Egypt’s resorts face tough winter as visitor numbers plummet

Tourism accounts for about 15 percent of Egypt’s national output, and the sector is losing about $1 billion a month. The pandemic has taken a heavy toll on the country, which requested $8 billion in new loans from the IMF this year alone. (Reuters)
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Updated 19 September 2020

Egypt’s resorts face tough winter as visitor numbers plummet

  • Some regions have seen a 90 percent reduction in tourism, leaving the sector pleading for state assistance

CAIRO: At the Pyramids of Giza, just a handful of tourists walks among the ancient wonders. Only 12 people showed up to admire Luxor’s towering colonnades the day it reopened this month. At Egypt’s Red Sea resorts, visitor numbers are well below previous years.

Even as international flights and tourist spots open up and Egypt’s coronavirus cases remain in check, officials, hotel owners and tour guides concede that the key winter season starting in October is going to be tough.
That could be bad news for the economy. Tourism accounts for up to 15 percent of Egypt’s national output, and officials said it was losing about $1 billion each month after the sector all but shut down from March as the coronavirus pandemic struck.
Egyptian officials say they are making every effort to reassure tourists about their safety and encourage them to visit in the hope that the sector revives gradually.
Egypt is not alone in seeing tourism slump, but it takes a heavy toll on a country that has tapped the International Monetary Fund for $8 billion in new loans this year.
“We used to see about 50 buses here. Now there are none,” said Samir, a souvenir trader who has been working at the pyramids south of Cairo for more than 30 years and has been selling his possessions to pay his son’s school fees.
“We only had one bus, a week ago, full of Russians. They took some photos and left.”
A showpiece museum next to the pyramids is due to open next year, increasing the need for a rapid recovery in 2021.
Westerners typically flock to Egypt’s historic sites and golden sands between October and May to avoid the cold at home and the excessive heat of Egypt’s summer.

FASTFACT

Tourism accounts for about 15 percent of Egyptian GDP.

As the sector gears up, hotel resorts are operating at below half capacity and major sites remain virtually empty, tourist workers and official said.
Some 220,000 tourists have visited the Red Sea province and South Sinai — home to the Sharm El-Sheikh resort — since July 1, less than 10 percent of last year’s levels, said Ghada Shalaby, a deputy minister at the Tourism and Antiquities Ministry.
Shalaby said visitors were gradually returning to the coastal resorts, but people’s safety took priority over boosting tourism numbers.
Hotels currently have capacity capped at 50 percent in line with health regulations.
Occupancy at Sharm el-Sheikh is 30 to 35 percent and in Egypt’s Red Sea Governorate and the resort of Hurghada it is 35 to 45 percent, a Tourism Ministry official said.
As sites in Luxor, across the River Nile from the Valley of the Kings, reopened on Sept. 1, a single group of 12 tourists showed up on a visit from Hurghada, said Tharwat Agamy, head of the regional branch of the Egyptian Travel Agents Association. A few more have visited the city daily since then.
Nile cruises are due to restart in October, but there is little expectation that bookings will pick up without a return of charter flights.
“We hope that next year tourism will be working,” said Agamy.
The state has moved to protect the sector with emergency funding, and more than 9,000 registered tour guides will receive 500 Egyptian pounds ($32) monthly until the end of the year. Tourism firms are pleading for exemptions on some fees to be extended.
Mohamed Othman, who owns a Nile cruise boat and a hotel and markets cultural tourism in southern Egypt, said he was hopeful for some bookings in November, and reopening sent an important signal, even if “an influx won’t happen overnight.”
Officially recorded coronavirus cases have fallen to under 200 daily from highs of about 1,500 daily in mid-June. Officials say tourist sites and hotels are subject to strict controls. Those entering the country are required to take PCR tests. But the EU has not added Egypt to its safe travel list.
“We are sparing no effort to ensure that all measures are in place for the return of tourism to the maximum possible capacity and to spread reassurance to the tourists,” said Shalaby.
At Cairo’s Khan Al-Khalili market, a popular tourist shopping spot, many stores are shuttered.
“There is no one,” said Sayed Abel Khaleq, a silver shop owner.


Penny-pincher or deal king? Arnault gets his discount in $16bn Tiffany takeover

LVMH boss Bernard Arnault is known for his aggressive business tactics. (AFP)
Updated 31 October 2020

Penny-pincher or deal king? Arnault gets his discount in $16bn Tiffany takeover

  • End to bitter legal dispute opens the door for cut-price luxury merger

PARIS: In the world of corporate mega mergers, a $425 million discount on a $16 billion deal is small change.

But for LVMH boss and French billionaire Bernard Arnault, every penny counted to end a bitter legal dispute with US jeweler Tiffany and clinch a new takeover deal at a slightly lower price, according to interviews with five people close to the deal.
For the 71-year-old Arnault, dubbed “the wolf in cashmere” for his aggressive business tactics even in his earliest deals, getting a discount in itself would have been worth it, several people who know him said, even if it amounted to less than 3 percent of the original price.
“He did this out of principle. A franc is a franc for him,” one of the people, who is familiar with the latest discussions around the deal, noted. “He doesn’t overpay for things, because he is Bernard Arnault.”
The takeover, the luxury industry’s biggest-ever deal and a major feather in LVMH’s cap, was struck before the coronavirus pandemic forced the industry to temporarily shut shops and idle manufacturing sites.
LVMH said last month it could no longer complete the deal by the Nov. 24 deadline, citing a letter by the French foreign minister asking it to delay the purchase because of the threat of new US tariffs on French products.
Government sources have since insisted that the letter was not binding, and the foreign minister has said it followed an inquiry from the French luxury goods group, leading Tiffany to accuse LVMH of using it as a pretext to walk away from the deal.
Several sources close to the matter told Reuters that Arnault was particularly irked by Tiffany’s decision to pay regular quarterly dividends of $0.58 per share in May and August, at a time when other luxury groups suspended or cut their dividend payout because of the health crisis.
It was then that he became hell-bent on not doing the deal under the original terms, the sources said.

FASTFACT

The planned takeover of Tiffany by LVMH would be the luxury industry’s biggest-ever deal.

“The price discount is ridiculous, but you have to look at it from Arnault’s perspective,” a banking source familiar with the deal said. “He’s the kind of penny-pinching billionaire.”
In legal filings by LVMH, which countersued Tiffany in a Delaware court in September, the French conglomerate emphasised the financial argument, alleging the US jeweller’s management of the pandemic was “catastrophic” and its prospects “dismal.”
The dividend payments, totalling around $70 million per quarter, were allowed by the original deal and Tiffany says it only acted in the best interest of its shareholders.


The revised takeover agreement allows the US group to declare another dividend in November, bringing the total payout for this year to $280 million, which is less than the money Arnault has saved by getting Tiffany back to the negotiating table.
“I think Arnault wanted to make the point that he doesn’t like being taken for a ride just because he is a billionaire, and pay for things that he does not think he should be paying for, such as Tiffany’s dividends,” said Luca Solca, an analyst at Bernstein.
Settling now also keeps a lid on mounting legal fees, which could have grown to about $50 million for both companies if the Delaware court battle had gone all the way, according to one banking source.
Tiffany declined to comment on the legal costs. The French conglomerate LVMH had no comment on Arnault’s motivations.
Still, Arnault went to extraordinary lengths to renegotiate the deal, and some industry observers say the whole saga could dent his reputation.
“If he were the kind of person who cared about public image, he would realize it probably wasn’t worth it for the amount of money saved,” a former LVMH insider said.
Though he is France’s richest man, and owns newspapers including financial daily Les Echos, Arnault keeps a relatively low profile, rarely making appearances at conferences or giving interviews.
Scrutiny in France surrounding the Aug. 31 letter sent by the foreign ministry to LVMH, which led to speculation Arnault had pulled strings to obtain, took on proportions the group had not expected, people familiar with the matter said.
Reuters reported on Sept. 22 that French President Emmanuel Macron had asked the foreign ministry to send the letter.
Pressure to reach a settlement arose on several fronts, due to the legal tussle and as the COVID-19 pandemic worsened. Had the Delaware court case gone ahead, Arnault could have been called to testify next month. Two people close to the matter said Arnault was keen to avoid this step, though a third source close to LVMH said this was a “wacky hypothesis.”
Some observers said Arnault’s determination to win a discount from his pre-COVID offer price may cost LVMH, which has built an empire now comprising 76 brands, the ability to court future takeover targets in a highly fragmented sector boasting a large percentage of family-controlled companies.
However, others disagreed, saying Arnault — who is betting the French giant can restore Tiffany’s lustre by investing in stores and new collections — had still managed to get what he wanted. Tiffany also did not want to get bogged down in a potentially drawn-out judicial process whose outcome remained uncertain.
“It’s love between LVMH and Tiffany again,” one person close to the situation said, adding that a settlement now meant Tiffany “could sell diamonds at Christmas rather than spending it talking to lawyers.”