Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Travel Agent Novices Face Tourism Shake-Out

Business is good these days for Russia's travel agencies -- big or small, good or not so good. After the enforced closeting of the Soviet years, a whole nation wants to see the world.

The number of tourists from the Soviet Union grew in the early 1990s, from 1.6 million in 1989 to 2.24 million in 1991. After the breakup of the Union, the figure for Russia alone was much lower in 1992, at 1.2 million, but subsequently it has more than rebounded, to 2.5 million in 1994.

Moreover, many of today's tourists are going to tourist destinations in capitalist countries that were effectively out of reach to a large part of the population in Soviet days.

However, wanderlust cannot sustain the industry's current growth rate. Competition within the marketplace is growing rapidly. So, looking into the future, some players have already begun to define their place in the market for when the industry sort-out begins in earnest.

The State Committee for Physical Culture and Tourism has already issued nearly 4,500 international tourism licenses. "There are another 10,000 firms [which], possessing no knowledge of [the tourism industry's] intricacies, have plans to offer services in this field," says Mikhail Marinin, an adviser to the chairman of the Committee on Tourism Issues.

Rapid growth in any business normally means a lot of people who are less qualified or professional in their approach enter it. Analysts say many of the industry's participants are irresponsible and unprofessional.

"The reliability of the majority of Russian travel agencies reminds me of Russian roulette," says Dmitry Shapiro, director of Moscow's department for tourism and hotel certification. "And because of this, solid companies who meet international standards are suffering."

The general lack of confidence in the market is forcing companies with long-term intentions to do everything in their power to distance themselves from the rest of the pack in the eyes of their clients.

Industry experts divide the travel and tourism business into two groupings. The first and smaller, consists of companies that maintain strong ties with foreign partners, and manage to make big investments in their own development.

Their employees make overseas visits to their foreign counterparts, evaluating the quality of the hotels they recommend, transportation and the quality of service. As a result, they are selling a product they have checked out first hand.

The second group consists of companies with limited financial assets that do business by buying discounted packages from the first group and selling these unfamiliar tours in their own name.

"Unfortunately, this division is not completely defined, although, ideally, operatives and agents are supposed to work only with their own products," says Irina Batyr, deputy executive director of the Russian Association of Travel Agents.

Experts say that one sign of a "civilized" company is accreditation in the International Air Transport Association. Today, there are only 82 Russian members of the association. Another six have applied and are awaiting the final verdict from the association's headquarters in Geneva.

"For the most part, these are Moscow-based agencies, but there are some from St. Petersburg, Samara, Novosibirsk and Vladivostok," says Yury Chernikov, secretary for the association's executive committee.

The minimum requirements for membership take up four pages of text, and touch on many aspects of the daily operations of an agency: location of the office (it must be reasonably easy to find), the provision of online reservation systems, and personnel qualifications, including knowledge of foreign languages, Chernikov says.

Other requirements include company bank guarantees, and an audit from a reputable accountancy firm.

Membership gives significant advantages. For instance, an unaccredited company using the computerized international reservation system Amadeus, the major such system used by Russian travel companies, may be required to pay in advance for hotel reservations.

"We get immediate confirmation," Protasov said, referring to IATA members. "Accreditation serves as a guarantee of our reliability."

A similar situation exists regarding ticketing agreements between airlines and travel agencies. "An agency without IATA accreditation is considered inferior," says Griphon Travel president Boris Epshtein.

"In terms of the guarded approach to Russia and her tourism business, accreditation is the criteria by which foreign partners distinguish serious firms from Johnny-come-latelies."

"Membership in IATA helps us a lot when we want to get an agent agreement with airlines, which are very strict with applicants," said Anna Festa, spokesman for the Unisel agency.

However, the tourism industry in today's Russia doesn't have Western standards of industry professionalism -- for example, Japan demands that such a company must have a minimum of $300,000 and its company's chief must have a degree in travel and tourism or in law.

Nevertheless, industry experts say that significant initial investments are unavoidable in the start-up of a serious travel business. Half the $200,000 needed to start up Olbi-Tur was spent on equipment, while nearly $70,000 was paid to German specialists to come to Russia and train the company's staff.

One of the most important steps a serious company can take is improving its employees' qualifications, says Shapiro. "Working with foreign partners requires serious legal knowledge," he says.

When under-qualified travel agents begin working as tour guides, Shapiro says, problems can occur. The result isn't just a drop in service quality. "There were two fatal cases of malaria among Russian tourists in the last year," Marinin said. "I think the firms that sent them committed a crime, not warning their clients of the presence of this illness in the country of destination."

Some companies are moving toward country specialization as a means toward guaranteeing themselves a place on the market. Ultramar Express, for example, specializes in trips to Spain.

Another company, Exo-tour, sends tour groups mainly to Cyprus, Greece, Egypt and Turkey.

Exo-tour president Alexei Zakhariadi said the firm has plans to bring together several Russian and foreign partners into a large concern, making it easier to conduct business, in particular, with the airlines.

"We want to expand our strength, preferring to work with resorts and partners with whom we are well acquainted," he said.

According to analysts at RATA, there is one more market division -- between those companies that focus on individualized tourism and those focused on group tourism. These analysts say both approaches have potential, and representatives from each area are convinced that they have made the right choice.

Those focused on individual travelers serve clients who do not identify so readily with groups and who have generally are very demanding -- group tours are often based on a standard fare, with little variance in those offered by different agencies.

Many of the Russian companies sending tours to France, for example, work with the same three guided-tour organizations, each of which offers the same package to the hundreds of agents from Russia, according to Protasov.

"Individual tourism is preferred by a company just getting started," says Igor Kuznetsov, general director of the Evro-Aziya Association. "It is more profitable, and at the same time requires less effort."

Kuznetsov says a firm can make more money by organizing a trip for an individual than for a group of 15 to 20 people.

However, individual travelers are often more demanding. Their requirements generally increase in proportion to their credit rating. One way agencies cope is online access to the Amadeus or a similar booking system.

Such systems not only allow reservation of hotel rooms and flights, but they also have the capability to reserve tickets to soccer games, admission for a specific day at Disneyland, tickets to the Moulin Rouge in Paris or even to order a black Volvo rent-a-car in London.

Competition is forcing Russian companies to offer such specific services and to focus on keeping regular clients. Some firms are prolonging their work day in order to serve clients later in the evening. Payment by credit card is becoming widespread.

Other firms are trying to focus on business travelers, with some companies offering discounts to firms with the need for frequent travel arrangements.

However, competition is becoming particularly keen on the business travel market, according to Tatyana Sanders, manager at American Express Travel Service.

"In Moscow, there are a lot of Russian companies who could compete with us," she says.

However, not everyone can handle the peculiarities of working in Russia. Thomas Cook, a large British travel agency which has been in business for nearly 160 years, curtailed its activities on the Russian market, although it continues to service some of its more lucrative accounts.

Like American Express, the company had specialized in business travel. "We liquidated our representative office in Moscow, as we felt that there was insufficient client activity on this market," said the company's Berlin manager, Ulrich Weishaupt.

A reliable source who did not want to be named, said the real reason for Thomas Cook's shutdown in Russia was that the "firm could not handle the tough working conditions in Russia -- an imperfect tax system and unending changes in rules and instructions.

"They wanted to work in absolute honesty, paying all taxes. But in Russia, one has to take advantage of every legal loophole," the source said.

-- Anton Zhigulsky contributed to this article.