Russia’s hotel industry is most developed in such big cities as Moscow, St. Petersburg, and resort towns such as Sochi on the Black Sea. Other large industrial regions with over a million residents such as Voronezh, Novosibirsk, Yekaterinburg, Samara and Rostov-on-Don are currently experiencing a construction boom in the hospitality sector. This seemingly high level of activity in some cities notwithstanding, Russia as a whole is still very far from becoming a country with a fully functioning hotel industry. Even Moscow — the nation’s political, financial and socio-cultural center, which houses over 30 percent of the country’s hospitality infrastructure — is not an exception.

Even Moscow is not much better

According to Jones Lang LaSalle’s reports, Moscow hotels have a combined number of about 20,000 rooms in 2004. These include all categories of hotels — from Soviet-era facilities such as the Ukraina to modern hotels, which are being managed by the world’s best hotel management chains such as Baltchug Kempinski, Marriott and Novotel. The growing presence of international brands in the capital notwithstanding, the number hotels meeting international standards on quality and services in the city is still very low. At most, only about one-quarter of the city’s hotel stock is in the four- and five-star categories.

Top quality, three-star hotels which are meant to serve low- to mid-income bracket clients and tourists are few and far between. And, considering the demolition of the Soviet-era hospitality infrastructure in this category, finding accommodation in cheap hotels within the city limits will soon become an insurmountable task. This deficit is already being felt in the city.

According to the Hotel Consulting & Development Group (HCD Group), occupancy rates of Moscow hotels hit a record level — at about 80 percent — in 2004 after the closure of the Intourist and Moskva hotels, or over 20 percent higher than the level of occupancy in 2003. This trend, according to tours and travels agencies, will push prices higher by about 30 percent in 2005.

Generating profits without much effort

A review of the Moscow hotel market in 2004 revealed interesting data: on average, hotel occupancy rates rose significantly, pushing the asking prices for accommodation and complementary services to and, in some cases, even above the pre-1998 crisis levels. Specifically, top-market, five-star hotels posted the most sparkling results, with end-2004 market-performance indices standing at about 10-20 percent higher than the corresponding data in 2003, a fact that has found a reflection in most sector operators’ views. Michael Schlueter, general manager of Moscow’s Sheraton Palace Hotel, noted that 2004 marked an increase in the sector’s overall performance. As an example, he cited the occupancy rate, which on weekdays has steadily grown closer to 100 percent.

Even a series of deadly terrorist acts that devastated Moscow, other large Russian cities and two planes, killing all on board, in 2004 did not have a clearly expressed negative impact on the top-market segment. Hospitality experts noted that contrary to most expectations, only a few clients cancelled their bookings for reasons related to the terrorist acts. “Such [terrorist] acts usually impact more negatively on tourists, rather than on business executives that form the core clientele of four- and five-star hotel categories in the country,” noted Marina Smirnova, HCD Group deputy marketing director. “Downturn in the level of activity in this segment is not expected in the future, at least not until 2007, when most five-star hotel projects in the pipeline are expected on the market.”

Occupancy rates in most of Moscow’s elite hotels, on average, stood at 80 percent in 2004 and, in some cases, even rose to 90 percent. On the whole, rates in the elite hotel segment increased by 18 percent, and in some cases, even up to 30 percent. On certain days, accommodation could only be secured through rack rates, which reflect an increase in the number of clients who had paid for accommodation at minimum discount rates, or even at full cost.

Commenting on the sector’s spectacular performance in 2004, Anna Amosova, public relations and advertising manager at Le Royal Meridien National, told TRJ that 2004, in general, was very fruitful. “Hotel-occupancy dynamics rose, accompanied by a substantial rise in average prices for services. For instance, stable demand pushed the average asking price for accommodation per day in some hotels to $450 and above, compared to the rates of $280-300 for the same services in 2003.”

St. Petersburg seen as mainly a tourist destination

In St. Petersburg, however, the situation was a bit different from that of Moscow, as the average hotel-occupancy rate stood at 70 percent. This result has been attributed to the fact the “Northern Capital,” as St. Petersburg is often called, is targeted mainly by tourists, which were scared off by the series of terrorist acts that hit the country between September and November 2004.

Hospitality experts, however, noted that these setbacks notwithstanding, the operators of St. Petersburg’s hotel industry are doing everything possible to build on the positive impact that the city has enjoyed as result of the celebrations of its 300th foundation anniversary in 2003. St. Petersburg’s hotel industry leaders intend to transform the city from a purely tourist-oriented destination to a venue, much like Moscow, for accommodating roving business executives and hosting other representatives of the international business community in Russia.

Natalya Belik, director for external relations at St. Petersburg’s Corinthia Nevsky Palace, said the city has the needed infrastructure to qualify for a venue capable of hosting business congresses. “There are spacious premises in historic palaces and modern five-star hotels for accommodating those participating in such events in the city.”

The trend for congress tourism is also in vogue in Moscow. For instance, the National plans to add a new, 500-seat hall in March 2005 to its already existing stock of 12 halls with seating capacities varying from six to 150 people. The President Hotel, which traditionally serves as a venue for official events and delegations, offers 20 banquette halls and conference rooms — to the great pride of its staff. Yekaterina Orlova, public-relations manager at President Hotel, noted that over 3,000 events of varying degrees of importance were held in the hotel in 2004, a remarkable increase on the 1,000 events in 2003, and about 500 held in 2002.

Low-market segment struggling for survival

In the lower-market segment, however, the mood is totally different, as demand for accommodation and services is much lower than in the elite segment. Average rates hover around $100, though some hotels offer prices a lot above this level. But finding cheap accommodation in this segment is expected to become more difficult, especially in central Moscow, where there are no longer three-star hotels. Already, over 20 percent of tour agencies’ advance bookings are being turned down in Moscow’s cheap hotels for lack of space.

The situation is likely to grow worse due to the closure of the Rossiya Hotel in mid-2004. As a result, there are currently no large cheap hotels within the Garden Road, as City Hall rigorously executes its policy of relocating three-star facilities from the center to suburbia. A marked reduction in the number of hotels in this category has already prompted an increase in the asking rates for accommodation and services, which are higher than the corresponding increases in asking rates in four- and five-star hotels. Consequently, the asking prices for accommodation and services in this segment have increased — albeit unjustifiably, in terms of quality and standards of services — by over 50 percent in the past couple of years.