The 2014 Winter Olympics have had a lasting effect on hotel performance in Sochi, Russia.
SOCHI, Russia—Performance indicators for hotels in Sochi are on the rise, bolstered by government sanctions against travel to some vacation destinations, a favorable currency situation and a boost in marketing efforts to reach higher-spending guests, sources said.
“Sochi has experienced a sort of economic miracle this year, benefiting from the effects of both the weak ruble and the complicated geopolitical situation in the world, which led to many more Russians holidaying at home,” said Tatiana Veller, head of Jones Lang LaSalle’s Hotels & Hospitality Group in Russia & CIS. “Both the mountain and the sea cluster of (the) Sochi hotel market have enjoyed unprecedented levels of occupancy and (average daily rate), leading to a huge spike in (revenue per available room).”
According to information of STR, parent company of HNN, as of November 2016, year-to-date occupancy in Sochi hotels rose 28.9% to 48.1%. ADR rose 26.7% to 5,319.15 Russian rubles ($89.55) in terms of national currency and 16.4% to $79.54 in terms of constant currency. RevPAR is in a similar situation, as it jumped 63.3% in terms of national currency to 2,557.64 Russian rubles ($43.06) and slightly less in terms of constant currency—50.1% to $38.24.
JLL also reported significant growth in the region, which primarily has been driven by a rise in performance of Sochi’s mountain cluster.
“One can even doubt that any other mountain/ski market can claim an average occupancy of nearly 60% in the summer months,” Veller said. “Overall, YTD the mountain cluster sits at 55% occupancy compared with 39% this time last year, and the RevPAR growth from 1,700 (Russian rubles) to 2,800 (Russian rubles), by over 60%. In the valley, the quality hotels of the sea cluster have recorded 53% occupancy YTD versus 45% last year, and the RevPAR which grew from 3,700 (Russian rubles) to 5,300 (Russian rubles).”
Officials support growth
Meanwhile, official estimations of Sochi City Hall suggest average occupancy at the hotels in the sea cluster this year could reach 80%, while occupancy of health resort hotels reached an unprecedented 96% during the summer.
Natalia Koroleva, chief specialist of the hotel and resort department at Sochi City Hall, said over the past few years authorities focused on infrastructure improvement in the resort area.
In 2016, Sochi officials expect the overall number of tourists to reach 6.5 million, Koroleva said, up from 4.7 million in 2015.
The hotel industry still feels some negative effects from Western sanctions against Russia and terrorist acts in Istanbul, which led cruise operators reducing routes in the Black Sea, Koroleva said.
The revival of cruises by U.S. and European companies is not expected until 2020, so there are some plans to establish Russian cruises in Black Sea between Sochi and Crimea, especially with Russian President Vladimir Putin calling for transport infrastructure improvements in the region.
The region also is seeing significant growth in airlift from Europe and Asia. As the result, Sochi eyes at least a twofold increase in the number of foreign tourists in the hotels of Krasnaya Polyana, she said.
New marketing strategy
One of the most important factors contributing to 2016’s growth was the adoption of a new marketing strategy by almost all hoteliers in Sochi, said Marina Smirnova, partner and head of hospitality and tourism at Cushman & Wakefield.
In 2015, Sochi was an inexpensive replacement for more popular resort destinations in Europe and Asia. Hoteliers have been forced to keep prices low in order to avoid the situation of 2014 when hotels were almost empty, she said.
“In 2015, Russian tourism operator Biblio Globus has occupied a nearly monopoly position at the market, selling almost each room reservation in post-Olympic Sochi,” Smirnova said. “This operator often sold reservations below the actual price, so as a result the sale of additional services in hotels nearly stopped, as tourists (in the) economy segment were not ready for any additional spends.
“The disappointing results of 2015 have led to the fact that almost all hotels this year revised marketing strategy, targeting different, wealthier tourists. The decision to raise prices and to target a new type of customers has been supported with projections on the rise of demand in 2016, which in fact has surpassed all expectations in all market segments.”
Sochi to become Russian Vegas?
Sochi may soon receive another powerful impetus for the rise of tourism flow in the form of the Azov gaming zone. The January 2017 opening of the area has a large number of market participants predicting Sochi could become the analogue of Las Vegas in Russia already in foreseeable future.
Some hope the demand driven by gambling could be strong enough to spur the development of the first new hotels in the region since the Olympics.
“As far as we are aware, the market is currently in the holding pattern in terms of Sochi development,” Veller said. “It’s only logical—before investing hefty amounts into constructing new hotels, developers want to see if the patterns in operating performance are sustainable.
“Additionally, the Azov gaming zone has been moved to Gorky Gorod, and the first casino is scheduled to open in January. This should help additionally boost off-season demand, and attract another kind of audience to the Russian resort city with unique combination of sea and snow.”