The almost complete absence of inbound Western travelers to Russia is having a marked impact on the Russian hotel industry, and the lack of demand now is just as devastating as it was during the pandemic.

As a result, domestic business from Russian residents is what's presently keeping the country's hotel industry afloat.

The European Union imposed restrictions on Russians traveling to Europe following the Russian invasion of Ukraine in February 2022. European countries such as Finland, Poland and the Czech Republic imposed outright bans on their citizens going to Russia.

For Russia's inbound tourism industry, last year was catastrophic.

According to the Kommersant business journal, the country received 190,000 inbound tourists in 2022, down from 5.1 million in 2019, and even less than the nearly 290,000 who entered the country in 2021 at the height of the pandemic.

The much-anticipated return of wealthy international guests to Russia simply has not happened. Barred from traveling to Europe and elsewhere, Russians have had no option but to seek domestic travel opportunities.

However, economic pressure and a cost-of-living crisis in Russia are also denting demand for domestic hotels as well as demand for hotels in countries such as Turkey that do permit Russian travelers.

Historically, Western guests visiting Russia favored two destinations, Moscow and St. Petersburg, which have faced the brunt of the international demand slump.

“In general, a slump in the hospitality industry’s performance compared with the pandemic level was seen only in Moscow and St. Petersburg, and [it is] particularly evident in luxury and upper-price segments,” said Marina Smirnova, partner and a head of hospitality and tourism at Moscow think tank Commonwealth Partnership. She added other categories of hotels managed to fill the gaps left by foreign visitors with local travelers.

In terms of segment, luxury hotels that traditionally relied on wealthy international visitors have lost considerable occupancy in the past year, she said.

Vadim Prasov, vice president of the Russian Federation of Restaurants & Hoteliers, said “a part of luxury hotels has been even forced to revise their tariffs downwards in order to attract foreign visitors.”

He said the current crisis has wiped out not only wealthy Europeans, but also wealthy visitors from the Middle East, another typically active feeder market to Russia. While travelers from the Middle East didn't drop off as immediately as European travelers, their numbers have dwindled noticeably since last year, he said.

Some midscale hotels also have seen performance decreases, especially in St. Petersburg.

Olga Kiseleva, director of the Admiralteyskaya hotel in St. Petersburg, said that typically, international guests accounted for 30% to 50% of revenue for Russian hotels, but this number has declined significantly, not just from European guests, but also those from the Commonwealth of Independent States. In addition to Russia, the CIS includes Armenia, Belarus, Azerbaijan and others.

“This year, we observed a slump in demand, especially during the May holidays, as the occupancy plummeted by 25%,” Kiseleva said.

Prasov is hopeful that Chinese visitors could compensate for a lack of Western visitors in upper hotel segments, with the continuing downward rally of the Russian ruble helping to contribute to this trend.

The ruble has weakened by 26% this year because of a collapse in export revenues and a growing budget spend, making it the third worst-performing global currency this year.

During the past 12 months, the ruble has lost nearly half its value against the hard currency.

But while inbound tourism from international locales has suffered a major blow, Russian hoteliers agreed that domestic tourism has bolstered performance since last year.

“The current season fully met our expectations, especially from the point of view of domestic tourism,” said Angelina Samadova, director of revenue management for Russian hotel firm Kravt Group.

She added that in 2023 the company dug deeper to better understand Russian travelers.

“Our occupancy ratio we consider is as maximum as is possible, close to last year's level, while average daily rate jumped by 15%,” she said.

Substantial state-aid measures also have helped the Russian hotel industry. Thanks to tourist cash-back schemes, residents can get partial compensation for hotel stays and other travel costs, Smirnova said.

The abolition of sales taxes on selected travel costs for the next five years also has helped, she said.

Another factor keeping Russians inside the country when it comes to traveling: Leaving the country is just more difficult now.

While destinations such as Turkey, Egypt and Thailand are still open to Russians and offer less expensive destination options, other obstacles abound.

Flight costs have increased, as has the difficulty for Russians to pay bills abroad, Smirnova added.

For example, international payment systems, such as Visa and MasterCard, allow their credit cards issued in Russia to only be used for domestic transactions.

There are also restrictions on Russians buying foreign currency.

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