Past, present and future: The sector is again demonstrating its resilience in turbulent times

It has been a difficult few years for Egypt’s economically vital tourism sector, in the wake of the 2011 revolution and with civil unrest continuing to occur in the summer of 2013. Visitor numbers and revenues recovered in 2012, indicating that the industry has impressive capacity to bounce back from setbacks, as it has many times previously. Renewed instability in 2013 and the replacement of the Freedom and Justice party-led government in July have not helped, although very few tourists have been directly affected. Nonetheless, industry leaders reiterate that the top priority in the short term must be to restore stability and safety – and most importantly, the perception thereof among potential visitors.

RESILIENCE: It is testament to the sector’s overall robustness that Egypt retains great appeal for tourists from a wide range of countries, economic groups and interests. The country’s Red Sea resorts form the core of the industry, while foreigners have been visiting its historical attractions, particularly the Pyramids of Giza and the temples of Luxor, for centuries.

Competition from neighbouring markets – including Jordan, Turkey and Morocco – is increasing. However, once Egypt’s streets are calmer and its politics more stable, it can continue to capitalise on its strengths and boost diversification, both in terms of external markets (Egypt is increasingly targeting emerging economies) and its internal offering. Cultural and adventure tourism, and attracting more visitors to the Mediterranean coast and Alexandria, are among the possibilities being explored.

FACTS & FIGURES: Tourism and travel contributed LE103bn ($14.7bn) to GDP in 2012, or 6.9% of the total, according to the World Tourism and Travel Council (WTTC). The travel element includes all passenger transport services except commuter routes, thus embracing a lot of domestic travel, an important segment that many tourism statistics overlook.

The WTTC suggests that the industry’s broader economic impact – adding to its direct contribution the indirect and induced effect it has on other sectors – brings its total contribution to LE228bn ($32.4bn), or 15.1% of GDP, more than twice the figure for direct input. This gives a clearer indication of the sector’s importance to Egypt’s economy, and is considerably higher than that of the vast majority of countries’ tourism industries.

The WTTC estimates that 1.38m people were directly employed by the sector in 2012, meaning it contributed 6% of total employment. By the broader definition of its economic impact, however, travel and tourism accounted for 3.11m jobs, or 13% of total employment. The sector is also a magnet for investment, drawing $4.4bn – 12.3% of total investment in Egypt – even in 2012, a difficult year.

The WTTC expects tourism and travel to grow fairly slowly in 2013, but also that the pace will pick up and expansion over the next decade continue at a steady clip. It forecasts 2.8% growth in direct sector GDP and 2.3% in its total economic contribution in 2013, but an average annual rate of 5% and 5.1% in the 2013-23 period. Investment may be sluggish this year, with 1.3% growth, but should accelerate to an average of 5.2% over the next decade.

According to the WTTC, Egypt’s tourism sector is the 24th-largest in the world in absolute terms, though it ranks 30th in its overall impact on GDP. Despite the sector’s well-developed nature, the WTTC expects Egypt’s tourism growth to outstrip the global average (of 4.2%) over the next 10 years.

Domestic travel spending accounted for just over half, 53.8% of tourism and travel’s contribution to GDP in 2012, according to the WTTC, which expects the segment to grow by 1.2% in 2013 and an average of 4.7% annually between 2013 and 2023.

RECOVERY: Initial figures suggest that Egypt registered 11.5m foreign arrivals in 2012, up 17% on 2011, and generating direct income of $9.9bn, a 13% increase on the previous year. Hisham Zaazou, the then-minister of tourism, told OBG that tourist spend per night rose to around $75 in 2012, up from $69 in 2011. However, there is still some way to go before Egypt can match its performance of 2010, the last year before the revolution, when 14.5m tourists visited, spending $85 per night. “Tourism is a sector that is currently underutilised,” Hassan Abdalla, the CEO of Arab African International Bank, told OBG.

Nonetheless, the fact that the country still attracted around 10m visitors in 2011 is indicative of its widespread appeal, the speed with which its tourism sector recovers from setbacks, and the safety and security of parts of the country not affected by the unrest – particularly the Red Sea resorts.

That said, there is a widespread perception in Egypt that visitor numbers have been buoyed by arrivals who are not, strictly speaking, tourists. This includes refugees from Syria and Libya, which have been affected by civil wars since early 2011, with Syria’s still ongoing at time of press.

LOOKING UP: Speaking in spring 2013, Zaazou told OBG that he was optimistic about the outlook for the year, with visitor numbers expected to rise, particularly from tourists who had postponed trips to Egypt in the previous two years. “The government will proceed with its aggressive promotion campaign,” the minister said. “I think the industry is very resilient and its response is very fast.”

The government mounted promotional efforts including work with tour operators in major markets and their domestic counterparts. It stepped up its marketing programme, including promotion through international events and trips for media representatives to demonstrate the country’s safety.

EMERGING MARKETS: While restoring Egypt’s image as a safe place to visit is a priority, the country is also working on its longer-term strategy of attracting more visitors from emerging markets, from which an increasing number of tourists are travelling every year. “The new markets we are thinking about fall into two camps: the Far East, such as China, South-east Asia, India and Malaysia; and the Western Hemisphere, particularly Latin America,” said Zaazou.

Zaazou set the target of attracting 30m tourists annually by 2022. While this would involve more than doubling arrival numbers from even 2010’s high, in a time frame that is now less than a decade, the target could be achieved provided the right investments are made in infrastructure to promote and support volume growth.

Emerging markets offer excellent long-term growth potential and could help Egypt diversify its visitor base from the sluggish economies of Europe and the lucrative but small Gulf markets. However, almost every major tourism destination in the world is looking to tap into emerging markets, particularly China and India, and despite its long tourism history and prominence, Egypt will have to compete strongly to make meaningful headway in newer markets and achieve long-term growth. “China and India are very competitive markets,” Karim El Minabawy, the president of tour firm Emeco Travel, told OBG. “We will need to coordinate our promotion efforts in these countries and offer their tourists real value.”

QUALITY OVER QUANTITY: El Minabawy said that Egypt must avoid selling itself as a low-cost, low-value destination for Asian tourists, as it may find itself stuck in a downmarket category. Instead, stakeholders should ensure that Egypt offers real value by ensuring that sights and infrastructure are in place and well-maintained, and then push harder on promotion in these markets. Going for the mass market will not stand the country in good stead in the longer term, he said. “If you market yourself only on price, you end up killing the destination,” he told OBG. “These markets are so big that a niche bringing 2% of tourists is enough at first. Then as more and more middle class people travel, Egypt will become established as a quality destination.”

Developing this value may involve doing what tourism leaders have been discussing for some years, but in which Egypt has only made patchy progress – developing higher-earning niches, such as meetings, incentives, conferences and exhibitions (MICE), ecotourism and medical tourism. The country already has a head start as a cultural destination, but better maintenance of sites and museums, as well as improved development, promotion and care of less well-known cultural destinations, may be needed. “Do we have the right infrastructure to attract niche tourists?” said Ghada Shalaby, the deputy general manager for marketing and revenue management at American Express in Egypt. “Do we have the right hotels and facilities? It is not clear what investments are going to be made to develop niches.”

RESORTS & CULTURE: The sector can broadly be divided into two main segments: resort tourism and cultural tourism. By no means are these discrete categories – many visits to the country’s top cultural sites, from the Pyramids through Luxor’s temples to St Catherine’s Monastery on the Sinai Peninsula, are made by those staying in resorts, making day or overnight trips from the coast. Nonetheless, the majority of leisure visitors fit broadly into one category or the other, depending on their primary motivation for coming to the country: sun, sea and sand, or its cultural and historical attractions.

In 2010-11, 72% of leisure visitors fitted into the resort category, but now the proportion is probably more than 80%, El Minabawy told OBG. The reason for this is that resort tourism has proved considerably more resilient to the drop in arrivals following the revolution and its turbulent aftermath.

While most resorts have seen very little or no unrest, Cairo (home to the Pyramids, the Egyptian Museum and Islamic Cairo, among other cultural attractions) has been the epicentre of demonstrations. Luxor and Aswan, while not regularly focuses of unrest, have also been heavily affected by the turmoil, though Luxor’s Chamber of Commerce is planning to redouble promotional efforts.

SETBACKS: Recent years have been difficult for Egypt’s tourism industry, as they have been for the broader economy. First, the revolution of early 2011 saw parts of the country effectively shut down for weeks. It was followed by protests, some of which led to outbreaks of violence. While 2012 was quieter – as reflected in visitor numbers – there were still protests and episodes of sectarian violence.

To compound the sector’s difficulties, in February 2013 a hot air balloon carrying tourists crashed near Luxor, with 19 people killed. The situation then worsened, first with riots that included hotels in downtown Cairo being attacked, and then with the July removal of the Freedom and Justice party-led government of Mohammed Morsi. The army’s move brought Muslim Brotherhood supporters onto the streets and lead to a number of deadly incidents as they clashed with troops.

INCREASING COMPETITION: Tourists thinking of visiting Egypt tend to also be considering other options. The country has a large and growing number of competitors, from Mediterranean destinations combining sun, sea and culture – for example Turkey, Spain and Lebanon – to newer rivals such as Dubai and, increasingly, Asian countries such as Thailand, which draw in visitors from Europe, North America and the Middle East.

“No single market has proved entirely resilient,” Nabila Samak, the director of marketing communications at the Intercontinental Semiramis in Cairo, told OBG. “Even the Gulf markets, which one used to be able to count on in the summer, are now in question.” According to El Minabawy, occupancy at hotels in Luxor fell as low as 8-12% in 2012. By July 2013 international press reports suggested that it had plummeted to 4%. Such are the problems Egypt has experienced that the drop in visitors cannot only be attributed to end-users – holidaymakers – deciding not to come to the country.

The unrest has caused many tour operators to remove Egypt from their brochures, Shalaby told OBG, while cruise ships now call at the country less often. Simply put, Egypt’s international visibility and accessibility to package tourists has declined – a new and worrying precedent.

There are domestic reflections of this trend as well. For example, some of the Red Sea resorts no longer offer trips to Cairo to their guests because of concerns over the security situation. This has been exacerbated by the fact that many of those visiting resort hotels despite the political situation are repeat clients who are aware that the seaside is safe, but “are less interested in seeing Luxor or Cairo again than first-time visitors – they would rather stay on the beach,” El Minabawy told OBG. “As a result, some tour operators are finding it hard to survive.” However, he remains upbeat about the outlook: “People are getting used to the idea that there are protests in Egypt, but that it is still safe. There is a sense of familiarisation. Also, the protests that do happen do not make headlines so often.”

UP IN THE AIR: The removal of the Freedom and Justice party-led government in July 2013 was intended to re-establish stability, although at time of press the short-term outlook for tourism had become murkier as a result of the ensuing unrest.

The sector has consistently recovered quickly and strongly from shocks in the past, and the resorts remain almost entirely safe. That said, the reputational damage wrought over the past two and a half years may be harder to repair. Certainly, ambitious and well-intentioned plans to develop cultural and urban tourism are unlikely to be the top priority for the government in the immediate future, given the state’s pressing fiscal situation.

“We have two priority areas where we would like to see government action,” Sally Gamil, the head of marketing at the Radisson Blu Alexandria, told OBG. “First, returning security to the streets. Second, providing stable power and gas supply so that we do not have to use generators to ensure we have electricity and hot water. When we reach stability and the media starts telling a more positive story, we will recover. Egypt’s history shows that the sector has lows but quickly recovers. However, we need to offer some attractive packages to get people coming back.”

However, even before the summer of 2013, some in the industry remained sceptical about the short-to medium-term outlook. “Given the current situation, I cannot see tourism returning to normal until around 2016,” Shalaby told OBG.

FALLOUT: Cairo’s downtown hotels – which include a number of major five-star chains around the epicentre of the protests, Tahrir Square – have been hit particularly hard, in some cases closing down completely as a result of the protests.

Although the hotels are operating as usual at most locations, occupancy dropped to 5-15% during the worst periods of violence, rising to a scarcely more encouraging 15-30% when the situation was uncertain, Samak told OBG. Walls set up in the Garden City behind the Corniche have also affected access to the waterfront hotels, as well as imbuing the area with a somewhat siege-like atmosphere.

ATTRACTING CUSTOM: Room rates have fallen as hotels attempt to draw in custom with special deals. However, the government’s pricing regulations make it difficult for five-star establishments to reduce their rates to the level of the mid-market, which limits the scope to stoke demand.

The Intercontinental Semiramis has looked to keep revenues flowing as freely as possible not only by offering cheaper rooms, but through more generous packages, events and encouraging Cairenes to use its restaurants – for example, offering lunch menus for LE99 ($14) and advertising on the radio.

While downtown hotels have suffered, those in areas of the city perceived as safer have been able to benefit, including establishments in Heliopolis, near the airport, and Zamalek, on the island of Gezira in the middle of the Nile.

BUSINESS TRAVEL HOLDING UP: Business travel spending accounted for 25.8% of the sector total, or LE61.4bn ($8.7bn), in 2012, according to the WTTC. The segment has held up better than leisure tourism, probably because most business trips are taken out of necessity. This is despite the fact that the majority of business visits are to bigger cities, which have been more affected by the protests than the country’s leisure tourism centres.

However, the flow of MICE visitors has certainly slowed; few organisers want to hold events in a country which is seen as unsafe or unstable, and nor will companies organise off-site meetings there. “There has not been a huge amount of bleeding from corporate business,” Gamil told OBG. “People are still coming to Egypt on business, although the incentives segment is not doing so well at the moment.”

If stability can be restored and the sector returned to normal, MICE is a niche that Egypt could develop. MICE tourists tend to spend more per day than leisure visitors, and can help generate long-term tourism business, both as the country’s reputation as an events venue grows and as business visitors impressed on their work trips return or extend their stays for leisure purposes.

“Egypt offers a diversified package for MICE visitors,” El Minabawy told OBG. “We can leverage culture, climate and value for money, including low prices for luxury hotels. There is also the fact that it is easy to include a visit to, for example, Luxor or the Red Sea in a conference schedule.”

CALLS FOR REFORM: While some may disagree about the government’s promotional efforts, there is widespread consensus that structural reforms to promote tourism growth would be beneficial, including easing the tax burden and cutting duties on imports needed by hotels, restaurants, tour operators and other businesses in the sector.

However, most industry observers also acknowledge that, given that the government has other pressing priorities and is in an extremely tight budgetary position, significant tax and duties cuts are unlikely in the immediate future.

Greater coordination of efforts by all stakeholders could also benefit the sector. Currently, while the Ministry of Tourism has oversight of the industry, other ministries – including those of Antiquities, Culture, Sport, Environment, Transport and Agriculture – have interests that affect tourism. Meanwhile, private sector representation is splintered among a range of different organisations representing, for example, hoteliers, tour operators and airlines.

TRANSPORT: The Ministry of Tourism is working with state-owned flag-carrier Egypt Air and Turkish Airlines, which has established a large international network and shares some flight codes with Egypt Air, to enhance connectivity to Egypt from Asia and elsewhere in the world. For example, flight frequencies to Japan have increased, and the ministry is negotiating for more regular connections with Chinese cities, as well as Seoul in South Korea.

“If we make good campaigns but the transport is not there, we will never realise demand,” Zaazou told OBG. “So we are working very closely with the Ministry of Aviation, as well as with three categories of air transport companies: legacy or regular airlines; charter operations; and low-cost airlines.”

Some see the emergence of Egypt Air as an international transit carrier as potentially beneficial for the sector. “Egypt Air has been affected by the crisis, with a drop in the number of passengers,” El Minabawy said. “However, with other carriers cancelling flights or reducing their number, it has an opportunity to take a bigger slice of the pie. Also, Egypt’s location makes it perfect for transporting passengers from Africa to Europe, a market that used to be dominated by Air France. If even 10% of passengers spend a night in Egypt, it will benefit tourism.”

However, Khaled Giad, the general manager of sales at Egypt Air, told OBG that the airline would not be prioritising bringing visitors to Egypt as part of its development as a hub-and-spoke airline. Transit passengers naturally tend to prefer quick transfers through hub airports rather than extended stays, particularly if they are travelling for business.

OUTLOOK: In the wake of the revolution, 2011 was an understandably difficult year for the Egyptian tourism sector. However, the country still managed to attract millions of foreign visitors, even discounting the number of arrivals who were not tourists per se. Then 2012 saw a fairly impressive recovery, in terms of both visitor numbers and revenues.

However, 2013 may prove tough. The disturbances earlier in the year, and the removal of the Freedom and Justice party-led government of Mohammed Morsi and its aftermath, are not good advertisements, even if the vast majority of foreign visitors remain unaffected. The events are a setback for the country’s tourism revival plans, which otherwise seem well-designed, if not always backed with sufficient funding. The themes of better connectivity, diversifying markets, and increasing marketing abroad and at home are likely to inform strategy in the medium term, once tourism is again a priority for the authorities. Egypt’s ability to bounce back strongly from setbacks is well-documented, and this should be the case again. The country has ample competitive advantages – its long coastline, the Red Sea, thousands of historical sites, welcoming people and a centuries-old reputation as a choice destination.