Cairo Giza (Source: David Grossniklaus)

After more than a year and a half, Egypt has a president and its citizens can finally start looking toward their future. The country’s economy certainly needs to get its tourism business back on track—an important task considering 11% of its gross domestic product is directly linked to tourism expenditure.

But it won’t be easy. Last year’s political protests and the subsequent uncertainty surrounding the government transition and election process scared off would-be visitors. During the first five months of 2011, revenue per available room in Cairo’s hotel industry was down nearly 50% in the luxury and upper-upscale segments.

During my first visit to Cairo in early January 2011, merely days before the beginning of the Egyptian uprising, I was surprised by how quickly I could get around town and to the sites of Giza. I remember how Cairo already was very quiet as the effects of the Arab Spring, which started in Tunisia and Algeria, rippled all the way to Egypt and its highly valued tourism industry.

By 25 January, the country was slipping into a revolution that would plague the tourism sector for months to come. News of protests and violence from Cairo and around the country sent a warning signal to potential travelers. By May 2011, RevPAR had declined 47.9%; the luxury sector alone plummeted 49.7%, according to STR Global, sister company of HotelNewsNow.com.

 
Cairo Old Town (Source: David Grossniklaus)

However, after a long and painful waiting period incurred by hoteliers, they have, since February 2012, seen occupancy recovering in Cairo.

The capital saw occupancy reach 52.8% and 50.1% in April and May, respectively. Year to May 2012, RevPAR growth increased by 13.8%, and luxury and upper-upscale hotels increased by 10.9%.

During May, occupancy and RevPAR growth in Cairo mainly occurred during the weekends. The luxury and upper-upscale segments saw the largest RevPAR growth with 24.1% during the weekends, compared to 16.3% during the weekdays.

Whilst preparing the “2012 Annual Profitability Survey” by STR Global, I was working on understanding the impact that the Arab Spring had on the hotel sector, particularly in Cairo. The impact was felt mainly on occupancy and rate, which pulled gross operating profit per available room down 63.7% during 2011. The decline had a noticeable effect on hotel cost structure in the city. While payroll and benefits during 2009 composed 14% of total revenue, by the end of 2011 that percentage increased 13.2 percentage points per available room. 

Why such a massive increase in payroll and benefits percentage? This can be explained by the strategic decision from hotel managers to keep employees on the payroll despite the declining number of guests. With the expectation that the impact of the uprising on the travel demand would be short lived, hoteliers decided to keep their most valuable assets—their people—which they have spent time training and developing over the years. The anticipation of a prompt resolution of the political situation followed by the return of tourists would have much greater benefits for hoteliers than a quick fix with mass job cuts.

Will 2012 be the year when Egypt, Cairo and the area of the Great Pyramids will return to prosperity and once again be shining on the shelves of tour operators and travel agents around the world? I certainly hope so. Most importantly, I hope this year will bring a return to profitability, which will allow the tourism industry to grow and give hope to Egyptians for a positive and prosperous future ahead.

 
Cairo Souk (Source: David Grossniklaus)

David can be contacted at david.grossniklaus@ehl.ch. Follow him on Twitter @dgrossniklaus.

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