The Russian hospitality industry experienced an exceptional rebound in 2021, but rising geopolitical risks make an anticipated return of foreign tourists questionable and prospects for 2022 very vague.
Hoteliers in Moscow and St. Petersburg, Russia’s two largest cities, said they were more than satisfied with 2021 operational performance. Mounting geopolitical tensions between Russia and Ukraine and the West's responding sanctions on Russia could undermine the further growth in the Russian hospitality industry.
Lada Samodumskaya, general manager of Hotel Baltschug Kempinski Moscow, said last year's operational results exceeded original expectations. But it's difficult to predict what will happen this year.
“The forecast for 2022 is hypertrophied uncertainty," she said. "First of all, geopolitical tensions will affect the economic situation in the country, leading to a ruble [Russia’s currency] devaluation. Destination Russia will partly lose its attractiveness among international meeting planners and conference organizers, and sport and cultural events may be postponed or moved to other locations."
Samodumskaya said her hotel has already lost bookings.
“[My] hotel has already started to receive cancellations from individual tourists as well,” Samodumskaya said.
One event already in jeopardy is the 2022 UEFA Champions League final, which is scheduled for May 28 in St. Petersburg.
“The current state of affairs cannot but affect hotel occupancy and revenues, and we expect the cancellation of confirmed international guest group bookings and events in the near future,” Samodumskaya said.
Samodumskaya said hoteliers hope that all of this can be partly avoided if current tensions de-escalate.
Yana Ukhanova, head of hotels and hospitality for Russia and Commonwealth of Independent States at business advisory JLL, said up until now, hotel demand was becoming more stable.
Ukhanova said international business travel demand in Russia might decrease or not return to where it was expected to be by the end of 2022. But for now, she expects the effects to be minor, since business travel has been muted for much of the pandemic.
“Given the overall, existing ban and recommendation of only essential travel that currently exists in international companies, political uncertainty will not seriously affect demand for hotel accommodation,” Ukhanova said.
A low base will remain low until the Ukraine episode is over, but some market participants are optimistic that geopolitical tensions will not hit the Russian hospitality industry too hard.
Yulia Meshchaninova, cluster sales director for St. Petersburg at Radisson Hotel Group, said 2022 could still bring a recovery in Russia's business travel segment. Business tourists most commonly come from Turkey, India and the Middle East.
“In St. Petersburg, we see a positive trend in hotel bookings in [the second quarter of] 2022, high demand for the Champions League. In addition, we expect confirmation of a number of international congresses and conferences based in our hotels, which have been postponed to [this year],” she said.
A Great Start to the Year
All things considered, the start of 2022 was quite positive for the Russian hotel industry up until recent weeks.
Elena Borisova, general manager of the Crowne Plaza Moscow World Trade Center, said the beginning of the year proved to be very positive for individual guest bookings. She added that the wave of the new strain of COVID-19 has, of course, affected the rescheduling of some major events at our venues, but plans for them remained intact, and her hotel offered close alternative dates to its clients.
For now, guests still are arriving, Borisova added.
“Business travelers and tourists continue to arrive from Europe, Asia, the Middle East, so for now we can state that international tension has not affected corporate travel policies and the mood of individual guests,” Borisova said. “In 2021, [our] hotel managed to approach the figures of 2019 in terms of revenue and occupancy, but a full recovery in demand is still lying ahead."
Samodumskaya said the Hotel Baltschug Kempinski Moscow increased average daily rate by more than 20% in 2021.
“Several months’ revenue even exceeded 2019 results," she said. "The hotel set [its] record of the highest [gross operating profit] percentage for the past 15 years, with the exception of the FIFA World Cup year [of 2018]."
The boom of local demand, increased demand for suites and high-end room categories and an increase in the number of hybrid format events all contributed to the uplift, Samodumskaya said.
Meshchaninova said Radisson's hotels in St. Petersburg haven't yet eclipsed pre-pandemic occupancy levels.
“In 2021 in St. Petersburg, the occupancy in our hotels and tariffs were higher than in 2020, [although] we have not yet reached the level of 2019,” Meshchaninova said.
She added recovery was quite fast but also uneven, with centrally located, smaller hotels able to replace missing international demand with domestic tourism but larger congress hotels unable to fully recover.
Recovery, Almost
According to data from STR, CoStar’s hotel analytics firm, full-year 2021 occupancy in Moscow hotels was 58.1%, down from 74.9% in 2019. Hotel average daily rate climbed to 5,893 Russian rubles ($74.05) in 2021, a 2.2% increase over 2019’s ADR of 5,767 rubles. Moscow's hotel revenue per available room in 2021 was 3,421 rubles which was 20.8% lower than the 4,321 rubles of RevPAR achieved in 2019.
In St. Petersburg, hotel occupancy was 42.8% in 2021, down from 65.5% in 2019. ADR reached 7,035 Russian rubles in 2021, outpacing 2019's full-year rates by 9.4%. St. Petersburg's hotel RevPAR in 2021 was 3,013 Russian rubles, which was down approximately 28.5% down on 2019 numbers.
JLL's Ukhanova said the Russian hotel industry has adapted to the pandemic, and demand has started to be more stable.
“Both in Moscow and St. Petersburg, RevPAR is gradually growing. … This year, we expect a further increase in the indicator, which will primarily be due to the growth of occupancy and not [ADR]," she said. "Limited, but not yet recovered volume of demand restrains the possibility of price increases. However, given the soaring inflation, hoteliers will have to review their pricing strategies to offset decreasing profitability levels."