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Hotel Consulting and Development Group

News

2003-04-15

March is a special month for all of Moscow’s tourism industry. During the first month of Spring, Moscow hotels seek to capitalise on the flourishing conference and exhibition activity. In this context, it is interesting to analyse the impact that the exhibition and conference activity carry on hotel performance in terms of weekly occupancy trends. During the last week of March, the number of room nights sold constituted on average 80 to 88 % of total room nights available for the existing mid-tier and upper segment hotels. In most instances, the hotels enjoyed 4 fill days from the 25th to the 29th of March.

Before the arrival of the Spring conference and exhibition season, hotels operate at lower occupancies. The emergence of conference and exhibition demand in Moscow provides needed leverage for hotels. Until recently, Moscow was not considered a popular international venue for conferences and exhibitions. Despite renewed effort on behalf of the municipal government to stimulate exhibition activity in the capital, the current exhibitions are characterised by an average duration of three days. Usually, exhibition patterns in Moscow follow a precise timing, whereby the exhibitors arrive on a Sunday evening or Monday morning; set-up occurs mostly on Monday, and the exhibition is then opened to the public for the remaining three to four days of the week, with all participants returning either on Friday or on Saturday evening. Thus the occupancy peaks between Tuesday and Wednesday shouldered by the remaining days of the working week. From this trend, hotels usually compensate low occupancies at weekends by peak exhibition related activity at mid-week. Yet, the city of Moscow is still a weak international venue provider when compared to Cologne, Frankfurt, Milan, Paris or London. Despite improvement in exhibition organisation in Moscow, the frequency of such events is still quite sporadic. Among the hotels most involved in the conference activity, The General Manager of the 777 guestroom Cosmos, Mr. Yulgushev is deeply concerned about this problem. During the last round table for Moscow Hotels, Mr. Yulgushev, commented that poor and/or inefficient coordination and organisation of national exhibitions and conference events negatively impact on hotel financial performance.

As an example, a situation was presented, when two large exhibition events were held simultaneously in Moscow, the largest international tourism exhibition in Russia (MITT-2003) at Krasnopresnenskaya on the north-western side of the city, and the Textile Exhibition organised around the BDNXH due north of the city centre. During the actual duration of the exhibitions, all hotels in the city were fully booked to the point of turning down exhibition visitors. Towards the end of the exhibitions, occupancy rates declined. At the weekend, exhibition perks vanished and the hotels found themselves with occupancy levels falling back between the 30 and 40% range. Obviously, this case illustrates the opportunity cost of poor coordination. The exhibition planners should have shifted the second exhibition by 2 to 3 days to enable a smooth transition from one exhibition to the next. In doing so, all hotels could have enjoyed twice the amount of related fill days .

As the analysis shows, during the exhibition, hotels seize the opportunity to raise room tariffs, thus taking advantage of the great demand for accommodation services during this time. Basically, this is carried out through the omission of discounts applicable to sector rates and segment tariffs. This practice on price policy is most evident among the top segment hotels in Moscow. During the last week of March, average room rates in 4 and 5 star hotels were 10 to 30% higher on Wednesday than on Monday.

In lower hotel categories, the impact of exhibition demand is much less present in the upper segments. During the first exhibitions in Spring, the average room rates among three star hotels in the city increased by 3% during the MITT-2003 exhibition in comparison with the previous week. Rather than raising average rates during one event, this category took the liberty to raise their prices by 13.5% for March in comparison with February.

  Moscow Hotel Supply % Change (March 2002/March 2003)
Average Daily Rate

Average Room Occupancy
  Top-Segment + 16,3% +0,06%
  Mid-Segment +28,5% - 12%
  Lower-Segment +29% +0,05%
Source: HCD Group, 2003.

As we already commented in the previous reviews, the Average Daily Rate (ADR) remains one of the basic performance indicators, which exposes periodic fluctuations in demand. If we compare average daily rates for the top, middle and lower segments of the hotel supply in Moscow between March 2002 and March 2003, we can make the following conclusions.

The analysed tendencies, all things considered, will continue to impact on the behaviour of the hotel market. The hotels, positioned in the mid-range and lower segments in Moscow, face lesser competition than hotels positioned in the 4 and 5 star range. Thus, such hotels have more room to increase prices, though in doing so, can negatively impact on occupancy and thus RevPar, as observed in the middle segment with increases in Average Daily Rate of +28,5 being accompanied with a drop in occupancy of 12%. Thus, we estimate that there is a correlation between increase in occupancy and average daily rate, whereby fluctuation in Average Room Occupancy ranging between 65 to 80 % of the existing hotel room supply will also cause the Average Daily Rate to vary accordingly by 5 to 10 % per month.

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