Tourism and Terrorism -
The Road to Recovery in Egypt

December 2000

By mid-1997, Egypt seemed well on its way to attracting an expected four million tourists, the highest ever for this popular North African destination. On November 17, 1997, a terrorist attack targeting visitors to the Temple of Hatshepsut in Luxor, single-handedly threw the country’s tourism industry into turmoil. The attack, aimed at destabilising Egypt’s tourism industry by striking at a major tourist attraction at the start of the winter peak season, also came at the start of World Travel Market in London, one of the travel and tourism industry’s largest trade fairs, at which Egypt was a major participant. Three years later tourism in Egypt is bouncing back.

Tourism’s resilience

Tourism is Egypt’s second largest foreign exchange earner, and Egypt accounts for 50 percent of all tourist arrivals to Africa and the Middle East. In 1999, tourism growth in Africa and the Middle East outpaced the world average, increasing by 17.5 percent over 1998.
The effect of the Luxor tragedy is clearly reflected in the level of visitor arrivals to Egypt in 1998, which declined by 13.8 percent over 1997. International tourism receipts also reflect the impact of the tragedy, with a decrease of 45.4 percent over 1997.

Well reported damage control implemented by the Egyptian authorities immediately following the Luxor attack, included increased security at all tourist sites and hotels, has gone a long way to allay safety fears and restore consumer confidence in the destination.  This is clearly reflected in the increase in tourist arrivals and tourism receipts in 1999, which surpassed 1997 levels.




Hotel performance

Hotels throughout Egypt were hard hit by the events in Luxor in 1997, at the beginning of the peak season of November-May. Overall occupancy for Egypt was severely impacted, but hotel performance figures to date for October 2000, reflect the recovery experienced in select markets, with double digit growth experienced by all featured markets, except Alexandria.
 

Hotel performance (January - October 2000)
Location 
 
Occupancy (%)
 
Average room
rate 
 
RevPar 
 
Change in
RevPar over
1999 (%)
Alexandria  65 59 38 2.3
Cairo  77 81 63 11.9
Hurghada  80 41 33 16.9
Luxor  68 36 24 55.5
Red Sea Resorts 75 32 24 18.5

Investor confidence in Egypt which waned at the end of 1997 has returned with a vengeance. International hotel companies including Bass, Starwood, Granada, Marriott, Hyatt, Radisson SAS, Hyatt, Accor, Mövenpick, and Choice International all have projects under development throughout Egypt. There are over 100 hotel projects under way, with new openings this year including the Four Seasons Cairo, Le Méridien Heliopolis, Sheraton Royal Garden and Sol Meliá Paradisus. 





Outlook

Egypt seems to have successfully overcome the ‘Luxor effect’ and tourist arrivals are expected to reach the five million mark by the end of the year. If growth continues at the present levels, tourist authorities anticipate arrivals to quadruple over the next decade and estimate 620,000 hotel rooms by 2017 to fill expected demand. Industry observers however caution against oversupply which is already impacting room rates and occupancies destinations such as Sharm El Sheikh. However the development of new destinations including Taba and Nuweiba, and the open skies policy implemented at the beginning of this year should serve to drive the continued growth of the industry.
 
 

April 2000

Egypt: A market profile

From the Arthur Andersen Hotel Industry Benchmark Survey - Middle East and North Africa edition

Tourism sector recovered 

Hotels in Egypt can look back on a successful 1999 and all markets, with the exception of Luxor, exceeded occupancies and average rates achieved before the Luxor massacre in 1997. The Red Sea resorts are popular once again and Nile cruises are also showing a marked increase with operators reintroducing cruises on Lake Nasser. Growth looks set to continue following the government’s open skies policy introduced in January 2000 which allows international airlines to operate scheduled flights directly to resorts. As a result, the number of tourists is estimated to reach eight million by 2005. 

Alexandria on the verge of success 

From being a predominantly domestic resort, Alexandria is becoming a sought-after international destination with improved infrastructure and upgrading of facilities by the local authorities. The city is attracting both local and international corporate business as well as an increased demand for meetings and incentives, representing a cheaper alternative to Cairo. These factors have contributed to the upward trend in both occupancy and average rate over the past year, which the industry looks set to build on.

Occupancy boost drives yield in Cairo 

Cairo’s hotel market was least affected by the decline in tourist arrivals in 1998 due to its high share of corporate guests. Nevertheless, increasing tourists arrivals, healthy economic growth and new large joint ventures have secured an occupancy increase exceeding 20 percent whilst average rates have remained at 1998 levels due to an agreement between major hotels to freeze corporate rates. The higher increase in occupancy in the hotels near the Pyramids is a result of their business mix, which is predominantly tourism related and was badly affected following the Luxor incident. 

Revival of the masses in Hurghada 

Hurghada has finally managed to get back on its feet with many hotels doubling both occupancy and thus rooms yield in 1999. The Red Sea resort has become the most popular mass-market destination in the Middle East. There are now an estimated 15,000 hotel rooms catering to price-sensitive travellers which command clear market superiority in a regional context. With the one million visitor barrier expected to be broken by 2000, Hurghada hoteliers are gearing up for a very strong year. 

Full recovery in sight in Luxor 

Luxor has made great strides following the devastating effects on tourism as a result of the 1997 massacre. Whilst operators have been cautious to minimise increased rates in an effort to stimulate demand, occupancy levels saw a 98 percent growth on 1998 and averaged 53 percent in 1999. Building on this success, 2000 looks set to show further improvement. 

Sharm el-Sheikh bouncing back 

Average room rates proved to be resilient over the past year although several new hotel projects came on-line in 1999 and the beginning of 2000. Hoteliers report low resistance from tour operators and FITs and therefore expect further rate hikes for 2000 supported by the improving quality of hotel stock. Further successful positioning in the international market place, however, also depends on the government’s ability to upgrade the town’s infrastructure, including the existing airport, which currently operates near capacity. 

New supply across all of Egypt 

Whilst new supply in Alexandria is limited, Cairo is experiencing a boom in hotel supply following no change in international quality stock since 1987. The Conrad International, which opened in 1999, is the first of many major new projects. In response, many older properties are expected to start major refurbishment programmes in order to remain competitive. 

Several hotel projects are also expected in Cairo’s suburban areas. These new communities include Beverly Hills, Dreamland and the sixth of October City. International operators such as Accor, Bass Hotels & Resorts, Hilton, Marriott and Starwood are all due to open new hotels during 2000 or 2001 and believe they can be successful in attracting tourists in particular to these newly populated areas. 

In order to satisfy increasing demand for quality resorts in natural surroundings, integrated resort communities such as Sahl Hasheesh and Soma Bay are on the rise south of Hurghada, stretching as far as Mersa Alam. This phenomenon started with the development of the El Gouna resort north of Hurghada and is expected to eventually dominate regional tourism. Similar projects are underway in the South Sinai, notably Taba Heights near the Israeli border. 

The first new supply Luxor has seen in many years is set to come on-line in 2002 with two new properties presently under construction. Operators are confident of a promising year ahead whilst the Nile cruise business also regains its former popularity. 

Sharm el-Sheikh is Egypt’s pride as the little town on the Gulf of Aqaba has managed to emerge from an unknown dive site to a truly unique tourist destination today. From just two hotels in 1987, Sharm el-Sheikh now boasts around 10,000 hotel rooms, the latest addition being the 433-room Hyatt. The number of rooms is expected to double within the next two years as growing demand from European source markets further fuels development. 

Maintaining the environment 

Sharm el-Sheikh’s popularity in European source markets is based on the government’s strict environmental policy applied along the coast to protect the environment. The government has learnt from past mistakes. Hurghada in particular is a negative example of uncontrolled development resulting in the destruction of almost all coral reefs and with it all efforts to create an upmarket destination. As such, the application of strict construction guidelines and environmental laws have made Sharm el-Sheikh a quality alternative destination to Hurghada for which tourists are willing to pay a premium. 

Outlook 

The planned development of the mixed-use San Stefano complex, including a Four Seasons hotel, on the site of the former San Stefano hotel will put Alexandria in the international spotlight. The city is undergoing a major image change, stimulated by the recent international attention following the discovery of significant architectural artefacts, and should look forward to growing visitation. 

In Cairo, city centre hotels look set to continue to out-perform the rest of the Cairo market in coming years. However, as the downtown area becomes more congested and surrounding new communities begin offering a better product for offices, residences and hotels, Cairo’s main hotel market may see a shift. 

Although Hurghada will see an additional 2,800 rooms enter the market this year, increased demand suggests they are likely to absorb frustrated demand from price-sensitive European travellers. Hoteliers in Hurghada are certainly keen to sustain this trend and realise that in order to do so they must remain competitive with Mediterranean destinations such as Turkey, Cyprus and Greece in terms of pricing. 

Luxor was hardest hit by the Egyptian tourism crisis in 1998 and is still recovering.  However, backed by the phenomenal growth of the tourism industry in Egypt generally and nearby Hurghada in particular, visitors to some of the world’s most spectacular heritage sites are bound to return in ever growing numbers. 

Hoteliers in Sharm el-Sheikh report strong reservations on the books for 2000. It appears that the town is well on its way to becoming an established quality resort destination in its own right with international hotel operators such as Sheraton, Hyatt, Crowne Plaza, Four Seasons and Ritz Carlton all with the ability to move the destination further up-market. 

New names will emerge in tourist brochures, including Taba and Nuweiba in the South Sinai and Mersa Alam on the Red Sea which, supported by the new open skies policy, should further drive the relentless growth of Egypt as a prime international tourist destination. 
 

© 2000 Arthur Andersen.


 
Contact:
Arthur Andersen
Julia Felton
    Global Knowledge Manager
    Tel: 44 20 7304 1785
    Fax: 44 20 7304 1391
    julia.felton@uk.arthurandersen.com
http://www.hotelbenchmark.com
Also See
Egyptian Hotels Recording Exceptional Growth in Rooms Yield in1999 Hotel Benchmark Survey / Arthur Andersen / May 2000 
Sydney Hotels Suffer Decreased Food & Beverage Revenue and Displacement of Loyal Guests During Olympics But Double Average Room Rate / Nov 2000
Japan’s Hotel Markets - Diverse Strengths Changing Demand / Arthur Andersen / 2000
St. Lucia: A Market Profile / Arthur Andersen / Oct 2000
Guam: A Market Profile The Hotel Industry in Guam Facing Challenges as the Asia Pacific Region Moves Out of Recession / October 2000
Barbados: A Market Profile / Arthur Andersen / June 2000 
Arthur Andersen Replaces KnowledgeSpace.com with Hotelbenchmark.com; Provides More Focused Analysis of Trends / Sept 2000 

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