Crisis: Contraction in tourism already seen, massive slump yet to come
Wiesbaden (September 5, 2014). The Crisis in Ukraine has hit tourism hard, not only in Ukraine and Russia, but in other European markets. Whilst a whole range of Russian tour operators went insolvent in the first half of the year, European toursim companies fear that Business with Russians in the west will collapse in the second half. Particularly interesting is how investors are behaving: Russians who like to invest their money, in Germany for instance, are changing their plans – and some even pray together with their German business partners in Moscow for peace. A Situation between hope and fear, on all sides.
In Russia, sanctions, a softer ruble and the government’s appeal to police and security offers no longer to travel abroad have already resulted in considerable economic damage. As the “Moscow Times” reported, the national Russian airline Aeroflot posted a net loss of RUB 1.9 billion (approx USD 52 million or EUR 39 million) in the first half of 2014 and attributes this to tension between Moscow and the West together with Russia’s economic slump.
According to a report in “Mallorca Zeitung”, a German language newspaper in Mallorca, Spain, 8.6% of all Russians travelling to Spain visited the island. This season, a contraction of 30 percent is certainly felt. Yet mainland Spain, and Catalonia in particular, is suffering much more than Mallorca. On the mainland, 62 percent of Russian holidaymakers went to Spain.
Hotels and boutiques suffer
Even Germany, Austria and Switzerland are feeling the pinch resulting from the absence of Russian guests. “In many markets, Russian business had been painstakingly established. This has now experienced a hefty setback”, Martin Schaffer says, Managing Director of the consultancy MRP in Vienna. “In Vienna, guests from Russia are the third largest international guest group. Hotel revenues in the first half-year declines by five percent. The slump in the second half-year will be stronger and the first quarter was still strong due to Christmas. Luxury boutiques are reporting more severe falls in revenues in city centres. There, much less is being spend and these boutiques primarily draw their customer from Russia, China and Japan.”
“The number of overnight stays made by Russian guests in Switzerland fell by 7 percent in the first half of 2014 compared to the year-ago period. In terms of arrivals, the contraction was 8.7 percent”, Medi Manager Daniel Hofer from the Swiss Tourist Board office in Frankfurt says and refers here to information from the Swiss Federal Office of Statistics.
The Grand Resort Bad Ragaz also Reports a fall in guest numbers; Russian guests are a fixed component among our regular visitors, though up to now their numbers have declined by only two percent or so, Daniela Krienbuel reports, today Director of the new rehabilitation clinic and previously jointly responsible for guest acquisition in the Russian market. She even believes: “With the sanctions, Russians who can travel will travel even more because they will miss many everyday things such a certain foods. They will commute more often”.
Munich still positive
In Munich, the upwards trend in visitor numbers from Russia weakened considerably in the second quarter of 2014, though up to now the fall has been offset by growth from other countries. After the strong January (+12.6 percent in terms of overnight stays) and the February and March which remained in line with the previous years, in April and May contractions of 14.2 and 21.7 percent were registered. In June, year-over-year growth could again be recorded (+4.9 percent in Terms of overnight stays). Overall, Russian stays are 2.5 percent down over the half-year. A final assessment of developments on the Russian market cannot be made on the basis of these figures, is the word from Munich. Russian guests generally come to Munich in the months between November and March. “As far as cooperation with Russian tour operators is concerned, we haven’t seen any change. The number of enquiries received is testimony to the unfazed interest in Munich”, Karoline Graf says from the Public Relations Office for Tourism in Munich.
In terms of Russian guest in Germany, the focus is on Baden-Baden. “This city is likely to be a good yardstick”, Antje Zumsande says from the hotel real estate consultancy Consilium Hotellerie based in Leonberg near Stuttgart. “Towards the end of the year, statistics will show how much has in fact been lost. At present, we can’t make any definitive Statement”.
Frank Marrenbach, Managing Director at Brenner’s Park-Hotel & Spa in Baden-baden, reports of a 20-percent decrease in room nights generated by Russian and Ukrainian guests in the first eight months of the year 2014, compared with the same periof of the previous year. The majority of these guests are from Russia. The hotel was able to compensate in part for the decline with guests from other nations. However, these guests neither stayed as long nor spent as much as the guests from Russia.
Investments: Negotiate and pray
Zumsande is much more specific when it comes to Russian investment in German hotel business. “Many Russian citizens have already transferred the lion’s share of their wealth into Western Europe”, she says. “Among these Russians, we don’t see any change in their investment behaviour. The Russian investors we know that still live in Russia and have their wealth there have been very cautious since March of this year. They argue that, from a political perspective, they don’t know where the journey will end and therefore prefer to invest in Africa, in particular in Morocco.
Zumsande also knows of Russian clients who planned on purchasing entire hotel groups in Western Europe and then turned away from potential deals in spring. The most popular reason for their decision was operating contracts with Western hotel groups. The claim was, they didn’t want such contracts and preferred to operate the hotel themselves and were in a position to do this. “This is no way our view, as in most departments, the knowledge of Russian hotel group lags 20 years behind. The confidence that comes across is surprising”, Zumsande explains.
At the same time, she regrets, that the millions which were promised at the beginning of the year from Ukraine and St. Petersburg are no longer flowing. “There is extreme uncertainty there as a result of the political situation. The investors stress that they love Germany in every respect, but they are suspicious of the Americans. At our last meeting with representatives of the Russian embassy and a Moscow-based Energy group, we were even asked to pray together for peace.”
East investors push towards Poland
Such dramatic events haven’t been experienced by JLL Europa. “Despite the weak ruble, we still see interest in hotel real estate from Russian buyers. But their mood is of course dimmed”, Managing Director Ursula Kriegl says. According to Managing Director Markus Beike, Christie + Co. has also noticed no change in the behaviour of Russian investors up to now. “This Group hasn’t been so important for us up to now”, he says. “Our colleagues in Poland point out through that in regions close to the Ukrainian border, increased activity from foreign investors can be seen. These Investors are leaving Ukraine and instead invest in Poland.”
Martin Schaffer from MRP in Vienna knows that Russian investors still today choose to make their investment though Cypriot Special purpose vehicles. “Investing money from Russian investors is still possible. Given the strict compliance regulations though, for instance from Austrian authorities and banks, it’s increasingly difficult to bring money into the euro zone”, he says. “We at MRP have received few enquiries from prospective Russian buyers, though see strong demand from investors from Kazakhstan and Azerbaijan for which the same applies.”
Schaffer is still convinced that the hotel market in Russia will continue to grow. “The domestic demand is extremely high and such uncertainty won’t last forever. In Moscow, many experts expect the hotel offering to double over the next ten years. In this regard, it is also interesting that in the Belarusian capital, Minsk, there is now, for the first time in a long time, an international hotel opened by Marriott together with Vienna International. “Tourism in Ukraine on the other hand has been severely impacted. It is de facto at a standstill”, he explains.
Article by Susanne Stauss (hospitality INSIDE.com)