Is Egypt’s hotel market finally bouncing back?

All Giza Pyramids

This article originally appeared in Hotel Management Middle East magazine.

At its peak in 2010, Egypt was bringing in 14.7 million tourists a year and some $12.5 billion in revenues from hospitality, and after a four year slump, things could be looking up. But how to navigate a market where political uncertainty and terrorism are still common? Experts in regional hotel development speak to Oliver Hotham about why the market is rebounding, where new investment is coming from, and the ever-present security concerns which continue to plague the country.

The last few years have been more difficult than most for Egypt’s hospitality and tourism market. The 2011 uprising and the overthrow of long time “strongman” Hosni Mubarak should have been a boon for business, with the revolution’s demands for a country that was open, transparent, and free of corruption. But the end of decades of authoritarian rule instead ushered in serious instability, with a string of disputed elections, widespread violence, a military coup d’état and severe crackdowns.

It comes as no surprise, then, that the hospitality industry’s been hit hard. Millions of Egyptians rely on a healthy tourism market for jobs, and as the business suffers, so do they, fuelling the kind of uncertainly and social discontent which led to instability in the first place. It’s a vicious cycle. Egypt’s turbulent political situation has meant that the number of visitors to country has taken a steep plunge, from 14.7 million in 2010 to 9.9 million in 2014.

It’s not difficult to understand why tourists flock to Egypt. The Great Pyramid at Giza, for example, stands as an incredible testament to the longevity of the country’s history and civilisation, and the empires that have passed through. Millions pay to see it every year, and it’s one of the multitudes of reasons, from its archaeological heritage to its pristine resorts, why the country has long been one of the region’s most popular destinations for tourists. Anyone who’s visited the site of the Pyramids at Giza recently, however, has found it almost deserted, like many of the country’s key tourism landmarks.

But this slump is coming to an end, slowly but surely, after four years trapped in the wilderness. Tourism to the country grew by 16% from last year, and RevPAR is up 31.2% between 2014 and 2015. As the country begins to rebuild itself with a government keen to encourage foreign direct investment, money is flooding back into the country’s hospitality market. 

Those who’ve worked in Egyptian hospitality for a while can take the benefit of a long-term view. Hilton, for example, opened its first property in the country, the Nile Hilton in Cairo in 1958, just two years after the Suez Canal crisis threatened to destabilise the entire region. 56 years later, the property still stands, albeit thanks to a renovation or two.  

“Hilton has a great history in the region that started in Egypt,” says the company’s vice president for development for the Middle East, Carlos Khneisser, proudly. “We now operate 15 hotels in total, and we have a pipeline of six properties – two of which were signed this year.”

The news that Starwood will be launching its W Hotels brand in Egypt, with the opening of W Sharm El Sheikh and The Residences at W Sharm El Sheikh in 2020 is just the tip of the iceberg. Hilton is placing big bets on the country, with two hotel deals signed this year based around the Ain Al Sokhna resort city on the Red Sea, one a Doubletree and the other Hilton Al Sokha.

Located very close to the Suez Canal, the resort lies 25 minutes from the airport, and 15-20 minutes from the construction site of what the government is provisionally calling the “Economic City” – the country’s new purpose-built capital city. Khneisser says that Hilton is targeting a broud audience, touting the site’s ability to attract leisure customers – even weddings – on the weekends and public holidays and its appeal to business during the week.

“The opportunities are very promising and the country is considered one of the most attractive destinations for investors at the moment, in both resorts and city hotels,” says Mohammed Haj Hassan, area vice president at Rotana, which operates a major resort and spa property at Sharm El Sheikh and is in talks with investors to open more, although he’s reluctant to go into further details at this stage.

“Economic activity was affected by instability,” he admits. “But we are optimistic that Egypt’s amazing historic monuments, attractions and legacy will continue to attract tourists.”

Much of this being driven by Egyptians themselves, and where once the country relied on foreigners to bolster the tourism sector, the domestic market is becoming increasingly essential to growth. As the economy improves and the country’s middle class has more to spend, but with regional security issues still at the forefront of many peoples’ mind, they’re increasingly travelling internally.

“It’s cheaper for them, that’s for sure,” explains Tim Cordon, regional director at Carlson Rezidor, which operates a diverse range of properties across the country. “The domestic market is taking a larger share of our business, and we needed to react to that in terms of our marketing strategy, our pricing, what language we do things in, all these sorts of things need to be addressed.”

“There’s increased prosperity for Egyptians, because of the increased stability of the government, that in turn gives them the ability to take holidays – and the country’s a great destination.”

There’s no doubt, too, that the government is increasingly proactive in working to bring in foreign investment as the dust from revolution settles. President Abdel Fatah al-Sisi has taken great pains to encourage Western investment and project an image of normalcy and stability and, while he’s far from a model democrat, stakeholders seem confident that he is willing to put his money where his mouth is.

“I think what everybody wants is a stable Egypt, an Egypt where we don’t see these spikes and difficult periods caused by political issues,” says Cordon. “And that seems to be the direction we’re heading in, so we’re all quite positive about that.”

“A combined effort led by the government and supported by the hotels and airlines to market the destination in all regions has proved beneficial,” agrees Hassan.

Security is a major factor, too. There’s no escaping the fact that for Egypt, and its close neighbours, terrorism remains a significant threat. To the west, civil war rages in Libya, and to the east the rise of the Islamic State in Syria and Iraq has resulted in a powerful force with sympathisers across the world – and a proclivity for kidnapping and killing westerners.

The bombing in October of Metrojet Flight 9268, which exploded over the northern Sinai killing all 224 passengers on board, vindicated the fears of many travelling to the region on holiday. The vast majority of victims were tourists, returning home to Saint Petersburg after a break at Shark El Sheik’s resorts. Russian, British and Irish authorities responses swiftly, suspending all flights to the coastal holiday destination until the Egyptian government could guarantee the safety of their citizens.

The incident served as a grim reminder of the complex problems the region continues to have and the simple truth that Egypt is going to continue to be burdened by the potential for attacks on civilians. It’s something that the hospitality industry can only do so much to prevent: it’s the responsibility of the state to keep people safe.

“To be honest it’s difficult for individual hotels to affect the levels of security, or the perceived level of security, across a destination,” admits Cordon. “What we do as an organisation is have an incredibly advanced security network, to ensure that our properties are safe and secure and we don’t have issues in our hotels.”

Of course, it’s in the interests of the government that hospitality is able to get back on its feet. The industry is central to the country’s economic growth, and if Egypt is to become the regional economic powerhouse that Sisi wants to create, and if unemployment is to continue to fall, a thriving hotel and resort sector will be crucial.

“The ministry of tourism and the Egyptian government are focusing on helping us, the owners and developers, to make sure we bring those hotels across the line,” says Khneisser. “Because every time you open a hotel you create more jobs: a hotel of 200 rooms creates 150, which is significant.”

“We’re saying that we’re going to open six new hotels in the next three years, we’re talking about, on average, 300 jobs times six new hotels.”

Private money is also flowing into the sector, much of it in big time mixed-use development projects, shopping malls and hotels, for example, with funds coming from across the Arab world: the UAE, Saudi Arabia, Qatar and Kuwait currently lead the pack.

“There’s certainly appetite from internal markets to invest,” argues Cordon. “But, particularly in Cairo, the new development has been largely funded by foreign investment, and a large chunk of that is coming out of the Gulf states. That’s what is moving the needle, in the capital in particular.” 

There’s obviously still a long way to go, and it’ll take years of solid investment, steady growth, and political stability for Egypt to reach its full potential. But speaking to players in the regional hotel industry, there’s a lot of optimism. 

“I think that maybe four, five years down the line Egypt will continue to grow in terms of new hotels and new projects,” says Khneisser, when asked what the future holds. “We’ll be attracting tourists from all over the world.”

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