beyondbrics

More evidence of the economic impact Egypt’s crisis is having on the tourism industry emerged on Tuesday when Thomas Cook said it expected to lose £20m in revenue due to the crisis there and in Tunisia. It was following in the footsteps of Tui Travel, which that last week said it would take a £25m hit.

Those two companies will bounce back because they can send their clients elsewhere. But the same cannot be said of Egypt’s domestic tourism industry, which is one of the country’s main sources of foreign revenue and accounts for over 11 per cent of gross domestic profit.

Thomas Cook and Tui Travel are also incurring costs from repatriating customers and cancelling planned packages for travellers from countries where governments have issued travel warnings over Egypt.

In Tui’s case this includes people from Germany, France, Belgium, the Netherlands and Scandinavia.

Both travel operators have said that if the UK government were to issue a similar travel warning for all of Egypt, which it has not yet done, it would wipe another £5m from revenues.

Nick Batram at Peel Hunt, a London-based brokerage, said he had cut his forecast for Thomas Cook’s second quarter operating profit to £397m from £416m.

But even though unforeseen events – from volcanic eruptions to swine flu outbreaks – can be costly, tour operators such as Tui and Thomas Cook maintain relatively flexible business models and are used to adapting, Batram says. He told beyondbrics:

There are people who might have wanted to book in Egypt who wouldn’t in the future. These companies and their business models  aremore flexible – they would rather not have their businesses disrupted but they are pretty flexible in the way that they can move people to different destinations.

Thomas Cook mentioned Spain and even Florida as possible alternative destinations.

Egypt’s economy, on the other hand, will have a harder time recovering, and that includes all the hotels, tour operators, guides and taxi drivers who depend on tourists for a substantial chunk of their income.

In an interview with state media last week, Omar Suleiman, Egypt’s vice president said the country had lost “at least $1bn” in tourism revenues since the start of the conflict, though that figure cannot be more than a very rough approximation.

In 2009 close to 12.5m tourists visited the country, bringing in $10.8bn in revenue.

Analysts at Credit Suisse say Egypt’s deficit will be affected by the drop in tourist numbers, forecasting that it will rise to 8.7 per cent of GDP this year from 8.1 per cent.