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Prague, successful alchemy

After two difficult years, Prague is recovering. A short-stay city by excellence, its economic development is opening up to many more fine perspectives following the Czech Republic’s entry into the European Union. Contrary to its neighbours Budapest and Warsaw, it does not suffer from over-capacity.

All is going better along the banks of the Vltava. Prague experienced an excellent tourist year 2004 and the RevPAR is taking off. Membership to the European Union attracted more business clientele to the Czech capital. Now in the limelight, what André Breton called “the magic capital of Old Europe” has become one of Europe’s most valued destinations. From January to June 2004, nearly 1.5 million clients stayed in Prague’s hotels and pensions, for a total of more than 4 million nights. The threshold of 2.7 million visitors recorded at the end of 2003 should be surpassed this year.Another question mark: the government’s desire to raise the VAT from 5% to 19%, to profit from the major revenues generated by tourism. “The ministry of Regional Development is quiet when the ministry of Finances speaks,” explains Pavel Halinka. Tourism professionals are of course opposed to anything that might limit the city’s competitiveness. Following intense lobbying, the date has been pushed to 2006, perhaps sine die. This prospect leaves investors who threw all they had into Prague rejoicing. Following the example of Irish investors led by Derek Quinlan, who bought the Four Seasons in 2001 for 70 million euros, the rival group owned by Sean Quinn, based in Dublin, bought the Hilton and the Ibis Karlin for 145 million euros in 2003. These Irish investors see the same potential for development in the Czech Republic as in their own country, after it joined the EU. The country is heading down the same road.Today, the post-September 11 slump seems forgotten. Another scourge specific to Central Europe joins this ill-fated event: the floods of summer 2002. Some of the city’s hotels were affected physically. These include the Hilton, the InterContinental or, even more difficult, the Four Seasons which remained closed until June 2003. While some properties benefited from carryover of clientele, all posted cancellations. Average daily rates were affected by the promotions that were implemented to renew confidence in the destination. For a while, upscale clientele shied away from the city, and were replaced by younger, more price conscientious, clientele. Simultaneously, Business clientele, like everywhere in Europe, became rarer. “It took two years to return to normal business levels,” observes Pavel Halinka, Chief Liaison Officer of the group InterContinental for the region and future president of the National Federation of hoteliers and restaurant owners.These difficulties woke up local authorities who had settled into the comfort of a destination that was easy to sell. The “city of a hundred spires” stopped being advertised as such, with its Old town, castle, the Charles Bridge, baroque churches, Art Nouveau buildings, its Jewish quarter... And yet, at times of weakness, it is necessary to go back to basic communication. Advertising on CNN, affirmed presence in the major tourism trade fairs, Czech Tourism has launched itself into fierce marketing tactics to escape the crisis. The strategy pays off since tourist spending in the country continues to rise. From 3.75 billion euros in 2000, spending dropped in 2002 and 2003 to regain a satisfactory level and reach 4.5 billion in 2004 according to the WTTC.This success is to the credit of the president of Czech Tourism, David Gladis, who was recently dismissed from his position by his supervising minister, in charge of regional development. “Personality of the year” for tourism professionals, for many he is the one who gave his country a head start on its neighbours. Nonetheless, his replacement is no novice to the sector. Rotuslav Vondruska is the previous director of the Congress Centre and Palace Hotel. “Thus, we will work with him,” assures Iva Havlova, General manager of the Paris Hotel.No matter what, despite these quibbles, tourism is perceived as a strong vector for economic development. “They have understood that tourism is one of our best export products,” rejoices Pavel Halinka. The strategic communications plan for 2004-2010 aims to grow the number of arrivals and spending and to expand the length of stays. The Czech Republic has set ambitious goals for itself: to become the number–one destination among European countries with a comparable perimeter. 100 million euros – coming in great part from the European Development Fund – will be dedicated to the building of new infrastructures throughout the country. Leisure tourists or seminar clientele will then be able to discover the landscapes and historic cities of Bohemia and Moravia. According to the representative of Inter Continental, this is a doubleedged weapon for the Czech capital: “It will grow tourism in our country, and tourists will be able to travel directly to the provinces or spend just a single night in Prague.”For “the mother of cities”, the challenge is great: to become the number-three tourism city in Europe. Its war-horse is congress tourism. An official report guideline was published last July. The result of work undertaken by the American Chamber of Commerce in Prague and supported by Czech Tourism, the city and its hoteliers, it concludes that priority needs to be given to this segment. In 2008, Prague should become one of the Top 10 convention destinations in Europe, hosting some 200,000 visitors. Last year, conventions generated revenues of 400 million euros. Czech Tourism hopes to see this result climb by 15% this year.The city’s flagship, the convention centre in Vysehrad, accommodates one-fifth of the major conferences held in the country. City-owned, it generates annual profit of 8 million euros and should soon be sold to a private investor. Renovated, it hosted the FMI in 2000 and NATO in 2002. “Two major events that demonstrated our expertise,” congratulates Iva Havlova. Taking advantage of these two successes, Prague made bids for several calls to host major events in the years to come. The city is proud to have won the opportunity to host ASTA, a major North American travel agency meeting, sometimes referred to as the Olympic Games of tourism. Prague does not focalise only on large-scale congresses; it also concentrates on hosting small- and medium-scale meetings. Recently built or renovated high-capacity hotels have state of the art equipment. Faced with a demand for convention spaces that is experiencing a boom, others are adapting to the need. The Top Hotel Praha has increased its capacity by adding 2,000 seats to the 3,000 it already had. Its total of 1,020 rooms will become 4* by spring 2005. Olympic Holding has increased its capacities from 600 to 1,000. Alongside its Olympik Tristar Hotel, the company will open a new 4*, the Artemis, with a clear strategy: to appeal to Asian clientele. Its 50 rooms will be adapted to the taste of emerging clientele including Korean and of course Chinese travellers. This evolution in their supply corresponds to the standards of Prague’s supply. The properties are mostly oriented towards the upscale and very upscale. Two-thirds of the 13,758 rooms are included in the 16 five stars and 69 four stars. 384 hotels and pensions make up the rest of the supply. Economic hotels are not well represented, with exception to three Ibis hotels. The city does not have any real outskirts like we see in Western Europe. The result is that the high price per square metre in the city centre slows development on this segment. Most of the major hotel groups are present in the Czech capital with their mid- and upscale brands like InterContinental, Accor, Marriott or more recently Radisson SAS. Less known, the largest Czech chain Orea Hotels has the 4-star hotel Pyramida.Alongside these chain hotels, Prague has many charming properties. The Savoy, a member of Leading Small Hotels of the World and of Vienna International Hotels & Resorts, near the castle and the monastery in Strahov, welcomes heads of State and stars passing through. Vienna International also has a fashionable property, the design hotel Andel’s, to which the Austrian group has just added a luxury hotel residence, Andel’s Suites. This niche seems to work well for Prague with regard to a long-term business clientele that is gro wing. Thus, Marriott has just launched a programme of 53 Executive Apartments. And Orco Hotel Group, which opened Riverside Hotel in 2003, continues to develop its MaMaison Résidences in the Czech capital by opening a luxury property, the Pachtuv Palace. “These are Business products that do not meet the needs of Leisure clientele. There is no risk of cannibalisation. The hotel market is fairly diversified,” remarks Nicolas Tommasini, Vice President of the Hotel Division.The market’s variety is fortunate even if several properties were opened in 2003 and 2004 on different segments. In the luxury segment are the Aria Hotel and Boscolo Hotel Carlo IV, in the upscale is the Falkensteiner Hotel Maria; and in the mid- and economic range the hotel supply saw the entry of Ramada Airport, the Tulip Inn Prague Terminus, the Ibis Smichov. Others have been revamped. The Austrian chain K+K has just reopened the hotel K+K Central after renovation works costing 19 million euros. And a dozen other projects are ongoing including a Courtyard by Marriott that will be inaugurated in 2006.The risk of over-capacity must pushed aside for the moment. The balance between supply and demand is healthier than at its neighbouring competitors Budapest and Warsaw. The evolution of the Czech capital’s hotel supply was progressive. Unlike the Hungarian and Polish capitals, whose supply grew in a concentrated manner. Today, Budapest has begun a stabilisation phase, whereas Warsaw has not quite finished growing. “Warsaw’s market is experiencing the deepest crisis because it is less segmented, with products that are identical, in 3- and 4-star chain hotels,” observes Nicolas Tommasini. This is one stumbling block Prague has managed to avoid. Even with an upscale orientation, the supply is segmented with different types of offers: high capacity for seminar clientele, prestigious brands for individual business clientele, boutique hotels for weekends for two.Prague is still whetting the appetite of those who are absent, Mandarin Oriental or Kempinski. NH Hoteles and the Turkish group Dedeman are also on the alert. Whereas the city’s clientele is 70% Leisure, its economic development, the implantation of headquarters of large corporations makes it possible to imagine that the volume of business will continue to grow. This aspect is favourable to the implantation of new hotels. “There is still room, especially for mid-scale properties. In this region, this is the market that can absorb the most hotels. The fundamentals are good it is located further West than Vienna, has a GNP per inhabitant higher than the European average, and savoirfaire,” observes Nicolas Tommasini. Nonetheless, it is essential to find the right location. Prague is a city to visit on foot, which is one of its major advantages, whereas the city centre doesn’t have much room to offer for properties of any respectable size. Further away, the Karlin, Zizkov and Smichov neighbourhoods are undergoing a transformation: residential and office zones they will welcome two of the city’s three Ibis hotels. The next neighbourhood on the rise, according to Pavel Halinka, is Holesovice. “Notice to developers,” he seems to suggest.

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