Egypt's tourism industry takes multipronged approach to regain position as global top travel destination

The tourism industry in Egypt is continuing its drive to regain its international reputation as a world-class destination and to further develop non-traditional tourism niches, as the government remains determined for the sector to retain its position as a key driver of the economy and critical source of foreign currency, even after five challenging years.

Indeed, with a variety of government-led initiatives, as well as regional and international support, operators are still hopeful the sector can regain momentum. This optimism was embodied in a 2015 press release issued by Egypt’s Embassy in Washington DC, publicising the government’s target of doubling the tourism sector’s size to 15m tourists and generating $15bn in revenue by FY 2017/18, with 30m tourists creating earnings of $30bn by 2020. Then, in May 2016 the UN World Tourism Organisation (UNWTO) named the historic southern city of Luxor as the 2016 world tourism capital, part of an effort to reignite interest in Egypt as a destination.

Government Updates

In April 2016 the Ministry of Tourism (MoT) announced its ambitious 6x6 Tourism Impact Plan. Six main priorities have been highlighted in the strategy. These include working more closely with international partners, developing additional flight options on EgyptAir and charter airlines, supporting innovative local and international investors in the industry, upgrading product and service levels across facilities, and promoting the growing trend in Egyptian tourism of sustainable, eco-friendly accommodation and activities.

In February 2016 the Central Bank of Egypt (CBE) also launched a year-long initiative to support the sector by accepting deferral requests from the tourism industry to banks for up to three years starting from March 2016. As part of the plan, the CBE set up a special unit to restructure the sector’s debts.

Also in February 2016 the MoT hosted an international conference under the theme “Planning for Growth,” attended by around 200 tourism sector representatives from 25 countries. At the conference, research conducted by US-based polling firm Penn Schoen Berland in seven countries from which Egypt typically draws large numbers of visitors was presented. Findings included promising results with regard to the potential for increased tourist arrivals, with 61% of individuals polled stating that Egypt is “a place I want to visit in my lifetime” and 53% defining it as a “must visit” or “next big thing”.

Cooperation Protocol

As part of the conference, a cooperation protocol was also signed with the UNWTO, enabling it to provide technical and political support to Egypt, particularly with regard to crisis management, as the industry was affected by two high-profile incidents the previous year. At the end of 2015 the MoT was prompted to establish a crisis operation chamber in response to the travel warnings issued by Russia, the UK and other European countries strongly advising against travel to Sharm El Sheikh and in some cases suspending flights to the resort.

Industry Indicators

“The Economic Impact 2016 Egypt” report by the World Travel & Tourism Council (WTTC) indicated that there is no silver bullet to address the industry’s challenges in the short term, but also stated that there is reason for cautious optimism in terms of long-term trends. According to the latest WTTC data, in 2015 the direct contribution of travel and tourism to Egypt’s GDP was LE112.1bn (equivalent to $5.9bn as of December 2016) – 4.9% of total GDP – and was forecast to rise by 0.7% in 2016 and by 4.6% each year for the next 10 years, reaching LE177.7bn ($9.4bn), or 5.3% of GDP, in 2026. However, for now Egypt remains outpaced by neighbours like Lebanon (8.1%), Morocco (7.7%), Tunisia (5.8%) and Turkey (5%) in terms of direct contribution from the tourism sector as a percentage of GDP.

In terms of arrival numbers, Egypt welcomed 9.3m visitors in 2015 and 364,000 in January 2016. Predictably, the composition of nationalities making up these groups shifted following the downing of a Russian airliner in October 2015, with Russians going from being the greatest source of tourists in 2015 at 2.4m to zero in January 2016. In that month Saudi Arabia provided the most tourists, followed by Germany. The average length of stay in Egypt in 2015 was nine days, while the average expenditure stood at $72 per night. In January 2016 the ministry reported an average length of stay for tourists of seven days, though the CBE reported the average number of nights per visit at 6.2 in January 2016 and 5.5 in February, its lowest since 2010.

The WTTC also reported that travel and tourism directly supported more than 1.1m jobs in 2015, constituting 4.4% of overall employment, but predicted a 0.9% decline in 2016. However, with regard to investment in the sector, the WTTC indicated a growth trajectory, with the annual figure of LE39.1bn ($2.1bn) rising by 2.8% in 2016, and by an additional 3.3% each subsequent year for the next 10 years to reach LE55.6bn ($2.9bn) in 2026.

Recent Obstacles

As has been widely reported, the political turbulence in Egypt over the past five years has been starkly reflected in the declining tourism arrival numbers. In the peak year of 2010 Egypt welcomed over 14m visitors, according to the World Bank, and while annual figures have been jumping up and down in subsequent seasons, they have never quite regained that level. After dropping sharply to 9.5m in 2011, visitor numbers recovered to reach 11.2m in 2012, before falling back again to 9.2m in 2013 followed by an uptick to 9.6m in 2014. The evolution indicates that although there is still significant interest in Egypt as a tourist destination, arrivals may be from more non-traditional markets (see analysis).

In 2016 the year did not start on the positive note the industry had hoped for. Following the aftermath of the MetroJet crash, relations between Egypt and Italy were affected by the death of an Italian PhD student in Egypt in February 2016. Then, in May 2016 an incident involving a fake attempt to hijack an EgyptAir plane prompted further questions about the country’s airport security procedures. As a result of these events, tourist arrivals for the first half of 2016 were down by 51.2% on the same period the previous year, according to the Central Agency for Public Mobilisation and Statistics.

However, government officials and industry representatives are quick to point out that tourism in Egypt and other countries suffering from declining numbers can rebound from terrorist attacks if additional work is put into strengthening different aspects of the industry. “The efforts that we need to put in are maybe 10 times what we planned to put in place, but we need to focus on our ability to drive business back to Egypt in order to change the image of the country,” Yehia Rashed, minister of tourism, told the local media following the EgyptAir incident. Similarly, Hala El Khatib, secretary-general of the Egyptian Hotel Association, told OBG, “You cannot say there is a destination in the world that is 100% safe and secured. Terrorism has no logic and the only way to fight it is to hold on to our right to travel.”

Departing From Tradition

As Elhamy Elzayat, chairman of the Egyptian Tourism Federation (ETF), told OBG, cultural or “classic” tourism usually generates the most revenue in Egypt; he estimated the average expenditure for this segment is five times greater than for resort tourism, where people take advantage of the all-inclusive packages rather than paying for individual expenses, such as multiple guides, museum entrance fees and drivers.

However, this is one of the segments that has declined during the instability of the last five years. Professional services company JLL noted in its Cairo real estate report for the first quarter of 2016 that international cultural tourism represented only 5% of overall tourist arrivals to the country in 2015.

Prior to October 2015 tourism numbers had been more robust for hotel resorts and beach vacations, with occupancy rates in Sharm El Sheikh hotels at around 70%, according to Hesham Ali, head of the Tourism Investors Association in South Sinai, in conversation with local press. However, in December 2015 these numbers fell to below 20%.

Shifting Sands

This shift was also reflected in the Egyptian Airport Company’s February 2016 announcement that the construction of a $457m new terminal at Sharm El Sheikh Airport would be put on hold indefinitely due to the lack of tourist inflows in the Sinai. Abdel Fattah Khalifa, the chief collector of tourism taxes for the Red Sea Governorate announced to the local press that the decline in tourism in that area had resulted in an 80% decrease in tourism-related tax revenues. On top of this, in June 2016 the Nuweiba and Taba Investors Association, which was created to promote tourism in Sinai, requested that the Egyptian government form a crisis committee to specifically address the decline in tourism in these areas; according to local press reports, Sami Suleiman, head of the association, reported that the region was only operating eight hotels out of a total of more than 40 because occupancy rates were so low.

Currency Changes

The Ministry of Finance’s decision to devalue the Egyptian currency by 14.5% in March 2016 and then float the currency in November was intended to catalyse increased capital flows in the short term, encouraging foreign investment and addressing the ongoing foreign currency shortage. It was also hoped that this would prompt a short-term increase in the number of tourists in search of a good deal, especially due to the popularity of the internet, a facilitator of last-minute, spontaneous bookings. “Booking patterns have changed, the idea that you book way in advance has completely stopped,” Hans-Georg Roehrbein, general manager of the Cairo Marriott Hotel and Omar Khayyam Casino, told OBG. “Within a week, I can have a huge pick-up.”

Although it is not yet clear from available data exactly how far the depreciation of the currency has affected tourist arrivals, some industry operators have seen evidence of its effect in hotel occupancy. For example, El Khatib told OBG that he had already seen some effects of this policy in luxury hotel occupancy rates. “You are getting better value for money in five- or four-star hotels, so the percentage of occupancy is greater compared to hotels with fewer stars,” he told OBG. Indeed, according to a February 2016 report published by the regional Bank Audi, prices for luxury rooms in Cairo were the most affordably priced among other Middle Eastern cities.

However, Elzayat views the currency measures as only a short-term solution. “I would rather focus now on training and improving customer care. If I get 10% more visitors this year, it’s not a big deal, but if in 12 months I am able to offer better quality and change the perception, then I am in business.”

Mixing Business With Pleasure

Leisure travel spending generated 78.2% of direct tourism GDP in 2015, equal to LE126.2bn ($6.7bn), compared with 21.8% for business travel spending, or LE35.1bn ($1.9bn), according to the WTTC. However, the council forecast a 3.5% increase in business travel spending in 2016 compared to a 0.3% decline for leisure. According to Roehrbein, while the traditional leisure tourist draws, like the Nile Cruise tour, have not fully rebounded, he has seen a fairly consistent stream of visitors arriving as part of business trips, industry summits, or trade delegations, and has received inquiries about corporate rates. Elzayat also told OBG that the ETF is working to promote the establishment of conveniently located business hotels, noting that such offerings would not need to rely on the travel preferences of tourists, but could instead tap into a market that is more likely to travel regardless. According to international real estate firm Colliers’ “Cairo Market Overview 2016” report, there is a limited supply of international standard, three-star hotels for business travellers looking for clean, simple and good-value-for-money accommodation in the capital.

The report also found that there are fewer than 500 quality serviced apartments in Cairo compared to almost 30,000 units in Dubai catering to Gulf Cooperation Council (GCC) families and business travellers in town for extended trips. This is in spite of the fact that there is substantial demand from countries in the GCC for this type of accommodation – according to Colliers, approximately 55% of Cairo’s source markets are located in the GCC region.

Tapping Domestic Markets

Domestic tourism has been on the rise in Egypt over the last few years. According to data from the MoT, the industry saw a steady increase in revenues from domestic travellers between 2010 and 2014, from LE17.5bn ($927.5m) to LE22.1bn ($1.2bn). Meanwhile, the WTTC, which was more bullish, found that domestic travel spending generated 64.3% of direct travel and tourism GDP in 2015, equal to LE103.7bn ($5.5bn), and expects this to increase by 3.1% in 2016 to reach LE107bn ($5.7bn).

To capitalise on this trend, the MoT launched the Egypt in our Hearts initiative in 2015, aimed at encouraging young Egyptians to take day trips or long weekends to places like Luxor, Aswan and Sharm El Sheikh. In addition, the Egyptian Travel Agents Association activated an e-payment service in partnership with National Bank of Egypt, allowing Egyptians the option of paying for local vacations in interest-free instalments of six to 12 months.

Fresh Ideas

In addition to tapping new markets, the tourism industry has been making efforts to promote niche tourism as well (see analysis). One particular area of focus for the government is eco-tourism. According to Frommer’s, an international travel company, Egypt has taken a number of steps to promote greener tourism, starting with the establishment of 21 protected areas near the Red Sea, with support from a variety of international donors, including the EU. Among the protected areas is Ras Mohamed National Park by the Gulf of Suez, which is home to a world-famous diving site and coral reef; the Wadi El Rayan protected area in Fayoum Governorate, an area of sand dunes, natural springs and lakes, home to a variety of botanical and animal life; and the St Catherine protected area in South Sinai, an important region for cultural heritage and wildlife.

Festivals

In addition to this, the authorities are also actively promoting the country’s biggest and oldest festivals to draw in international visitors. On the list is the Cairo International Film Festival, which was inaugurated in 1976 and is one of the 15 festivals accorded category “A” status by the International Federation of Film Producers Associations; and the Sun Festival at Abu Simbel, which is held at the temple of Ramses II on the two days of the year on which sunlight fills the internal chamber of the temple.

Investment is also being undertaken to revitalise the historical attractions that have traditionally accounted for the bulk of tourism to Egypt. Work is under way on the construction of a new museum near the pyramid complex in Giza. The Grand Egyptian Museum project, which began in 2005, aims to become the largest museum of Egyptology in the world, and will display some of Egypt’s most prized artefacts. Construction is being carried out in three phases, with the museum scheduled to open in 2017 or early 2018. In addition, in December 2015 the MoT opened a museum at the Cairo airport with antiquities on loan from the Egyptian Museum, the Coptic Museum and the Museum of Islamic Art, to entice visitors to explore the country in greater depth.

Public Relations

Going on the offensive to solicit visitors is historically not something the birthplace of the pharaohs has had to do. However, in 2015 the MoT awarded a three-year, $66m contract to global marketing and advertising agency J Walter Thompson (JWT). The agency has since embarked on a number of campaigns intended to stimulate the tourism industry, including the launch of a social media campaign called “I am Egypt” aimed at promoting Egypt as a diverse and secure destination for young travellers.

In general, the campaign does not focus on any particular target market. “It is not feasible to put all your eggs in one basket and target one or two nationalities,” El Khatib told OBG. “Most of the hotels now are embarking on online and digital marketing, which is open worldwide and they are getting a mix of various nationalities.” In an interview with local press, Amal El Masri, chief strategy officer of JWT MENA said, “The only way to change the international perception is a collective contribution of entities, such as media, social media, governments, foreign affairs advisors, airlines, etc.”

Hotel Supply

According to the latest report on the Cairo real estate market from JLL, published in the third quarter of 2016, hotel occupancy in the capital increased by six percentage points during the first eight months of the year to reach 59% in August 2016. The report cited airport security improvements and the development of inbound tourism from Arab countries as primary reasons for the rise.

Despite the increase, there is still ample supply in the market. According to data from the Egyptian Hotels Association, the country has approximately 348 five-star hotels, 245 four-star hotels and 429 two- or three-star hotels. The total number of rooms in Cairo was 28,000 in 2015, according to JLL. The firm’s third quarter 2016 report noted 154 rooms were added during that period, with the completion of the Westin Cairo Gold Resort and Spa in New Cairo. Another 295 came on-line with the January 2017 opening of the Steigenberger Hotel in Tahrir Square.

Indeed, there is a substantial pipeline of new hotel projects that look set to raise up supply. JLL predicts that 1000 extra rooms will be added in 2017 in Cairo alone. This will be the result of the completion of projects such as the 283-room St. Regis Cairo along the Nile Corniche, scheduled to open in April 2017 and a 300-room Radisson Blu hotel in Cairo Nasr City, set to finish in mid-2017. In addition to traditional hotels, Egypt has also seen innovation in the hospitality space. Agaztak, an Egypt-specific version of Airbnb, launched in 2013. The initiative allows private homeowners to rent rooms or properties to travellers.

Outlook

Given the lingering security and currency issues, it is difficult to predict exactly what the coming years will hold for Egypt’s tourism sector. “The only sector that can deliver dollars to Egypt quickly and en masse is tourism. This should make it the biggest priority for the government which needs to rectify the currency shortage,” Ibrahim El Messiry, CEO of Somabay, told OBG. The industry would benefit from an extended period of peace and stability to enable tourist inflows to rebound. With the government’s commitment to revive the industry through investing in both conventional and niche tourism, and its efforts to promote the country as an attractive destination, there is plenty of scope for long-term growth.

 

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The Report: Egypt 2017

Tourism chapter from The Report: Egypt 2017

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