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Hotel Consulting and Development Group

News

2003-05-07

Though March is traditionally considered a good month for the hotel business in Moscow, due to exhibitions and other conference events held in the capital, the performance indicators for the month of April reveal a slight decline. The top segment hotels increased Average Daily Room Rate (ADR), at the expense of occupancy. The indicator variations do not drop 2-3 % in comparison with March figures, and –4to -5 % in comparison with the 2002 annual the performance indicators – average room rate, occupancy and RevPAR.

In the mid-tier segment (3 stars) average occupancy in April increased by 1,2 % in comparison with March coupled with rather significant increase in ADR of +9,9 %. The lower segments (1-2 stars) showed more price stability at (+3,4%), whilst occupancy grew by (+2,3 %). Strong demand for the Moscow hotel market (ranging between 60 up to 78 % depending on a segment) is expected to increase even more during the summer months, when the incoming flow of seasonal leisure together with perennial corporate visitors streaming to Moscow is in full swing.

In this context, it is impossible, to ignore the following consideration: whether there is adequate hotel supply in Moscow to accommodate peak demand, and whether new hotels are urgently required. The first problem becomes alarming during peak tourist season, when guestroom shortages in the Moscow hotels compel tour operators to perform last minute booking cancellations. This is the second year, that insufficient room capacity has occurred in Moscow and serves as a fair argument supporting the Government of Moscow’s plans to increase hotel capacity by 2010. The urban plan lead by the Moscow City Government calls for the addition of 90 up to 230 hotels various classifications to the existing supply.

Currently, the Moscow market comprises 218 units and approximately 78.5 thousand beds or 40.000 bedrooms. Whilst the average length of stay for hotel guests in Moscow in 2002 was 3,2 night, even at an average annual occupancy of 60 %, we estimate that the hotels in Moscow are capable of accommodating up to 5 million people. Shifts in average occupancy during peak periods of the year places this total accommodation figure at 7 - 8 Mio guests. In 1989, approx. 3.9 Mio people have registered in Moscow, of which 1.6 Mio are foreign visitors. Foreign tourists are not only those from abroad, but also now from CIS member states since the dismantling of the Soviet Union. It is still difficult to tell, what quantity of the tourists and other categories of the clients will use city hotels this year, but we can confidently assume, that it is no more, than in 1989. Ten years ago, hotel room supply was 1.3 times less than it is today, and room stock then contrasted significantly to Western standards.

Despite increase in hotel supply in the last decade, and a lower tourist count than in 1989 (based on the data of a Federal service of the boundary control of Russian Federation, an estimated 2,23 Mio visited Moscow in 2002), shortage in room supply is a recurring problem during peak periods of the year. How can this be accounted for?

In the hotel market of Moscow traditionally consumer behaviour is the following: the foreign tourists prefer mid-tier hotels, where they compete for guestrooms with Russian businessmen, and the foreign business clients prefer the top segment of the market. Thus it is not necessary to overlook, that Russian clients use Moscow hotels 2,5 times more frequently than their foreign counterparts.

In 2002 the Moscow hotel supply accommodated more than 3.8 Mio. Guests, of which approx. 1,3 million foreign citizens. The trend for tourism in Russia is preponderantly tour groups over individual travelers. Some of the guestroom shortage is due to strong demand from tour groups during the summer season and the failure of most hotels to cope with large volumes of incoming guests. In addition, some hotels prefer to avoid dealing with tour groups altogether on account of low discounted rates, high strain on staff efficiency during peak periods and wear and tear of guestroom facilities.

This situation is exacerbated by the fact that tour operators who provide preliminary bookings for the groups do not always possess 100% guarantee that the reserved guestrooms will be available upon arrival. Nor are there reimbursement policies for the unfortunate guests. Late booking cancellations (i.e. the failure from earlier made reservations in extreme short notice) is one of risk factors in hotel industry as a whole, and the Moscow hotels are under no circumstance immune to this practice. As counteraction to overbooking, which can be blocked by seamless reservation systems. Caveats are placed contractual terms and conditions on advance payment and guarantees. Such actions represent a standard set of preventive measures used by all hotels, irrespective of the country of location, for reduction in losses caused by overbooking abuse.

The seasonal prevalence of demand on hotel services in Moscow is the second factor, which is causing disharmony in business relations between tour operators and hoteliers. In 2002 the fluctuation in occupancy for mid-tier hotels is estimated to be around 15% (from January to August). The shortage in guestroom supply is only a seasonal spell of one month, which is counterbalanced by lower occupancy levels between December and January.

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