Egypt waits for peace

As the world waits for the resolution of the crisis in Iraq, hoteliers in Egypt are placing their hopes on the emergency being short-lived, with minimal effect on business. Although more than 1,000 miles from Iraq, they are already living with the fallout created by the tension and are targeting local markets in the face of falling overseas visitor numbers.

Last year Egypt received 5.2 million visitors. This year that figure is expected to fall to 3.2 million as a direct result of the situation in Iraq. And all this at a time when Egypt had just recovered from the events of six years ago when a bomb in Luxor kept tourists away and a huge recovery programme was needed to bump start the tourist industry.

It's a particularly difficult time for operators on the Red Sea, one of Egypt's up-and-coming tourist areas, where a cluster of emerging resorts don't have the benefit of a long-established presence or well-known tourist attractions to guide them through troughs of trading.

In Sharm El Sheikh, on the tip of the Sinai peninsula, a diving Mecca that started life in 1990 shortly after the last Israeli troops left Egyptian soil, there is already an oversupply of hotel rooms. In 1990 there were just 2,000 beds in Sharm. Now that figure is 48,000 and is expected to rise to 60,000 by the end of this year. So hoteliers have to work hard to fill their rooms. Adel Bibars, general manager of the 282-bedroom Sheraton Sharm Hotel Resort & Villas, says occupancy is about 40% when it would normally be hitting 80% at a time of year when temperatures are clement and the high season is usually in full swing.

Even so, Bibars is not unduly worried about the current situation in Iraq and is hoping that it will be a blip rather than a long-term business threat. "We've been through it all before with the Gulf War," he says. "We will continue to market hard to our existing customers as well as to new markets. The key is to be in a position to take advantage of the market once it returns, as it did at the end of the Gulf War.

"In the meantime, we are targeting local markets and trying to attract conferences from around the region to make up for the shortfall."

It's tempting in times such as these to cut staff as a way of reducing costs, and rumours are rife that staff are being axed in other hotels in the resort. But Bibars says he has no intention of doing so. Instead, staffing arrangements have been reviewed to encourage as many employees as possible to take annual leave now rather than later in the year, when they hope the situation will improve.

Contingency plan

If the worst comes to the worst, there is a contingency plan whereby Bibars will forego a day's salary a week rather than having to make staff cuts.

Sharm El Sheikh at least has the advantage of having had just over a decade on the map. Other lesser-known destinations on the Red Sea will have to fight harder for their slice of a diminishing tourist market.

El Gouna, about an hour's drive north of Hurghada, is a purpose-built resort with 2,209 bedrooms in 13 hotels. Attracting business is currently tough, as Alexander Bieber, general manager of the 300-bedroom Sheraton Miramar resort, is experiencing. Bieber says bookings are down about 50%, with revenue per available room just $US25 (£15.62) when $US40 (£25) would be the norm. "The effect of Iraq is definitely there, we have to see how we can deal with it and make the best of the situation," says Bieber. "I am not planning to offer huge discounts, as you never get back to where you started if you do."

The situation in Iraq has also taken an inevitable toll on investment in the area. Forty-five kilometres south of Hurghada is the developing resort of Soma Bay, owned entirely by Egyptian Dr Farid Saad, who has invested US$250m (£154.9m) in it. It includes a 320-bedroom Sheraton that opened in December 1998, an 18-hole golf course, and a 300-bedroom Club Robinson hotel operated by German company Tui.

There are also plans to open a Hyatt Regency in 2004, but other scheduled openings are, for the time being, shelved. "Iraq is having a big impact on the flow of tourists into the area," says Dr Saad. "We can only hope that the war is over and done with as quickly as possible so that we can get back to normal."

Away from the tourist hot spots and in the capital Cairo there's better news. The 588-bedroom Sheraton Heliopolis, which has nine restaurants and notches up more than 800,000 covers a year, ended last year at 75% occupancy. General manager Jacques Chevasson says the hotel is still trading at 75-80% occupancy, only about five percentage points down on this period last year. And it's the Americans who supply the greatest number of guests, despite the commonly held belief that in a downturn the US market is the first to go.

Open skies policy

Tourism to the Red Sea has been slow to start, partly because of the stranglehold of national carrier EgyptAir. Slowly that situation is starting to change. The charters now fly into Sharm El Sheikh - one of the most famous recent visitors was Prime Minister Tony Blair, who arrived on a JMC flight after Christmas. And JMC is starting a new charter service to Hurghada from the beginning of May.

But operators such as British Airways are still unable to fly directly into either Sharm or Hurghada and passengers on scheduled flights therefore have to fly to Cairo and then on a domestic airline to the Red Sea. There have been talks about introducing an open skies competitive policy, but so far nothing has been resolved.

Tourism on the Sinai peninsular

In the Arab-Israeli Six Day War of 1967 Egypt lost the Sinai peninsula, which Israel occupied as far as the Suez Canal. In 1977 President Anwar Sadat stunned the world by flying to Jerusalem to seek peace with Israel. He signed the Camp David accords in 1978 and a full peace treaty with Israel in 1979.

Egypt regained the Sinai from Israel in 1982 as part of that agreement. This event stimulated a growth spurt in tourism and signalled the arrival of Egyptian investors who had never touched tourism before. It also led to a major diversification of Egypt's tourism into the leisure sector.

Rather than relying solely on Egypt's Pharaonic and Islamic treasures for cultural tourists, the country is now actively seeking leisure visitors to participate in activities such as diving and golf. Sinai tourism revenues now run at $US900m (£557.5m) a year, making up 25% of Egypt's expanding tourism receipts.

The cost of war with Iraq

The Egyptian government has estimated that war with Iraq could cost Egypt's tourism industry US$2b (£1.24b), about half the total earnings from tourism in a year. Tourism accounts for about 11% of gross domestic product and employs, directly or indirectly, 2.2 million people. Egypt attracts 25% of the tourists who come to the Middle East. The industry has only just recovered from the 1997 massacre of 58 foreign tourists at Luxor on the Nile in a bombing by an Islamic extremist group.