Hit by plummeting oil prices and economic sanctions imposed by the West, Russia’s currency turmoil is roiling the region’s tourism industry too
Russia’s political and economic crises, compounded by the recent collapse of the rouble, will rock the region’s tourism industry for the next two years, say travel business leaders.
The declining rouble, which in December 2014 fell below 74 against the US dollar from 44 the previous month, slashed the spending power of Russian travellers, playing a role in the collapse of more than 20 travel agencies in Russia and halving Russian arrivals to Thailand at the height of peak season.
“The sunshine days are over,” said Kubilay Atac, general manager of Pegas Touristik Thailand, one of the largest inbound operators in the market. “Business will never be the same again, especially in Thailand.
“I have been warning about the major Russian crisis for some time. I had expected the rouble to fall below 50 to the dollar in February. It was a big slap in the face when it happened in peak season, the one period we had to recover losses from last year (due to Thailand’s political crisis).”
Atac expects all of the region’s tourism markets, especially Bali, Vietnam and Thailand, will be severely affected. Performance over the last month serves as a bellwether of worse to come.
“I personally think it will take (Russian president) Putin two years to sort the (political and economic) problems,” he added.
This is especially bad news for Thailand, where Russia is the third largest source market, after China and Malaysia. Official figures show Thailand received more than 1.4 million Russian visitors from January to November 2014, a year-on-year drop of 4.9 per cent. Pegas brought some 506,000 Russians to Thailand during 2014.
Atac is now forecasting the company’s arrivals will fall by 65 per cent to between 150,000 and 165,000 this year, with the total number of Russians visiting Thailand unlikely to surpass 600,000.
“The problem is Russia is really the number one market,” he elaborated. “There are more Chinese, but they stay for three to five nights. On average Russians spend 11 nights, often more, so it’s a major market in terms of roomnights. The decline will be felt everywhere, from hotels to tour guides.”
Other analyses are less dire, but they are not optimistic either. Kasikorn Research Center in December forecasted Russian arrivals to Thailand would fall 9.3 per cent to nearly 1.6 million in 2014, significantly lower than the Tourism Authority of Thailand’s 1.9 million target for the year, or the 32.7 per cent growth achieved in 2013. It expects a further decline of 24.6 per cent this year with revenue to slide by 20.7 per cent to 90 billion baht (US$2.7 billion).
Either way, the decline will be felt at every level of the tourism business. While Pegas is currently continuing its 10 charter flights to Bangkok and nine to Phuket, on a 10-day average the operator has slashed its daily number of buses in use from 382 last year to just 99.
The Thai Hotels Association in December reported Russian room reservations in Pattaya had fallen for the first time in 12 years, plummeting by 70 per cent to 30 per cent occupancy.
Said a senior executive at an international hospitality company, speaking on condition of anonymity: “Our hotels in Bangkok and Phuket have seen a significant drop in Russian guests towards the end of 2014.
“With the rouble collapsing at the end of last year, we can anticipate a steady decline of Russian travellers visiting the kingdom in 2015 until its economy improves and the situation in Crimea eases.”
Peter Foster, vice president sales at Onyx Hospitality Group, said the company was also feeling the pinch across its Thailand properties, though “recent performance has shown some encouragement, highlighting perhaps some resilience in the three-star market”.
“As there have been cancellations of charter flights from Russia, it is likely the situation will continue for some time. The Russian operators whom we have spoken with are feeling particularly challenged by the ongoing situation. We hope things will improve in 2015.”
Most industry sources that TTG Asia spoke to do not anticipate any turnaround in the short term. “The worst is yet to come and the full impact won’t be felt until peak season 2015/16,” said Bill Barnett, managing director of C9 Hotelworks. “A lot of packages (arriving in November and December) were booked and prepaid in early-2014 before the rouble’s collapse.”
Thailand, in particular, is paying the price for relying too much on mass tourism, he opined. Record growth from markets such as China and Russia are unsustainable in the long term and will ultimately dampen profitability within the travel trade.
“Talk to hoteliers in the resort market and they’ll say the Chinese are already holding up their hands and saying they can fill the shortfall from Russia, but that will come at a price. The (Chinese) will want 20 to 30 per cent discounts. So what we are essentially seeing is the commoditisation of travel. It’s the Walmart model where the market will be driven by price and discounting,” commented Barnett.
“(Hotels) may get occupancy, but we can be sure that RevPAR will come under a concerted attack. It’s too early to say by how much it will decline, but it will be significant. There is no national tourism agenda on pricing – at the moment it’s all about being ‘happy’ – and that’s very unhealthy.”
Pegas’s Atac agrees that the decline will be long and hard. Businesses that want to survive must focus on reducing costs, which will ultimately result in layoffs.
“People say I am a pessimist, but I am a realist,” he remarked. “If someone has a magic wand to fix things then maybe I’ll be proved wrong. But I don’t believe in magic. There is no way out.”
Politics: Relations between Russia and Ukraine deteriorated following the Ukrainian revolution in February 2014 which ousted a pro-Kremlin government. Crimea, then part of Ukraine, was annexed by Russia in mid-March. Russia has been accused of providing financial and military support for anti-government forces in Ukraine since the beginning of the crisis.
Economics: The EU levied sanctions against Russia as a result of its actions in Ukraine and Crimea, dragging on an already flagging economy. The plunging oil prices, which halved in the six months to December, caused further problems for Russia and the rouble’s decline.
Currency: The rouble fell from about 32 against the US dollar in January 2014 to 44 in November, further dipping to about 74 in mid-December.
This article was first published in TTG Asia, January 16, 2014 issue, on page 7. To read more, please view our digital edition or click here to subscribe