Turkey’s rebound hinges on refining source markets
 
Turkey’s rebound hinges on refining source markets
06 SEPTEMBER 2017 8:13 AM

Recent geopolitical events have scarred the Turkish hotel industry in the last two years, but there is a glimmer of hope with the appearance of new source markets and construction booming in Istanbul.

REPORT FROM TURKEY—Terrorism and political turmoil domestically and with neighbor countries have rattled Turkey’s hotel and tourism industry, but there are a few silver clouds on the horizon, according to sources.

Asli Kutlucan, director of development and acquisition at Amsterdam-based Cycas Hospitality, said she is pessimistic about Turkey’s hotel industry. In fact, she said, it might not rebound for 20 years.

“People are nervous. The only thing is what will happen with the new airport,” she said, referring to Istanbul’s new international airport planned to open at the end of 2018, which ideally will make Istanbul even more of a hub market.

“I am not sure how that (additional airport hotel business) will reflect with hotels in the city,” Kutlucan said. “As for politics in general, things are not so positive.”

Turkey’s popular Mediterranean resorts have also suffered, and sources said the key to performance recovery is differentiation and a clear marketing approach.

Deniz Üstertuna, a board member at Turkish hotel firm Regnum Hotels—which operates the Regnum Carya Golf & Spa Resort in Belek-Antalya, said “it has been a hard year.” Meetings, incentives, conferences and exhibitions business has been greatly affected, since Turkey and especially Istanbul are major destinations for such business, he said.

“That sector was hit drastically,” Üstertuna said. “According to (International Congress and Convention Association numbers), Turkey was No. 6 but went down to 66 due to cancellations and postponements. In the next two years, Istanbul will further suffer in that segment. That has caused overall (average daily rate) to go down.”

Package tour business also is down, Üstertuna said.

“There are a lot of tour operators (operating) in Turkey,” he said. “They generally have 7- to 21-day programs, but most of them either are not offering any or have seen demand drastically down.”

New source markets
There is optimism for Turkey, Üstertuna said. Hoteliers faced with a drop in demand from historical markets always then have to seek new demand, and Turkish hoteliers have stood up to the task.

“Nationalities are changing,” he said. “It was the Germans for many years, but they are not coming as much as before. We expect 30% down across all Europe, but Eastern Europe is increasing. Russia is back, Romanians are coming.”

But Kutlucan said much hope is based on assumptions.

“We need more valid statistics and case stories on Turkey,” she said. “At the moment, no one has any idea, unfortunately, as to the true extent of the damage.”

Üstertuna said political tension between Russia and Turkey following the downing of a Russian military plane resulted in visits to one of its major source markets dropping 10% in 2015 and being almost zero in 2016.

“Turkey can withstand a drop of 10% as Russian demand was so high, but not 0%,” he said. “Regnum, thankfully, is not based totally on the Russian market, but we dropped 20%. Others went bankrupt.”

Üstertuna added that between 5,000 and 6,000 Russians have booked visits to Turkey so far in 2017.

“Anatolia is up 10% to 15% from last year,” he said. “But then I repeat that last year was bad.”

Üstertuna said hotels on Turkey’s Mediterranean coast need to change in order to thrive again.

“Within the 5-star category, there are 40 (hotel properties) which are competitive, and they are having a hard time differentiating themselves,” he said. “With Regnum, we did. We added more quality. We added (average daily rate).”

Üstertuna said Middle Eastern guests are booking at his hotel, but increasing numbers from that part of the world is not a business priority. He added that sanctions imposed by other Middle Eastern nations on Qatar, an ally of Turkey, also have dented arrival numbers, but to nowhere near the extent it has on arrivals from Europe and Russia.

Kutlucan said that particular piece of politics is a “big chess game out of our control. Qatar and Turkey are very buddy-buddy.”

Time to act
Declines can be the best time to invest and instigate capital expenditure, sources said.

“I still see investment, and room supply is still going on,” Üstertuna said. “Istanbul still is moving up, and investors are gambling on new Istanbul areas, which gives us some hope. Also in other parts of the country there is some investment.”

On the development front, Istanbul reported 4,497 rooms in 24 hotel projects in construction in July, and a total of 6,149 rooms in 33 projects under contract during the month, according to STR, parent company of Hotel News Now.

International capital is also present. Üstertuna said Hilton is looking for a resort; and Paramount Hotels & Resorts, a subsidiary of the motion picture company, will open a resort in Bodrum in May 2018.

“Does this mean we are turning the corner? It is hard to tell,” he said. “We are now lucky because the Russians are here. We have 141 nationalities (in our hotel), but of course there is a top 10.”

Üstertuna added Regnum’s ambition was to first develop itself into a “propitious brand” before investing outside of Turkey.

“We have some destinations in mind, but no decision has been made yet,” Üstertuna said.

According to data from STR, occupancy declined across the country between 2015 and 2016, but has shown gains in regards to year-to-date July 2017 numbers. Meanwhile, ADR and revenue per available room have consistently declined in the last three years.

For Turkey as a whole, occupancy fell from 61.8% in 2015 to 55.7% in year-to-date 2017, while in Istanbul occupancy fell across the same period from 64.8% to 56.1%, despite the latter figure being an 18.5% increase from 2016 numbers.

Istanbul also shows the largest percentage drops in ADR, from €120.07 ($143.30) in 2015 to €74.41 ($88.81) for year-to-date 2017, the latter number being a 21.9% drop from 2016 figures. Across Turkey, full-year ADR fell 27.2% from €105.25 ($125.61) in 2015 to €76.60 ($91.42) in 2016. In Izmir, a resort city on the Mediterranean, ADR for year-to-date 2017 comes in at €56.86 ($67.86), down 12.4% from 2016.

RevPAR has suffered, too. Across all of Turkey, RevPAR dropped 39.9% year over year in 2016 to €39.10 ($46.66), and in Istanbul over the same period dropped 42.9% in 2016 to €44.41 ($53).

Year-to-date 2017, Istanbul’s RevPAR has fallen 7.4% to €41.76 ($49.84); and in Izmir it fell 12.2% to €38.91 ($46.44). Across all of Turkey, RevPAR declined 8.4% to €36.02 ($42.99).

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