All-inclusive deals hit tourist spending outside Sharm El Sheikh hotels

The revival of the Egypt's battered tourism sector is key to attracting the foreign exchange needed to wean the country’s economy off external financial aid. Amr Abdallah Dalsh / Reuters

SHARM EL SHEIKH // Yusuf Ali can see the charter planes take off and land from his souvenir shop near Sharm El Sheikh Airport.

It is crammed with miniature mummies, luminous sphinxes and other Pharaonic curiosities. But there are no customers.

Those that do stray into his shop are typically wearing wristbands – the telltale sign of a holidaymaker on an all-inclusive deal.

Such packages are slowly draining the lifeblood from Red Sea tourism, squeezing profit margins to a pittance and encouraging tourists to consume everything at their hotels even as overseas visitors make a return.

“Everything is included so they only have some pocket money for shopping and excursions,” he says as another planeload of tourists just landed from Moscow spill out of a bus and into the lobby of an adjoining hotel.

The collapse of the Russian rouble, the slowdown in the euro zone and continuing attacks in the Sinai peninsula have all taken their toll on the hotels, restaurants and tour operators of the region. To attract wary tourists, hotels have been forced to offer all-inclusive deals at rock-bottom prices. So even as tourists start to slowly return, hotels are not reaping the rewards.

“The biggest problem with the Red Sea coast is the all-inclusive nature of bookings where in some cases you have dinner, bed and breakfast. Some operators include flights as well,” said Peter Goddard, the managing director of the hotel consultancy TRI. “So if you peel it all back, you will find the hotels are actually netting a ridiculously low amount.”

A recent poll of hotels by the consultancy revealed that less than 5 per cent of Sharm El Sheikh hotels were not offering all-inclusive packages.

The revival of the country’s battered tourism sector is key to attracting the foreign exchange needed to wean Egypt’s economy off external financial aid from the Arabian Gulf.

That is why the hotels and restaurants around the Sharm El Sheikh convention centre where the Egypt the Future conference got under way this weekend, have much riding on its success.

Thousands of delegates from around the world have flooded into the resort – providing a boost to the local tourism economy.

But its organisers had to draft in drivers from Cairo to shuttle attendees from their hotels to the convention centre where Egypt’s economic course is being plotted. There were not enough local drivers to go around, reflecting the contraction of the sector.

Ten years ago Sharm El Sheikh witnessed the deadliest terrorist attack in Egyptian history when 88 people were killed in a string of bomb blasts around the town. More recently the Sinai insurgency has frustrated early signs of a recovery on the Red Sea coast.

Once the premier winter sun destination of the region, half of its hotel rooms are empty in what should be peak season. Sharm El Sheikh had average room rates of US$45 in December, compared with $375 in Dubai.

Those hotels that are busy are forced to offer all-inclusive deals leaving little scope to boost margins through the sale of meals and drinks. That represents a key difference between the hotel model in cities such as Dubai where operators make money from food and beverage sales.

The decline of the rouble has been a particularly brutal blow for the hotels on the coastal road leading to the centre of Sharm El Sheikh. While the loss of Russian tourists is felt around the region, nowhere else are they such an important source market.

“The main risk I see for the tourism industry is not political risk. It’s what is happening in Russia,” says Jean-Paul Pigat, an economist at Emirates NBD. “It will also have some impact on Dubai but in my mind those Russians who go to Egypt on all- inclusive packages may be a little more sensitive to price changes and fluctuations in the currency.”

As shuttle buses unload tourists at the shops of the Nama Bay district, shop owners call out first in Russian and then in English.

Despite the country’s economic woes and weakened currency, Russian tourists are still everywhere to be seen, but they are not spending as much says Mr Ali.

“It is not like before,” he says unfolding a depiction of what he says is the world’s oldest calendar and pointing to the interlocking hands of the ancient Egyptians that represent each month.

It is a well-practised routine, even if these days there are fewer tourists to practice on.

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