If Russian, British flight suspensions continue, sector’s losses will be exacerbated: Hisham Ali

Abdel Razek Al-Shuwekhi
11 Min Read
Head of Tourism Investors Association in South Sinai, Hisham Ali

The longer Russian and British tourists are kept away from South Sinai, the further losses the hotels and resorts in the governorate will incur, according to Head of Tourism Investors Association in South Sinai, Hisham Ali. The governorate is home to about 35% of the operating hotel capacity in Egypt, and represents about 45% of the tourism income.

In an interview with Daily News Egypt, Ali said the Russian plane crash in late October 2015 caused huge losses to the sector, as occupancy rates fell from 80% before the incident down to just 12% in the current month.

The government is working to quickly complete the airport evaluation procedures through the British company Control Risks. What is your opinion on this?

Using the British company to review the airport security measures in touristic areas is an excellent idea. The tourism movement coming to Egypt must be restored directly after finishing this process, especially from the European market, which represents 72% of the total annual influx to Egypt. Benefiting from international expertise to raise security efficiency, will facilitate restoring the flow of tourism.

It has been more than five months since the Russian plane crash. How is tourism in South Sinai, and Sharm El-Sheikh in particular?

The Russian plane crash is a strong factor in the decline in Egypt’s tourism income. Revenues fell to $6.1bn compared to $7.3bn in the previous year.

Hotel capacity in South Sinai represents about 35% of the operating hotel capacity in Egypt, and about 45% of Egypt’s annual tourism income. Occupancy rates have decreased from 80% last October before the plane crash to 12% in April 2016. It is evident that the size of the losses is huge, not only in sales, but also in assets and goods.

The former tourism minister, Hisham Zazou, estimated the size of the sector’s monthly losses at EGP 2.3bn. Does that mean that the losses exceed these estimates?

Of course, the losses exceed the figures announced by the former minister. The losses are not only about current sales, but also about future sales. In addition, there is a real need for maintenance and replacement operations for the hotels during the upcoming period.

Many hotels have closed their doors as occupancy rates have fallen from 80% to less than 50%. Food and goods in storage are spoiled because of this severe retreat. The losses exceed several billions, including sales, cost of maintenance operations, and renewal of assets in hotels and resorts in South Sinai.

Russian tourism declined to 2.4 million tourists in the past year, compared to 3.1 million in 2014. British tourist numbers also declined, especially in the last two months of 2015. Tourist influx to Egypt has declined by more than 40% during the first quarter of this year. Russian flights to all resorts are completely suspended, and British flights to Sharm El-Sheikh have been suspended.

How much does the Russian and British tourism constitute of the total tourism influx to South Sinai?

Russian tourism constitutes 40% of the inflow to South Sinai resorts, and British tourism comprises 30%, with other nationalities making up the last 30%. You can imagine the losses that hotels and resorts in South Sinai have incurred now that flights are suspended from the region’s two biggest tourist demographics.

Russians and Britons are the demographic that comes on repeat visits to South Sinai resorts. In Sharm El-Sheikh, Britons own accommodation worth more than £160m. The state must know that Sinai resorts were not established overnight, but were created over more than 30 years. The annual share that Egypt takes from the Russian and British markets is 20 years’ worth of effort by the private sector and the state.

Some tourism experts believe that a significant part of the sector’s crisis is associated with international politics and economy. What is your opinion?

I agree, a significant part of the tourism crisis in Egypt is linked to policy and the global economic slowdown. The crisis between the Western powers and Russia has put pressure on the Russian rouble compared to the dollar. Therefore the Russian government has put restrictions on its citizens to maintain its foreign currency reserves.

While it is true that the Russian plane crisis has a significant role in the decline of the tourism coming from Russia, this crisis is not the only factor responsible for the decline. Western sanctions on Russia because of Crimea negatively impacted the flows to Egypt even before the Russian plane crisis crash in October 2015. Not to mention the global decrease the oil prices.

What do you think of the Ministry of Tourism’s move to add new markets?

It is important to distribute your product across several markets. Being present in only limited or specific markets can be harmful, even if you have a large share in these markets. This should be in parallel with older markets that represent a large part of the inflows coming to Egypt annually.

The new markets are promising, whether central Europe, or eastern or southern Asia. However, it will take over 10 years for Egypt to take a share that befits its capabilities. Where should the tourism sector go in order to see marked results of being present in new markets?

Definitely, no other markets, currently, can compensate for the losses from the Russian and British markets. A decision-maker must realise the size of the losses the sector suffers, as well as the number of employees and the income the state obtains from this sector. The decision-maker has to move quickly. The longer this takes, the further the decline in tourism and growth of the deficit. Exiting these markets is a great disaster for Egypt.

This is one of the most severe crises in the history of the sector. In 2010, Egypt attracted 14.7 million tourists. These tourists made an income of $12.5bn. What if tourism had continued to grow over the past five years? We would have attracted more than 20 million tourists by the end of last year. Egypt has huge tourism capabilities and is able to recover, but we must admit that the current crisis is severe and requires a strong vision and a strategy based on handling crises.

What is your opinion of the government’s support to the sector during the last period?

The government has done all it can  to support the sector over the past five years, especially the Central Bank of Egypt (CBE), whether by providing loans to keep hotels running or by postponing companies dues year after year.

The state-owned banks were the most supportive to the sector in the last period. The leaders of the banking system, including the CBE governor, are well aware that the sector has the ability to increase foreign currency reserves, which alleviates pressure on the pound.

Over the recent period, workers in the tourism sector agreed with banks to obtain loans in Egyptian pounds and to pay them in pounds in accordance with LIBOR rate of 5.5%.

The ‘Egypt is in our Hearts’ initiative was launched recently to give Egyptians the opportunity to visit touristic areas. Some of the workers in the sector disliked this initiative. Why do you think that is?

Any hotelier who is not happy can refuse service to Egyptians customers; he/she is free to do so. However, they should thank the domestic tourists for helping these hotels, especially four-star hotels, to stay in business. Yes, Egyptians want a discounted rate, up to EGP 400 per night, but they helped the four-star hotels to stay open.

Do you expect an increase in occupancy rates over Easter?

Yes, we expect occupancy rates to reach 40%, but that will decline again in a week.

Will 2016 continue as the past five years have?

Yes, the current year will continue similarly to the past five years, and not only that, but 2017 will also be an extension of the current crisis. Demand is low and 2016 has already been lost. If the government does not have a strong, sustainable solution for the crisis, the sector will enter its seventh year of the tourism crisis.

If this happens, the losses will creep into the national projects’ infrastructure, which make up the majority of investments in the sector. This will increase the time taken for the sector to recover, another five years at minimum.

What do you think of the Saudi-Egyptian agreement to build a bridge between the two countries? Some people are concerned that this project would affect the Sharm El-Sheikh area, while other people view it as a new reason for the growth of the region.

Egyptian-Saudi relations are strong, and the bridge would support economic relations between the two sister countries during the next period. The Tourism Investors Association will not reveal its opinion until it has thoroughly reviewed the studies for the establishment of the project.

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