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Analysis

Russia, a future tourism giant?

Both a country more than 1,100 years old and a young federation of just 27 years, Russia fascinates and intrigues. Well-known because of its diplomatic power, the different territories of the largest country in the world remain largely unknown. Aside from St. Petersburg, Moscow and Sochi, what does this cold Siberian doll-faced giant hide from us? Using data from the nation’s administration and interviews with local actors, Hospitality ON invites you to follow in the footsteps of Michel Strogoff and discover a country with a myriad of hospitality opportunities

AN EVOLVING HOTEL SUPPLY

Russia’s supply has undergone many changes since the end of the Soviet era and its supply has been booming since the beginning of the 21st century.


According to official data, at the beginning of 2017, there were 21,284 properties in the country for a total
of 1,906,574 rooms. This information should be compared with the supply in 2002 when the total number of available rooms was 1,097,364 at 8,581 hotels, representing a 73.7% increase. A symbol of the communist years when hotels were larger in size than those of their European neighbors, Russia’s hotels have seen a downward trend in number of rooms per property. In 2002, the average size was 128 rooms per hotel, and this decreased in the following years to 90 rooms per hotel in 2017.

It is interesting to note that from 2003 to 2013, the evolution of the number of rooms was between 0 and 5% annually, the period with the strongest growth (+4.8%) was between 2007 and 2008, just before the financial crisis. The period between 2014 and 2016 symbolizes the expansion of the hotel supply with growth rates of 13.5% and 12.0% in preparation for welcoming tourists to sporting events. Finally, annual growth stabilized at 4% from 2016 to 2018.

 

Changes varying according to the district

Russia consists of 8 federal districts. Although the districts all show growth in their supply, their growth is largely due to their geographic particularities and more or less large investments driven by the government to develop their tourism appeal.

Discover in our magazine September - October 2018[276-277] an exclusive map of Russia showing the evolution of its hotel supply between 2002 and 2016

The district with the largest hotel supply is that in the South where 582,825 rooms were reported in 2017. The change in number of rooms between 2017 and 2002 is by +100.5% and is the result of many factors:


- In 2010, the North Caucasian Federal District split from the Southern Federal District in the South. This has a moderate impact on the growth of supply in the Southern District, which gained almost 6,900 rooms that same year. The city of Volgograd (+ 2,100 rooms between 2010 and 2009) and Krasnodar Krai (+ 6,300 rooms across the same period), where Sochi is located, are in full development and boosting growth in the district.


- On July 28, 2016, the Crimean Federal District merged with the Southern Federal District. With 86,850 rooms in 2014, Crimea posted very strong growth driven by the government’s desire to establish the region as Russian and by related investments. Thus, 3 years later Crimea has 169,234 rooms for growth by 94.9% (!).  

The Central Federal District followed with 439,953 rooms in 2017. This district includes Moscow and has benefited from the dynamism generated by the capital, which nearly tripled its supply in 15 years, from 65,532 rooms in 2002 to 180,469 rooms in 2017. The Moscow region (excluding the city) saw its supply stagnate over the same period, when it grew by only 3,900 rooms.

  Evolution of International Arrival

 

The Central Federal District followed with 439,953 rooms in 2017. This district includes Moscow and has benefited from the dynamism generated by the capital, which nearly tripled its supply in 15 years, from 65,532 rooms in 2002 to 180,469 rooms in 2017. The Moscow region (excluding the city) saw its supply stagnate over the same period, when it grew by only 3,900 rooms.

The Volga Federal District reported 254,345 rooms, up 27% from 2002 thanks to good economic results in its regions. The city of Nizhny Novgorod thus made information technology one of its specialties and has 25 institutions for scientific research. International hotel chains such as Sheraton, Hampton by Hilton and Mercure thus proceeded to develop properties there.


The Northwest Federal District reported 183,394 rooms in 2017 representing a 27% increase. The district has taken advantage of its geographic position near the European Union to attract tourists to visit its architectural and historical treasures.

For example, in the Kaliningrad region, which hosted FiFA World Cup games in 2018 and where the battles of Eylau and Friedland were reenacted in 2007 on the occasion of their bicentennial, the hotel supply more than doubled from 12,681 to 35,403 rooms between 2002 and 2017. In St. Petersburg, almost 18,900 rooms were added over the same period and in the Leningrad oblast (the St. Petersburg region excluding the city), almost 3,800 new rooms were opened.

The Siberian Federal District has followed the example of the Republic of Khakassia and taken advantage of rising prices on raw materials in its territory to develop. It has abundant sources of iron, gold, and silver as well as the largest Russian reserve of molybdenum (a metal that saw its value almost double from 20152018). The little republic in southern Siberia thus saw the development of a previously inexistent hotel offer: 3,800 rooms in 2002 compared to 12,900 rooms in 2017.


In the Ural Federal District, the oblasts (regions) saw their hotel supply stagnate, with exception to the Tyumen Oblast, which almost doubled its number of rooms between 2002 and 2017 (from 17,307 to 29,834 rooms). Boosting the rest of the district, this strong growth is due to the boom of the 2000s that transformed the oblast into the largest producer of oil and natural gas. It is now the richest region in Russia, with a gross income per capita several times higher than the national average. The groups Best Western Plus, Mercury and DoubleTree by Hilton have opened properties there.

The Far Eastern Federal District has a rapidly expanding hotel supply that grew from 44,506 rooms in 2002 to 81,268 rooms in 2017. Primorsky Krai in the far southeast of the country bordering China and North Korea more than doubled its number of rooms (from 18,690 to 40,948). In addition to having important resources for raw materials, the tertiary economy is developing there thanks to finance, transport (port of Vladivostok and arrival of the Trans-Siberian Railway) and several casinos that are in the planning stages to attract Chinese tourists.


Finally, the Federal District of the North Caucasus has 74,162 rooms. A newcomer to the Russian Federation (created on 19 January 2010), it could benefit from the exploitation of the resources of the Caspian Sea in the east to develop, provided that nationalist tensions are eased and the deadly wars over the independence of Chechnya are not reignited.

 

IS RUSSIA ATTRACTIVE ABROAD?

Between 2007 and 2016, the number of international arrivals in Russia increased by 7.3% or 1,662,000 more visitors. While the growth worldwide was 35.3% during this period, with only one year of decline (between 2008 and 2009), Russia’s appeal was impacted both positively and negatively by the organization of major sports events, political decisions and the exchange rate of the Russian ruble.


While the country had recorded moderate growth in its number of international arrivals between the early 1990s and its creation as a federation, it experienced a sharp decline (-9.9%, or a loss of 2,337,000 visitors) between 2008 and 2009 due to the financial crisis. The latter made a general impact on the entire global tourism industry, and Russia succeeded in making a rebound in the years that followed.

The number of international arrivals increased by more than 2.5 million visitors annually between 2011 and 2014, with record growth by +3,245,000 visitors (+13.0%) between 2011 and 2012.


The year 2014 was a special one: on the one hand, the country organized major sporting events in Sochi (Olympic Games and Formula 1) which boosted arrivals in the region. On the other hand, the Russian ruble crisis began in July due to multiple factors - falling oil prices, speculation against the Russian ruble and economic sanctions imposed by the EU and the USA - which increased the purchasing power of foreign tourists. But the diplomatic mistrust of Russia by Western countries in relation to the Crimean crisis and the War in Donbass in the Ukraine, which began in 2014, sends a negative image of the federation abroad.


The following year, the country managed to prolong the growth trend one more year with an increase by 1,308,000 visitors (+4.0%) compared to 2014, but the number of visitors collapsed in 2016 with a 9,158,000 visitor drop compared to 2015. This fall (-27.2%) is the largest recorded in 20 years. While the country managed to rank among the top 10 tourist destinations worldwide from 2012 to 2015 (9th place) it falls to 15th place with 24,571,000 international arrivals in 2016.

  Evolution of international arrivals

 

Moscow and Saint Petersburg, the two (only) tourist attractions?

According to russieinfo.com, 90 % of tourist attractivity in 2013 was concentrated in Moscow and Saint Petersburg.


Olya Skobeleva, from the travel agency VisitRussia, offers an indication of the popularity of these destinations with respect to the rest of the country:  “The most popular are the one-week tour between Moscow and Saint Petersburg, like 3 nights in the capital and 4 nights in the second town. This is the most popular tour. We are also working on tours linked to Sochi and TransSiberian railway. Also, we sometimes receive requests from tourists to visit other regions, but they’re definitely less popular than Saint Petersburg and Moscow.”


Sochi, which hosted the most expensive Winter Olympic Games in history (about €37 billion), has seen an increase in its popularity throughout the country, leading more Russians to live there, according to Sergei Yurchenko, Sochi’s deputy mayor. He declared that, investments related to the Olympic Games and for the FiFA World Cup stadium have left a «unique legacy» to the city, which welcomed 6.5 million tourists in 2017. However, the athletic city remains a destination primarily visited by Russians and they accounted for 80% of tourists in 2017. The city is being promoted abroad and initiatives such as the implementation of charter flights to Iran in the summer of 2015 were developed, but other actions will need to be taken to increase foreign interest on the shores of the Russian Black Sea.

 

European tourists are down; asian clientele pick up the slack

 

In 2015, among the nationals who indicated «tourism» as the purpose of their trip to Russia, the Chinese were in the lead with 583,600 visitors, followed by Germans (319,000 individuals) and Americans. The top 10 include neighboring countries (Turkey and Israel), European countries (United Kingdom, Italy, Spain, France) and South Korea.

 

Foreign visitors from European countries and North America are stagnating or decreasing, according to the Russian Federal Tourism Agency. The agency indicates that between 2015 and 2014, «the percentage of tourists from the Netherlands, Czech Republic, Sweden, Lithuania and Denmark fell by 20% to 49%». At the same time, Asian customers grew sharply over the same period, with increases by 23% for Taiwan, 21% for China, 18% for Hong Kong and 13% for South Korea.

Olya Skobeleva confirms the growing interest shown by Asian clientele: “Mostly we are working with tourists from European countries. But now we also started to organize vacations for individual clientele from Thailand, Japan and China.”


One of the reasons why Russia is experiencing an increase in these clientele groups has to do with obtaining visas. For a Frenchman to obtain a visa to visit Russia involves many procedures: filling in the forms, having repatriation insurance, having a tourist invitation to Russia, etc. Whether you use the services of a specialized agency or take the necessary steps yourself, it takes several weeks to obtain the visa. At the same time, Russia is developing its diplomatic relations with some Asian countries that have not sanctioned it following the incidents in Crimea and the Ukraine. Free electronic visas were created in recent years to provide tourists from China, Japan, India, Iran and other countries with the opportunity to visit three regions in the Russian Far East (Primorye, Sakhalin and Kamchatka).

 

Tourism in Russia? "A baby taking its first steps"

Since the end of the USSR and the creation of the Russian Federation, the country has enjoyed increasing success among foreign visitors. They go there to spend their holidays or meet their loved ones (80% of the visits) and discover the heritage built by Peter the Great, feel the energy of the capital, the city that never sleeps according to Timati («Moscow never sleeps»), or admire the infinite expanses of the Taiga aboard the Trans-Siberian Railway. Business customers are growing (representing 20% of arrivals in 2010, compared to 15% in 2005) and according to the count carried out by the municipality of Sochi, the athletic city now has the facilities to host three hundred events, forums and other gatherings each year.


So, 27 years after the creation of the federation, heavy investments made by the government, and the related tourism failures and successes, what is the outcome today? According to Svetena Sergeeva of the Russian Federal Tourism Agency, all this is only the beginning: «While in developed countries, tourism represents on average nearly 10% of GDP, in Russia it represents only 1.6%.»


“Russia can offer everything: ecotourism (Baikal Lake, the pure lakes in the Urals, natural parks in the Russian Far East), cultural, gastronomy, ethnographic, athletic (ski, mountains...), health (spa towns), and even industrial!” she explains. Tourism in Russia is “A baby taking its first steps.”


But does Russia really have the infrastructures and transportation networks to handle travelers from around the world in the biggest country on earth? Whether or not it does, some, like Olya Skobeleva, remain optimistic about the future: “During FIFA World Cup, we made a good impression on the tourist who never came to Russia before. And these visitors, they will definitely want to visit the country again.”

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