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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
In Sharm El Sheikh, year-on-year average occupancy was up 27.1%, to 63%, in 2012. Occupancy levels at nearby Hurghada resorts grew 15.9% on 2011 figures, to 67%.
Consultants have attributed the increases to hotels cutting rates, making the Red Sea a more affordable destination for many new markets.
Colliers International head of hotels — MENA region Filippo Sona said that while Western markets had been deterred by unrest in Egypt, centred in Cairo, Eastern Europeans were taking advantage of cheap rates to visit the safer coastal areas of Sharm El Sheikh and Hurghada.
“Russia has dominated this market. The hotels are absolutely full of Russians, Ukrainians, and people from countries such as Kazakhstan and Uzbekistan as it’s become affordable.”
Already-low average daily rates at resorts in Sharm El Sheikh and Hurghada dropped again by 5% and 4.1%, respectively, to around EGP 285 (US $42) in 2012.
“Tourists are generally avoiding Cairo and that’s driving people to the Red Sea, where room rates are still very low and the hotels are offering cheap, all-inclusive packages,” Jones Lang LaSalle Misr head of Egypt Ayman Sami agreed.
One general manager of an all-inclusive five-star resort in Sharm El Sheikh, who wished to remain anonymous, said he had reduced rates “slightly” in 2012, but occupancy had increased with the hotel currently 80% full.
He said the resort had a solely European guest market: “We have excellent connections with highly pro-active European tour operators who thoroughly understand the business and together with the ground handlers, work well as a team and this is obviously paying dividends”.
Sharm El Sheikh Marriott Beach Resort GM Elaine Watson added: “We have seen an increase from the European markets however that is also down to us establishing new partnerships with some of the key tour operators”.
Direct flights to Sharm El Sheikh and Hurghada have also helped to boost the number of visitors, according to both consultants.
“There are chartered flights that go to the areas without transfer in Cairo, which has contributed to the growth of the volume [in visitor numbers] to this area,” said Sono.
Furthermore, the average length of stay is longer in these areas, with many travellers choosing to stay in one place — rather than travel around the country — for security reasons. In the coastal areas average length of stay was 10.35 nights at the end of 2012, compared to 9.9 nights in 2009.
“People want to stay where they are and this is going to change the traveller trends. It opens quite a lot of opportunities,” he explained. “This trend will stay for the next three to five years, definitely”.
However, he urged management of the Red Sea resorts to carefully consider their approach to revenue management to maintain this new surge of budget travellers.
“The number one opportunity is in targeting markets of Eastern Europe and the nearby countries, offering primarily all-inclusive packages — a one-stop-shop, safe and secure”.
“Hotels have to be very careful with the strategy and what they do. Maintain the volume and level of profit rather than killing yourself because you want more money,” he said.
Red Sea reach
Looking to 2013, Sono predicts rates will only marginally increase and occupancy levels will continue to experience double-digit growth.
The GM of the aforementioned five-star resort said he did not expect average daily rate to increase in 2013: “We expect it to remain stable providing the political and economic situation does not change.”
Another opportunity for the Red Sea resorts is the domestic market.
According to the Colliers International report, Egypt’s population is heavily skewed, with 69.5% of the total population classified as generation Y. Sono said this will lead to a demand for more “trendy” lifestyle hotel brands in the coastal areas.
“Target more lifestyle resorts, the younger audience,” Sono said. “No more five-star deluxe hotels, they’re already there. The area needs more funky places like Nikki Beach, this kind of modern, vibrant resort”.
But even considering recent increases in demand, tourism is still down on pre-Arab Spring levels. Between 2008 and 2010, tourism represented an average 8.4% of Egypt’s GDP, which dropped to 6.5% in 2011 and 2012 due to political unrest.
As political problems persist, only a limited number of new rooms are expected to come online over the next few years, among them is the Radisson Blu Sharm El Sheikh Lagoon.