Russia tourism poised on verge of expansive growth
Russia tourism poised on verge of expansive growth
13 JANUARY 2020 8:38 AM

Russia is set to triple inbound-tourism revenue to $28.6 billion and also double the number of internal tourist trips by 2035, but more efforts might be needed to steady the national hotel industry.

MOSCOW—Russia’s Tourism Industry Development Strategy, recently signed by Russian Prime Minister Dmitry Medvedev, intends to make the country far more noticeable as a global tourism destination, according to sources.

But Russia still lags behind the world’s biggest tourism market players, according to government strategists.

The gross added value in Russia was $900 per capita in 2017, 40% lower of that in the U.S., 110% lower than in Germany and 4.5 times lower than in Spain. Russia attracted only 17 tourists per 100 citizens in 2017, as compared to 54 in the U.S., 261 in Spain and 309 in France, the report stated.

The poor attractiveness among foreign tourists takes its toll on the domestic hotel industry, with average occupancy at below 35%. There also exists poor regional diversification, with Moscow and St. Petersburg together generating more than 50% of hotel taxes and accounting for 70% of capacity.

The target of the new strategy, sources said, is to boost inbound revenue from $8.9 billion in 2018 to $28.6 billion in 2035. The turnover in the industry is projected to jump from 3.1 trillion rubles ($50.8 billion) to 16.3 trillion rubles ($267 billion) by 2035.

Pivotal to this is the continuation of a more liberal visa policy and increased infrastructure investment, according to Yana Ukhanova, head of hotels and hospitality, Russia and Commonwealth of Independent States, at business consultancy JLL.

“Now we have one unified master document that outlines the main vectors of tourism development, including incoming tourism, domestic tourism, business tourism, MICE tourism, ecological tourism and children’s tourism,” Ukhanova said. “A ‘win’ of the document is that there is an initiative to introduce free electronic visas starting from 1 January 2021. If implemented, given the overall geopolitical situation, it will significantly increase attractiveness of the country as a weekend and MICE destination.

“In terms of the most interesting and potential areas for further hotel development, these are surely Moscow and St. Petersburg, as well as Sochi, Kaliningrad, the Altay region, Irkutsk, Vladivostok and the Far East overall,” Ukhanova added.

Sources said for the initiative to work, it will also be necessary to adopt a separate tourism-infrastructure development program to build highways, airports and railway stations.

Hopeful hoteliers
The goals are very ambitious, but there is nothing impossible about them, said David Jenkins, VP of business development at Radisson Hotel Group.

“(The plan) is realistic, as Russia has been far behind many other countries in seeing the importance of tourism to the economy,” Jenkins said.

He added he is particularly excited about the response to visa liberalization.

“The hotel business has been lobbying for visa-free travel for decades,” he said. “(There is a) visa-free (program) for some Asian markets, (and the) E-visa for selected countries has already had a positive effect in Kaliningrad and St. Petersburg. With inclusion of other major cities and, of course, Moscow from 2021, it will be a huge boost for tourism. This regulation will take away the main obstacle for foreigners.”

With fewer travel regulations, Russia can open itself up to more tourism from hosting larger events, Jenkins said.

“We should not forget the Euro-2020 and games in St. Petersburg,” he said. “This will create additional interest. Another booster is the BRICS (Brazil, Russia, India, China, South Africa) summit and the worldwide coverage of it. Hotels will continue to benefit from a very strong domestic traffic and the FIFA (soccer World Cup 2018) effect in coming years.”

Radisson plans to enter the major Russian cities where currently it has no presence and to introduce brands to all the cities where they are not present, including Radisson Red to Moscow and St, Petersburg, Jenkins said.

Marsel Izmaylov, partner and CEO of IFK Hotel Management, also expressed optimism.

“Fifteen years are a very convenient time frame, and the growth by a factor of two or three times is more than a moderate projection,” Izmaylov said. “This forecast envisages no large-scale inflow in tourism. (Take) a closer look to see a twofold increase the industry needs to grow with pace of 5.1% per year, threefold to 8.2%. So this task is not only realistic, but I would say even pessimistic. Some targets could be reached without government making any efforts at all.

“We are planning to increase the number of our own hotels, expand room capacities and reach out to new regions,” Izmaylov added.

Alexander Polyakov, VP of operations and a board member at Cosmos Hotel Group, said long-term investment in the hotel industry will keep the balance between supply and demand.

“The main drivers, as before, would be Moscow and St. Petersburg,” he said. “From 2020, they would get a new infrastructure advantage, the new federal toll highway M11, which would increase the already huge flow between the two cities. The fact that the E-visa regime was introduced in St. Petersburg from 1 October 2019 will only increase the gap between the cities and the rest of the country.”

Polyakov said Cosmos, whose flags include Holiday Inn Express and Park Inn by Radisson, announced last October it will build what he called “the first premium boutique hotel in St. Petersburg.”

“We notice a gradual increase in demand for high-quality hospitality service in the Russian north capital and plan to increase our presence in that market,” Polyakov said, adding the hotel is due to open in the first quarter of 2022.

Russia has matured as a hotel destination in the short time since the country hosted the 2018 FIFA World Cup, Ukhanova said.

“Russia is still very affordable, and more secure especially after the success of the FIFA games,” Ukhanova said.

She said in 2018 Russia attracted 31 million inbound tourists, a 7% year-over-year increase.

“By 2028, (that number) is expected (to) grow almost twofold to 57 million people annually. The overall spend will equal 1.3 trillion rubles ($21.3 billion),” Ukhanova added.

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