Marking the tenth anniversary of Moscow’s Aerostar hotel, General Manager Andrew Ivanyi talks with The Russia Journal about how the operation has put legal scandals in the past and some of the unusual features of the local hospitality business.
The Aerostar, one of the first Western-style hotels to open in Moscow after the collapse of communism, is celebrating 10 years in business this month. The hotel is run by the Aeroimp joint venture between Aeroflot and the Main Agency for Air Communications, each with a 25 percent share, and IMP, a Canadian aviation company, with a 50 percent stake.
The Aerostar became the subject of legal wrangling in the mid-1990s, when the Canadian partner claimed its interests were being subjugated by the Russian side. An international tribunal in Stockholm ruled that the Russian partners should pay IMP $8 million in damages for terminating a management contract and amending the hotel lease.
Many businesspeople in Moscow viewed the case as an example of how joint ventures in Russia can go wrong. But the hotel's general manger, Andrew Ivanyi, who previously worked in the trade in Canada and Western Europe, said the hotel had consigned that row to the past and that he saw grounds for optimism in the next decade.
The Russia Journal interviewed Ivanyi, who has held his post since the hotel's opening in 1991, about the changes he has seen in a decade of sometimes turbulent business in Moscow.
THE RUSSIA JOURNAL: How did the conflict between the Russian and foreign partners end?
ANDREW IVANYI: The dispute and the differences were amicably settled. IMP got damages, and the relationship has been good since then. We've moved on now; it's three years later and the challenges are different. IMP still has 50 percent, and Aeroflot and the Main Agency for Communications both 25 percent. I don't want to dwell on the issue – it's in the past.
RJ: How have the problems and challenges of managing a hotel here changed over the last 10 years?
AI: There have been different phases and different priorities. It's not a secret that the 1998 [Russian financial] collapse damaged the Moscow hotel business tremendously. In the last nine months, there has been a slow but steady recovery. We're still not close to the pre-crisis occupancy rates – none of the other hotels are either. To return to those days we need a more aggressive investment climate.
[After the 1998 crisis] there was a downturn in business – we had to cut staff and costs and make changes to be able to survive. Now, some of that is behind us and we are building the business again while maintaining the cost base at a reasonable level. We maintained standards but at the same time did not cut corners.
We still rely on foreign companies and joint venture businesses for our guests. Only 17 percent of our guests are Russian, although that number is increasing. There used to be more visitors to Moscow looking at investment.
Now, there is more competition with more hotels opening, but our occupancy rates are up 10-15 percent [on the same period] last year. If we can improve the tourism side there is reason for optimism.
RJ: What are the peculiarities of running a hotel in Russia, and to what extent is there potential for development of the hotel and tourist industry in Moscow?
AI: Here, we had the additional challenge of training staff ourselves, and of getting products into the country, shipping in from abroad. Then there have been the changing environment, customs and taxation issues that all new companies face here.
The principles are the same from Honolulu to Moscow. One of the peculiarities of Moscow is that it is a fly-in city, unlike, say, Prague or Budapest, where people come in by bus. Everyone flies in, so there's little weekend business. People don't think to go to Moscow for the weekend.
Then there is the visa problem – it's difficult to get instant visas, so there are no last-minute deals. We have yet to get to that – Moscow should be packed at the weekends. Ninety percent of our guests are businesspeople rather than tourists. But there is still a lot to be done. The city government is trying to improve things, and a committee formed by the European Business Association is giving advice and assistance to the city.
At the moment, things are just too slow, and there are too many outside factors, such as visas, that are not within the competence of tour operators or even the city government.
There is no room for newcomers in the present circumstances. People talk about the need for more three-star hotels, but this is a debatable issue, because there are lots of existing large hotels that just need sprucing up and a reorganization of services to become three-star hotels.
RJ: How much encouragement do you see at present for foreign companies in business ventures in Russia?
AI: The fact that we're still here as a joint venture is a shining example. The country has a history of uncertainty, but we're going through a stable period now. This is a positive step, and will inevitably affect investors.