Gulnara Safina: “Kazan is full of tourists, while hotel occupancy rates are falling”
The president of the Association of Hotels of Kazan and the Republic of Tatarstan on the tourist boom, paradoxes of competition and harmful gaps in legislation
Summer is a high season for hoteliers: this business maintains the tourist season. However, all big international events accompanied by an inflow of tourists have ended, while hotels that opened for them have remained. Isn’t the time for Kazan hoteliers to skim off? Read if they will face bankruptcy, honest and dishonest competition in the hotel business and ways of boosting its profitability in today’s uneasy situation in the first part of Realnoe Vremya’s interview with President of the Association of Hotels of Kazan and the Republic of Tatarstan Gulnara Safina.
More hotels — brighter prospects
Mrs Safina, there had been no doubt before the Universiade and then the 2018 FIFA WC that Kazan needed new hotels and hostels, and they were built. Who is filling them today and are they full?
I am often asked the question if hotels still should be built in Kazan. I think any hotelier of the city will answer this question like I will, no, as the existing room capacity is enough for the flow of guests arriving in our city nowadays. At the same time, we can’t help but note that Kazan is a leading tourist destination in Russia.
This has been achieved mainly due to a correct and far-sighted strategic policy of officials of the republic to attract and host big international events in our city and to use also the federal budget to develop the city’s infrastructure, which now allows Kazan to participate in different world tenders in the fight to host different international events in line with any developed metropolis in the world. This is very important for the economy of the city and the republic and, of course, for the hotel sector. As for occupancy rates of hotels in the city, according to the Tatarstan Tourism Development Centre, it was 60% in 2018, 57% in 2017. We shouldn’t forget that it was during the Confederations Cup and the FIFA World Cup when the months when these international sports events were held levelled the situation with the general annual tendency for reduction of key indicators of the hotel activity. In the last five months in 2019, the average occupancy rates of hotels have been about 54%, the 2019 WorldSkills Kazan will probably fix the situation.
But before hosting all big events in Kazan, the number of hotels had been much lower, and they had been empty. What’s the paradox?
I have been in the hotel industry since 2006, and the typical picture of that time is a 60% occupancy rate of hotels and only on working days, hotels were full only due to business trips. At weekends, the hotels were empty, and we wondered how to attract guests on weekends. It seemed that a hotel occupancy rate was 60% both then and is now, but it happened only because there were few hotels. To compare, the number of hotels was 87 in 2010, while their number with a total room capacity of 8,200 rooms, which are able to host almost 20,000 guests, reached 230 in 2018. Big hotels began to open by the Universiade — it was the first rise, and the growth followed by the 2018 WC. The number of hotels augmented gradually, and infrastructure developed at the same time, roads were built. At the same time, big international hotel chains began to enter the city. They are interested in big and promising cities with a population of over a million. And before they enter, they analyse the market situation in general. And if they make a decision to open a hotel managed by a chain, it means there is a prospect of running a business. And this prospect is again a result of the far-sighted policy of the republic’s officials on the promotion of the city both inside the Russian Federation and the world market. Kazan won the title of the third capital of Russia, we went ahead of Nizhny Novgorod here, and it is also a very important achievement in the tourism promotion of the destination, this also attracts tourists. For this reason, I don’t see a danger for the hotel business: the huge infrastructure built nowadays is the potential allowing working successfully.
Big hotels began to open by the Universiade — it was the first rise, and the growth followed by the 2018 WC. The number of hotels augmented gradually, and infrastructure developed at the same time, roads were built. At the same time, big international hotel chains began to enter the city
In other words, are hotels fully loaded today?
Yes, and it’s not that guests we received in the 2009-2010s and earlier. Businesses maintained us then, business trips on working days, and everyone checked out by Friday evening. There was nothing on Saturday and Sunday. And if somebody told me then that the situation would be the other way round and Kazan would be full of tourists on weekends, I wouldn’t believe. Such a segment as tourists, tourist groups didn’t exist for Kazan hoteliers 10 years ago at all, while now they provide with almost a hundred per cent load on weekends from April to October.
Strategy — key to success
Paraphrasing the classic, does Tatarstan and Kazan, in particular, have everything for a successful hotel business like in Greece?
Indeed, now we have everything: infrastructure was created, there is tourist traffic, in which the flow of tourists who come back gets better. But there are other moments, too. It’s important for the republic not to fall out of the Tourism Development Strategy in the country, which is being prepared now by the Russian Ministry of Economic Development.
There are few places with a tourist guide, even when you go to southern Russia, while we have signs everywhere, there is a developed online portal and the brand Visit Tatarstan
Should one regulate what already operates successfully so much?
It is important to be in the Strategy not to lose, not to miss our potential. Russia has other very interesting destinations — Lake Baikal, Altai, the Golden Ring. The Russian tourist has places to go besides us. But unlike us, they don’t have such hothouse conditions — infrastructure, good roads. And roads, by the way, are very important. I often drive. Samara Oblast, Chuvashia and other regions of the Russian Federation sometimes just have holes on roads, and it is a different story you enter Tatarstan. There are few places with a tourist guide, even when you go to southern Russia, while we have road signs everywhere, there is a developed online portal and the brand Visit Tatarstan. While Krasnodar Krai, the Urals, Crimea are underdeveloped in this respect, it’s very hard for a tourist to navigate — navigation is in trouble. The seashore of Krasnodar Krai is huge, while only Olympic Sochi is equipped with infrastructure that can compete with Europe. What is done here is a role model. Our region is set as an example, and our experience is offered to expand across the Russian Federation at meetings at the Russian level not accidentally.
All is going so well that I just can’t believe.
And it’s correct you can’t believe: it isn’t that well. What we certainly didn’t expect happened: if earlier hotels used to compete among each other, inside their star category or between segments, now the competition with each other is low that competition with individuals, with flat rent. It began some two years ago, and now it has been especially notable. Now private residence is our major rival. Why has this developed so much in the last years? Thanks to online booking systems — Booking.com, Airbnb, TVIL.ru and other services operate.
Can small owners really ruin the hotel business?
It isn’t just our problem, it’s a worldwide problem. It is present in America, Europe — in Italy, France. Accommodation of tourists in flats isn’t bad, somebody prefers a hotel, while somebody wants to dive into the everyday life of the country he arrived in, tourists choose a flat for tourists, not a hotel. But this affects the business in Russia and Europe differently. Long-term flat rental began to go up in price in Italy, France and other countries because they understood they it was more profitable to lease short-term. And here short-term flat rent is the main factor lowering the prices of the hotel sector.
But it’s profitable for the consumer, it is healthy competition.
No. At least because hotels don’t hike prices. And our rivals can fix any prices — in any case, they will have an advantage, with income — they don’t pay taxes, utility tariffs with rates for natural persons. And the list can go on, though they run a business as we do. We have huge costs, and they grow year after year, the legal business presses. For instance, a standard room in a four-star hotel cost 4,200 rubles in 2010. And the prices are the same now. It is unhealthy competition.
Profitability fell almost three times
Do you want to say that hotels have a high occupancy rate but at a loss?
A hotel with 30-32% profitability is considered cool today. And before the crisis, in the 2006-2007s, 70-80% profitability was supposed to be the norm. Now one can only dream about it.
A hotel with 30-32% profitability is considered cool today. And before the crisis, in the 2006-2007s, 70-80% profitability was supposed to be the norm. Now one can only dream about it
But 70-80% profitability is just a Russian phenomenon, it is usually much lower in the West with real competition. Why do they complain, why aren’t they satisfied?
The fall in profitability isn’t the only wake-up call. And I repeat that we don’t talk about honest competition. For instance, taxes. In Italy, those who rent accommodation for tourists pay taxes like commercial structures. The VAT rate for them is 22%. To compare, it’s 10% for hotels. If a flat is rented for a long term, from a month, an agreement must be registered, and they pay income tax. They obtain a special identification number with a term less than a month, and it’s permitted to rent only with it. In the Russian Federation, short-term rent agreements aren’t registered at all, and taxes often aren’t paid. An owner often rents a flat for a long term, while lessees rent it for a short term, and he isn’t even aware of it. Their prices are lower than in hotels, but it’s black money.
All to fight black money
It is no secret that grey accounting is the scourge of the economy of Russia. How are you going to solve this problem in the sector only?
We should understand this isn’t the only problem, it’s a ball of problems. For instance, nobody registers anybody in Russian accommodation for tourists, while it’s a matter of security. God forbid, gas will explode — nobody cares about equipment’s technical condition. Hotels check everything — from law-enforcement agencies to Russia's consumer protection watchdog Rospotrebnadzor, and nobody does private residence. The Housing Code’s article on inviolability of the home protects us from it. Statistics is another important moment, nobody can count tourists. According to ratings, Kazan was in the top 3 in tourism on New Year holidays, November holidays. Kazan was full of tourists, while hotels weren’t completely full. Even on New Year when hotels are usually full. These flats make a difference. And statistics also matter to develop tourism. The situation should be analysed to develop.
Legislation has recently banned from locating hostels in residential flats. Will it make the situation look better?
This can’t be solved with simply bans on flat rent as Mrs Khovanskaya offers. Those who rent a flat operate illegally. In Italy, Spain and America the problem is solved by limiting the number of months in a year when owners can rent flats for a short term. They are allowed to rent from 2 to 6 months as maximum, or no more than 30 or 60 days a year. And every flat of this kind is given an identification number. The owner gets it in the municipality and goes then to the tax service to register. He must indicate this number when posting an offer, on the Internet or somewhere else, no matter. He has no right to operate without it. The police and the tax inspection deal with lawbreakers. And they are held accountable in legislation — a fine of up to €10,000 for the owner if he posted an ad without the number and fines for booking systems for posting such ads.
There is no sense in banning a hotel business in residential houses as Khovanskaya’s law presupposes it — it is easy to shirk, they will simply remove the Russian National Classifier of Types of Economic Activity for hotels and go on working with lease. It is important that law introduce honest game rules for everyone — both for hotels and their rivals
Why is it so easy to shirk taxes in Russia?
Now the government is planning to introduce a resort tax. Unlike the voluntary fee, according to the experiment of the FL-214 (for Crimea, Altai Krai, Krasnodar Krai and Stavropol Krai), it’s planned to be compulsory for all the regions. As a hotelier and potential tourist, I am against its imposition given its doubtful feasibility. But if it is imposed in the existing situation, mainly hotel guests will pay it, while the majority of those who host tourists will avoid paying the tax. Everybody who works with tourists abroad pays the tax, including owners of flats for tourists. And they also have to provide with statistics — how many tourists they have. It is statutory there. Now the Ministry of Economic Development is preparing a similar bill. There is no sense in banning a hotel business in residential houses as Khovanskaya’s law presupposes it — it is easy to shirk, they will simply remove the Russian National Classifier of Types of Economic Activity for hotels and go on working with a lease. It is important that law introduce honest game rules for everyone — both for hotels and their rivals. I think we won’t be able to destroy tourist accommodation as a class, and there is no need. It is some support for people. And Russian resort zones don’t have so many hotels to handle such a tourist flow. But we should use the successful European experience and transfer it to our soil so that the legal business won’t suffer.