Airliner tragedy, and Egypt's reaction, knocks tourism


In post-Arab Spring Egypt, 2015 was supposed to be a breakthrough year, economically speaking. It was the year the government was projecting that 10 million tourists would visit its beaches and historic sites. But the crash of a Russian airliner on Oct. 31 over the Sinai Peninsula threw a wrench in those expectations.

Tourists play volleyball in a swimming pool at a hotel in the Egyptian resort of Sharm el-Sheikh on Nov. 7, 2015.
Mohamed El-Shahed | AFP | Getty Images

The crash of Metrojet Flight 9268 killed all 224 people aboard. Since then, Egypt has found itself increasingly isolated in its argument that something besides a terrorist strike is to blame for the tragedy. An ongoing, international investigation into causes and reports of European tourists stuck at the Red Sea resort of Sharm el-Sheikh are further complicating the travel industry in a country that relies heavily upon it.

H.A. Hellyer, a senior fellow at the Atlantic Council and the Royal United Services Institute in London, said events of the past couple of weeks stand to hit Egyptian tourism "pretty hard."

"It's not simply the downing of the airliner, which was bad enough, but the reaction of the international community in suspending flights; press revelations about security procedures in the airports," among other issues, he told CNBC in an email. "Cairo's reputation is taking a beating; it can bounce back, but it would have to engage pretty heavily on these issues."

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The problems come at a time when Egypt has been working hard to reverse recent declines. Egypt saw an average of 15 million tourists a year up until the 2011 uprising that led to the overthrow of Hosni Mubarak's regime. Last year, the country drew only about 9 million visitors.

"This was supposed to be the economic return of tourism, so this is coming at a critical moment," said Dalia Fahmy, assistant professor of political science at Long Island University. "So it is a big deal."

According to the World Travel & Tourism Council, the industry accounted for nearly 13 percent of the country's gross domestic product in 2014. Travel and tourism also provided nearly 12 percent of Egyptian jobs last year. That's significant for a country with a total unemployment rate of over 12 percent.

Among a ranking of 184 countries, Egypt ranks 31st in terms of the importance of the sector's contributions to GDP. Tourism "is a huge, huge part of Egypt's GDP," Fahmy said.

Egypt’s tourism sector

The crash comes at a sensitive time for the country's tourism sector. Egyptian President Abdel Fattah al-Sisi has attempted to revive an industry deeply troubled since the revolution in 2011.

Just last month, Tourism Minister Hisham Zaazou said the government expected moderate growth in tourism this year with the aid of an advertising campaign. That campaign, which was set to launch last week in seven European markets, was postponed in light of the crash news. Amal el Masri, chief strategy officer at J. Walter Thompson's Cairo office, said the launch would be resumed in due course.

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"Cultivating promotional tourism in Egypt is a priority," she said. "That does not change; it's just the current circumstances that change."

With low prices relative to other beach resorts, cheap package deals and plenty of hotel rooms, Sharm al-Sheikh has been a driving force behind Egypt's efforts to lure back visitors.

On Monday, Egypt opened three tombs in the ancient city of Luxor to the public in an effort to spur more tourist interest. The most significant tomb opened Thursday is that of Huy, viceroy of Kush under the famed King Tutankhamun. It features wall paintings of Nubians bringing tributes.

Foreign direct investments by sector

A tourism bubble

The Sharm region has been a particularly popular tourist destination for Europeans because of its price and proximity, Fahmy said. It has also fared better than tourism in the rest of country since the uprisings because it's far from the country's chief population centers.

"This area has been a tourist bubble that has largely bypassed the upheaval of Cairo since 2011," she said. "Sharm is cheap and local, and it's contained."

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Last year, Russians made up about one-third of Egypt's visitors, at 3 million tourists. The British followed at about 1 million a year.

But Fahmy said that many Russians booked their New Year's Eve trips to Sharm months ago, and she expects that they will now move those trips to Turkey. "When they cancel those trips, it's going to be a huge blow to the economy," she said.

Tourists will come if...

The Egyptian government said it has already beefed up security at the Sharm airport and throughout the resort areas. In an official statement sent to CNBC from the Consulate General of Egypt in New York, Egypt said it will dramatically increase searches at the airport as well as more detailed inspections of aircraft.

Fahmy said that the most crucial point in the tourism picture is whether people can access the Sharm airport. As long as they can get in and out reliably, she said, tourists will continue to come despite fears over security in light of the Russian plane crash.

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"It's really about the Egyptian government making assurances for the flights to come in and out," she said. "The longer the negotiations continue, the more people will find alternative vacation spots in Anatolia and elsewhere."

Her advice for the Egyptian government: Be transparent, give information and share intelligence.

Reuters and the AP contributed to this report.