Wednesday, May 4, 2016

Egypt Hopes for Hotel Market Revival - WSJ

Egypt Hopes for Hotel Market Revival

Ritz-Carlton forges ahead with new Cairo property despite tourism slump, focusing on the long term

The Ritz-Carlton opened in Cairo last November on the banks of the Nile River. The launch came amid a deep slump in Egypt’s tourism sector and as new hotel openings have become increasingly scarce since 2011. Photo: Natalia Seliverstova/Sputnik/Associated Press

DUBAI—Egyptian government dignitaries and local celebrities last November gathered on the banks of the Nile for the opening of Egypt’s only Ritz-Carlton hotel complete with a lavish dinner and traditional dancers.

The glamorous launch stood in contrast with Egypt’s ailing tourism sector, which has suffered from a drop in arrivals mainly because of concerns over the country’s security situation and political instability.

New hotel openings have become increasingly scarce in Egypt since 2011 after the so-called Arab Spring engulfed the North African country and helped oust long-reigning strongman Hosni Mubarak. Fewer than 650 new hotel rooms and suites are in the pipeline for 2016 and 2017, according to real-estate services firm JLL.

Still, those forging ahead with new openings are putting on a strong face. While tourism is in a deep slump, they point to such positive factors as the increase of domestic travel among Egyptian and regional businessmen.

“We don’t have a short-term mentality, we’ve been here for a long time,” said Bob Kharazmi, global officer of worldwide operations at the Ritz-Carlton Hotel Company.

Cairo’s hotel market currently has a total of 28,030 rooms, according to some estimates, including the Ritz-Carlton and a new hotel opened by Munich-based chain Kempinski last year.

Cairo’s hotels once enjoyed occupancy rates of about 75% thanks to tourists eager to visit the Pyramids or take a cruise on the Nile River. But rates dropped to below 40% in the immediate aftermath of the revolution, according to STR, a data and analytics specialist.

Average daily rates climbed but revenue per available room declined mostly because of a weakening Egyptian currency. Analysts say big international chains haven’t been hurt that much because they are operating under management contracts. Small, local brands have had a tougher time.

Egypt’s tourism industry, one of the country’s vital economic pillars, has been in the doldrums since 2011. Just before the Egyptian revolution, nearly 15 million people visited the country a year, a number that dropped below 10 million after 2011.

Egypt’s minister of tourism, Yehia Rashed, said in an interview the first quarter of 2016 had been particularly bad but he was hopeful to attract 10 million tourists again by next year. “We are targeting everyone in the universe,” Mr. Rashed said.

Egypt’s more recent attempts to attract more tourists from the Arab world and Russia suffered a lethal blow after a plane that left the popular Red Sea holiday destination Sharm El Sheikh last October crashed and killed all 224 people on board. The attack was claimed by the Egyptian branch of terrorist group Islamic State. There have been other attacks as well.

“There’s an ongoing political situation in the Middle East and other parts of the world, that’s the new normal,” said Philip Bryson, senior vice president Middle East and Africa at Marriott International.

But a number of international and regional investors see long-term potential. Marriott is opening Mena House, a luxury hotel near the Pyramids where Winston Churchill stayed during the World War II.

The property arm of Qatar’s sovereign-wealth fund is opening a new hotel in Cairo and has hired Connecticut-based Starwood Hotels & Resorts ’ St. Regis brand to manage it. Starwood doesn’t own any hotels in Egypt but has management or franchise agreements in place for 10 hotels there, excluding the new properties it intends to open.

Meanwhile, Dubai-based Majid al Futtaim, the company behind Dubai’s indoor ski slope, is opening new malls in the country and is planning hotels as well at a later stage, its chief executive recently said.

“They [the Egyptian government] have been very proactive in terms of trying to sort out what can be sorted out and helping investors,” said Alain Bejjani of Majid Al Futtaim. “We’ve seen them walk the talk."

The Egyptian government has pledged to reduce the country’s infamous red tape, while the Central Bank recently introduced measures to address its currency problems.

Until more tourists arrive, Egypt’s hotels are hoping domestic and business travelers will boost business. According to real-estate group CBRE, the number of Egyptians traveling within the country has grown despite the drop in overall tourist arrivals. It says Egypt’s large population of more than 80 million includes more than five million wealthy citizens who have enough cash to spend on luxury items and accommodation.

The new Ritz-Carlton, which is one of the international luxury brands of Marriott, features an Olympic-sized pool and a 1,700-square-meter (18,298-square foot) conference hall. It is within walking distance of Egypt’s Museum of Antiquities and Tahrir Square, where most antigovernment demonstrations took place in 2011.

The Nile Ritz-Carlton welcomed government dignitaries and local celebrities to the opening celebration. Photo: The Nile Ritz-Carlton

A hotel managed by Hilton Hotels & Resorts used to be on the site, the first international hotel to open in Egypt in 1959. The hotel was completely refurbished and the owners hired Ritz-Carlton to manage it just before the protests erupted. It was originally set to open in 2011 but the project’s construction was delayed because of the unrest.

“We are seeing a revival in downtown Cairo and I do believe this is a trend that will spread to other parts of the country,” said  Hassan Ahdab, regional vice president Africa and Indian Ocean Starwood Hotels and Resorts. “The country will in the long term regain confidence from the traveler.”

Write to Nicolas Parasie at