The recovery of the hospitality industry in the Baltic countries of Estonia, Latvia and Lithuania has been among the slowest of the post-pandemic era in Europe, and some hoteliers are still scrambling to make ends meet.
In Latvia, 2023 proved quite challenging for hotels, said Andris Kalnins, president of Latvia’s Association of Hotels & Restaurants. He added the industry’s turnover in the country equaled that of 2019, but he said no one should believe that is a positive dynamic.
“This happened primarily due to inflationary costs and does not indicate that business was profitable,” Kalnins said.
Hoteliers in Latvia have seen operational costs skyrocket across the board, he added.
Soaring energy prices and increases in labor costs and the price of raw materials have resulted in hoteliers' wallets being much thinner in the past year, Kalnins said.
The Baltic states share the last place in Europe in terms of industry recovery, said Julia Zhagunova, a member of the board of Relais le Chevalier, a hotel located in Riga, Latvia.
Although hotel performance in 2023 improved over 2022, there is still a long way to go, she said.
“So far, the results of 2019 look [difficult to reach] both from the point of view of occupancy and average tariffs,” Zhagunova said. “Most of the hotels [in the Baltic States] work with no profit, or even at a loss.”
There are numerous reasons for the weak performance of hotels in the region.
During the first 10 months of 2023, Latvia was visited by 20% fewer tourists compared with 2019, Kalnins said.
Other root causes include a labor shortage and reduced marketing to properly promote the country’s popular tourist destinations on the global market, Zhagunova said. Some legal gaps need to be filled, too, she added.
She said the region suffers from numerous hotels that “still operate in the gray zone, often managing to avoid paying taxes.”
Cost-of-Living Crisis
Baltic hoteliers largely blame inflation and the cost-of-living crisis for the slow recovery.
This is a major problem in Estonia, said Killu Maidla, CEO of the Estonian Hotel & Restaurant Association.
“We are concerned about the well-being and purchasing power of people. It has a great impact on our industry,” she said.
On the bright side, 2023 was the first year since the pandemic in which Estonian hoteliers did not suffer losses, Maidla said. But the hotel business in the country isn't out of the woods yet.
“I don’t see that everybody has sufficient means to live up to next season,” Maidla said.
She added inflation and fears of a looming economic recession in the Eurozone means that Estonia is no longer considered a low-price destination.
In general, the cost-of-living crisis forces customers to make inconvenient decisions and cut out some of their “pleasures,” Maidla said. People can now afford to travel only once per year, and Estonia is not the first choice for most, she added.
Not all hoteliers in the Baltics are pessimistic.
Edita Liutkevičiūtė, general manager of the Neringa Vilnius Hotel in Lithuania, insists business was relatively good in 2023, with performance even outpacing 2019 levels.
On the other hand, the recovery remains constrained, the hotel industry vulnerable to economic and political upheavals and is experiencing problems due to rising costs and proximity to armed conflicts, Liutkevičiūtė said.
The lack of Russian visitors, who were particularly important for the local hospitality market in the mid-2010s, has had no impact on the hospitality industry in the region in the past few years, Zhagunova said.
“Their numbers were already dwindling before the COVID-19 pandemic,” Zhagunova said. “The lack of recognition of the Russian vaccine against coronavirus in the [European Union] has narrowed the flow of visitors from the eastern neighbor almost to zero.”
Before the pandemic, Estonia’s capital Tallinn was one of the most popular destinations in Europe, known for is cobbled streets, quaint Old Town and medieval buildings and architecture.
Petri Schaaf, general manager of its Sokos Viru hotel, said his hotel grew sales throughout 2023, and its only down months were October and November, which were difficult months for the entire Tallinn market.
“The figures have yet to reach the 2019 level but are relatively close,” Schaaf said.
The key issue is that demand from key feeder markets such as the larger European countries, Asia and U.S. has yet to fully bounce back, he said. The cost-of-living crisis in Europe also has contributed to sluggish numbers.
“In 2023, the Estonian market has no longer seen a delayed demand, which buttressed operations in the previous year,” Schaaf said.
Optimistic Outlook
The future of the hotel industry in Estonia, Latvia and Lithuania looks largely uncertain, but there is some optimism.
Latvia’s Association of Hotels & Restaurants has recently lobbied the country's government to lower sales/value-added taxes on cafés, restaurants and catering from 21% to 12%, Kalnins said. Latvia raised the level of value-added taxes from 9% to 21% in 2009.
“For the hospitality sector in Latvia to grow successfully, the government must recognize the industry’s significant contribution to the state budget as an exporting sector and implement a competitive tax policy,” Kalnins said.
In Estonia, however, the new government coalition is mulling plans to raise the tax on the hospitality industry from 9% to 22%.
Despite the prospect of higher taxes on the Estonian hotel industry, Maidla said she isn't concerned about the future of hotels and tourism.
“We survived COVID-19, the energy crises, the first shock of the [Russian invasion of Ukraine]. What could break us? Inflation, recession and a tax rise? Really?” Maidla said.