capitalise on relative proximity to Europe.

BROADENING MARKETS: At present, says Rady, 80% of foreign tourists coming to Marsa Alam are Europeans – Germans being the most numerous, followed by Italians, Britons and French. There is still a lot of scope for attracting more visitors from emerging markets – while Russians make up the single biggest group of visitors to Egypt, Russian operators have yet to discover Marsa Alam.

One issue is that it has traditionally been a higher-end resort than Hurgharda. There have not been as many mid-range hotels, and very few low-cost ones, which has priced some Russians and Eastern Europeans out of the market.

However, as the resort develops, more affordable options are coming on-line, and, with rates currently low, it is becoming more accessible to a wider range of tourists. “Some say we should stick to the high end, but it is difficult to have both high rates and expansion,” Rady said.

EASTERN PROMISE: The coastal resorts are also well-located for those visiting Luxor and Aswan, combining cultural and historical sites with beach time and outdoor activities; such packages could appeal to Asian tourists, who tend to be more interested in sites than beaches. MATD is in discussion with Asian developers about the possibility of establishing hotels in the area, hoping to draw Asian visitors with familiar brands. Ensuring that there is food and entertainment available that appeals to Asian, and particularly Chinese, tourists is a priority.

“Japanese visitors can get what we offer in Marsa Alam in Australia, which is closer,” Rady told OBG. “We find they need culture in the mix, so including Luxor and Aswan in packages is very important. We are also developing Greco-Roman sites on the Red Sea coast. This should also help attract Chinese visitors. Matching products with demand is crucial.”

LOWER RATES: According to Rady, Marsa Alam has been less affected by the post-revolution unrest than any other major destination in Egypt. It is 700 km from Cairo, the centre of the protests, and has been unaffected by the sort of local disturbances that have cropped up occasionally in Sinai since 2011. Local people are peaceful and many are dependent on the resorts for work, both directly and indirectly. Arrivals grew by 17% in 2012.

Nonetheless, occupancy rates have been affected. Having stood at 75% in 2010 on average ( ranging from full occupancy for the most successful to 50-60% for the least), as of spring 2013 they were reporting 50%, said Rady, with the range from 30-80%. A number of hotels which opened their doors in 2011 were particularly unlucky, and Rady estimates that as many as 10 hotels may have closed. Room rates have dropped to an average of $27 per night, down from $47, and some hotels have even fallen to $16. In better times, the best hotels could command rates of $60-70, and none dropped below $27. Hotels are also offering more extras in an attempt to boost the value they offer.

MATD and its partners are working hard to convey the message that Marsa Alam is safe, secure and open for business, including through social media such as Facebook, and sending daily photographs and videos of tourists participating in various activities to tour operators and agents in Egypt and abroad.

While it was pyramids and temples, and the shrines of medieval Islam, that first drew tourists to the country, Egypt’s modern tourism industry has the seaside resorts at its heart. Both Sharm El Sheikh and Hurgharda have established an international profile as leading Red Sea destinations, and Marsa Alam’s development was triggered by their success.

The southern Red Sea coast is now a centre for long-term tourism development, capitalising on its natural attractions, access to Luxor and Aswan – and, in the current climate, its safety and security, which have not been compromised by recent turbulence. While the region cannot fail to be affected by the fluctuations of the broader tourism sector, it has proved robust, and should be able to rebound quickly and push on with diversification and growth once stability is restored at the national level.