Crisis point for Red Sea resorts?

Infrastructure lags room development, warns leading hotelier

Downward-spiralling rates and a pressure on airport slots could halt the boom at Egypt’s Red Sea resorts according to Russel Sharpe, senior vice president sales & marketing for Le Meridien Hotels.

The group has opened hotels at Makadi Bay and Sharm-El-Sheikh in the past year, but despite interest in the destination and good quality hotel development, he said this would not be enough to sustain the resorts in the long-term.

"In their eagerness to push tourism as a growth sector for the economy, the authorities have made mistakes by not ensuring that infrastructure development has accompanied room supply," he said.

"Developers have been given land and investment funds by the banks to fuel tourism growth, but this is not enough on its own – and now the ministry of tourism is acknowledging that mistakes have been made in areas such as Hurghada."

In a situation where the major brand names are pulling out of that resort, and big European operators are actually taking over the hotel stock in an effort to maintain standards and ensure continuity, Sharpe also warned of the dangers of such vertical integration which would prolong the depression in rates, with too few operators controlling large amounts of inventory.

"Hurghada is a good example of hotel room supply overtaking infrastructure development and this has deterred tourism, leading to soft rates and – in the longer term – deterioration of service levels and standards," he said.

Across the Red Sea in Sharm-El-Sheikh, a similar situation of over-supply in the hotel sector is underway, with added problems in air access that precludes any easy solution to boost tourist arrivals: "The advent of quality room stock here means we would prefer to aim for the higher-field FIT market, rather than traditional charter packages," explained Sharpe.

"However, there are no direct scheduled flights in to the resort from overseas and no more available slots at the airport – this means we expect our upmarket clientele to transit via Cairo, adding several days to their vacation, and also fly on domestic Egyptair services at inconvenient timings, before they arrive at their luxury resort."

The situation is worsened as each new hotel opens its doors, despite a wealth of brand names all launching what, elsewhere in the world, would be attractive ‘must-stay’ leisure resorts.

"Our new Le Meridien Sharm-El-Sheikh is a five-star property in all respects – with extensive grounds, a stunning pool, every sports and leisure facility, great interior design and décor and a location on a private beach that has been nominated as one of the finest dive spots in the whole region," claimed Sharpe.

"However, despite all this, it is proving difficult to get custom at a reasonable rate – our potential market expects additional facilities besides a hotel and a beach but in Sharm-El-Sheikh, too, there is a lack of tourist infrastructure in terms of entertainment, malls or sporting arenas for instance."

With established deluxe five-star properties selling out rooms at rates below US$60 a night, the pressure is on the operators to fill at any price, begging the question of when and if developers will get a return on their investment.

"Like any international chain, Le Meridien Hotels has a priority to maintain levels of service and standards at any property bearing its name – but the situation at Egypt’s Red Sea resorts is now calling in to question the potential of the tourism product there with low rates being simply unsustainable in terms of operating a quality product," said Sharpe.

"We all should have learned from mistakes in Hurghada, rather than repeating them again in other resort developments."