While many western hotel firms have broadly promised a pause on new development in Russia due to that country's invasion of neighboring Ukraine, some hotels under these brand flags have opened recently and others are in the opening process.
For franchise companies that have stated they are exiting Russia, untying development relationships can be complicated. Companies acknowledge the process takes time, and in many cases it's unclear to the public how much control companies have over any given hotel project.
Darren Blanchard is a hotel operations and development veteran who spoke to HNN as someone who worked for several international operators and independent Russian hotels based in Moscow between 1992 and 2021.
"Before February 24, 2022, pandemic restrictions and ongoing geopolitical tensions had already significantly shrunk the Western European/North American commercial transient business, which was once the raison d’être for commercial city hotels, especially in Moscow," he said.
Blanchard noted he had been "actively encouraging hotel companies to come to Russia" as early as the mid-1990s.
"I was thrilled when in the early 2000s, international hotel companies, including Accor and Radisson SAS, finally set up offices in Moscow," he said. "I recognize the agony of having invested over 20 years in development, this will all be lost, and when that door closes, they too are unlikely to be back. Having spent the majority of my career across four decades dedicated to the development and growth of the Russian hospitality market, I understand how difficult it is for hotel operators to let go, but they must. I am proud of what I achieved with my Russian colleagues in Penta, Renaissance, Holiday Inn and Radisson."
He said he understands after working so long in Russia how difficult the decision to pull out of that country really is.
"Still, now those achievements account for little or nothing, and I have come to the realization that holding on is only toxic. The hotel groups probably understand this already but appear to be struggling to let go,” Blanchard added.
Recent Russian media reports have pointed out new hotels opening under Hyatt Hotels Corporation and IHG Hotels & Resorts brands, for example.
One of the recent openings is the Hyatt Regency hotel in Rostov-on-Don, a city in southern Russia.
The Russian-language website Antenna Daily on April 7 quoted Sergey Klimenko, cited by Antenna Daily as general manager of the Rostov hotel.
“The opening of the Hyatt Regency Hotel in Rostov-on-Don is an important event both for residents of the city and for all travelers who love the south of Russia and appreciate traditional southern hospitality," he said in the article via translation. "Now another address for premium tourism, large-scale business events and solemn private ceremonies appears on the map of Russia.”
In an emailed statement after HNN reached out for confirmation and comment on the company's plans in Russia, Hyatt officials said they are maintaining their promise to step back in the country.
"As previously announced, [Hyatt has] halted development activities and new investments in Russia, as well as terminated Hyatt’s association, contracts and relationship with Hyatt Regency Moscow Petrovsky Park. Hyatt will also suspend the provision of services under the existing management agreement at Hyatt Regency Sochi, effective 11:59 p.m. local time on April 14, 2022. Guests with questions regarding stays for April 15, 2022, and beyond are encouraged to contact the hotel directly.
“We continue to evaluate our existing agreements with the third-party entities that own Hyatt hotels in Russia, including open and unopened hotels, while complying with applicable sanctions and government directives.”
A previous email from Hyatt also noted the Rostov-on-Don hotel is among the "existing agreements" the company is evaluating.
Western hotel firms face complications in terms of scaling back business in Russia, as the industry is built on a web of layered relationships between hotel owners and investors, brands and third-party management firms. In addition to needing to avoid western sanctions while doing business, hotel companies also face threats from the Russian government if they scale back or shutter their Russian businesses, which could include multi-year bans from returning to the country or the country stripping trademark and intellectual property protections, which could potentially mean hotels opening claiming membership in western brands even if those companies officially severed their relationships.
But those roadblocks are likely to do little to reverse a broad exit of western hospitality businesses from Russia, Blanchard said.
“As far as doing business in Russia is concerned, the damage has been done, and the point of no return was crossed more than a month ago," he said. "The utter destruction of many Ukrainian cities, of Ukrainian families and homes, the displacement of over 10 million Ukrainians, and the murder, torture, rape, kidnapping, and mass graves that are openly named war crimes and genocide by world leaders and human rights groups cannot be reversed or overlooked. Even if peace can be found, even if tolerable lines can be drawn on a map, the animosity and hate this war has fermented, such peace will be satisfactory to no one, with the incriminations and need for restitution, regular business with Russia will be incompatible with doing business in Europe and North America. So far, unlike McDonald’s, Coca Cola, Decathlon and Leroy Merlin, hotel operators have managed to fly under the radar of public opinion, but it remains to be seen how long this can last.”
Another Russian-language website, Interfax, quoted on April 5 Vyacheslav Fedorischev, first deputy governor of Russia’s Tula region, saying IHG continues to pursue projects in his country.
The site quoted Fedorischev as saying via translation that “although many hotel chains are leaving the Russian market, Holiday Inn confirms its interest in continuing to work in the region. By the summer season, it is planned to open a hotel under this brand.”
On April 8, IHG said in a statement on Ukraine that the hotel company has “previously announced the suspension of future investments, development activity and new hotel openings in Russia. We do not intend to resume any investment or development activity in the foreseeable future. We also closed our corporate office in Moscow.”
In response to HNN emails on April 12, IHG’s communications department sent HNN a statement noting “IHG-branded hotels in Russia operate under complex long-term management or franchise agreements with independent third-party companies that own the hotels. Given the increasing challenges of operating in Russia, we continue to evaluate these contracts and are in discussions with owners, but this is a complicated process and will take some time.”
Performance in Russia
Hotel performance within Russia remains depressed early this year.
According to data from STR, CoStar’s hotel analytics firm, occupancy of Russian hotels for weeks ending on Sundays between Monday, February 28 and Sunday, April 10 has ranged from 36.4% for the week ending March 13 and 47.3% for the week ending April 3.
The highest level of average daily rate for that period was 5,565.83 Russian rubles ($66.71), with the lowest being 5,117 Russian rubles, while for revenue per available room the highest and lowest levels recorded for that same period are 2,494.24 Russian rubles for the week ending April 3 and 2,003.47 Russian rubles for the week ending March 13, respectively.
Blanchard noted the ongoing conflict has wiped out hopes for urban business travel in major markets like Moscow.
“The war will all but eliminate this segment for a long time to come. Those 600-plus major global companies and their international employees/guests that are taking massive financial hits to withdraw, such as Ericsson [$95 million]; Nokia [$109 million]; Volvo [$423 million]; JPMorgan [$1 billion]; Société Générale [$3.3 billion] and Shell [approximately $5 billion], will not be back in the Russian Federation without a significant and improbable change in the East European geopolitics," he said. “Nor is there the hotel clientele that defines unsettled or early emerging markets, such as the media, NGOs and Western diplomats, that made up the bulk of our hotel occupancy in the Olympic Penta Hotel, Moscow, in 1992."
Beyond hospitality, many U.S. businesses have pulled out of Russia, including news organizations that were essentially forced out of the country.
"Bloomberg and CNN withdrew their journalists from Russia on March 4 for their safety, and the Kremlin has labeled independent media as ‘foreign agents,’" Blanchard said. "On [March 22], the Russian state Duma passed into law media restrictions that so-called false information about all Russian state bodies operating abroad is punishable with prison sentences of up to 15 years. Therefore, most news media do not now report inside of Russia. Since 2015 Russia has blacklisted practically every international NGO, labeling them ‘undesirable.’ Amnesty International and [European Bank for Reconstruction and Development], which have supported NGOs and invested €24 [billion] in Russia, have been forced to close in Russia in the past two weeks."
He noted this makes the environment for international hotel brands all the more difficult.
“Hotels that once had American or European segments as the backbone of their business will suffer unless they can replace them with domestic and Asian business," he said. "There are already signs that China and India want to fill the trade gaps, but that may not reflect in filling beds in upscale and luxury hotels. You must wonder what added value an American or European hotel brand provides in such a market?"
Russian hoteliers are seeing great traction in their domestic market, Blanchard said.
“Conversely, with travel restrictions on Russian citizens due to the war and pandemic, Russian domestic tourism has never been more lucrative than today," he said. "Russian hoteliers expect 2022 to be their best year ever, with close to 100% occupancy, an extended summer season and elevated room rates. A cursory view of room rates in July 2022 shows that for seven days for two people, a room-only rate in a standard [100 square-foot room] in July at the Swissôtel Resort Sochi Kamelia is already priced at over 3,500 euros ($3,797.25)."
Stephanie Ricca and Sean McCracken contributed to this story.