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. Last Updated: 07/27/2016

Business Travelers Are Secret to Hoteliers' Success

Flying in the face of a global economic downturn and to some extent profiting from it as investors look for markets that still have some growth in them, Moscow hotels had their best year since the 1998 crisis last year.

And hoteliers say that even the opening of two new international-branded hotels last year will do little to dampen their performance.

"Demand is constantly rising, considering the increased inventory in the city," said Jiri Kobos, general manager of the 219-room, five-star Ararat Park Hyatt hotel that opened in mid-October. "Russia has been fortunate to bypass the global events relatively unaffected."

Alexis Delaroff, general manager of the 255-room, four-star Novotel Moscow Center that opened in early September, was similarly upbeat. "Today we are close to 50 percent occupancy and the forecast is promising for the second half-year," he said. "We're gaining market share every month."

Other hotels reported booming business, with Le Meridien Moscow Country Club perhaps the most successful. "Business in 2002 was our best year ever," general manager John Wood said. "We grew our total revenue by 17.8 percent over 2001 and occupancy rose by 11.3 percent."

Market analysts said the top end of the market last year returned to the occupancy levels that it had enjoyed before the 1998 crisis.

"Last year was a good year for the Moscow and St. Petersburg market, building on the improvements that began in 2000 and carried on in 2001," said Scott Antel, partner with Ernst & Young's hospitality consulting group.

Occupancy and revenue per available room, which is the industry standard for hotel performance, were up some 10 percent or more from 2001.

Darren Blanchard, managing partner at Consolidated Hospitality Consulting said the Moscow market has significant growth left in it, but it is unlikely that 2003 will be a golden year.

"More likely we're going to see consolidation of performance, perhaps a slight drop in individual hotel occupancies as the market absorbs the additional 530 new hotel bedstock delivered by Hyatt, Accor and the Tatyana [a 72-room, four-star central-city hotel that opened last year], but less discounting and higher rates."

Simon Hudspeth, director of hotel consultancy HVS International, rated occupancy in international-standard hotels at 51 percent in 2000, 58 percent in 2001 and 64 percent in 2002 with some hotels having more than 70 percent occupancy. He expected occupancy to grow by another two to three percentage points this year, but because Moscow is predominantly geared at the business traveler, the market has almost reached a ceiling on occupancy, and hotels will be able to push their rates up.

"The economic recovery to pre-crisis levels has enabled the main players to reduce their discounting policy, thus optimizing room yield," said Stephane Meyrat, senior consultant at Hotel Consultant & Development Group.

Although there are several new international-standard hotel projects, including a Hilton on the site of the former Intourist hotel on Tverskaya Ulitsa, none will be completed before 2006.

"It will be interesting to see the impact that the new Hyatt has on the existing competitive set. We expect a fierce price war between the Marriott branded properties, the Baltschug and the National and the Hyatt," Meyrat said.

However, the market is still bullish enough to absorb price rises, according to several operators.

"Hotel room rates in dollars have increased," said Yevgeny Bezel, director of sales and marketing at the Baltschug Kempinski. Average room rates for five-star hotels are growing despite a decrease in the number of visitors to Moscow this year, he added.

"The general trend in the city is for some increase in the average room rate compared to last year," said Yelena Romanova, revenue manager at the Sheraton Palace Hotel, which increased its occupancy last year by 9.6 percent.

David Morris, director of sales at the Radisson SAS Slavyanskaya Hotel and Business Center, said the hotel has continued to record occupancy growth this year. "Our standard room rates have increased slightly over 2002, and we are seeing growing requests for our higher-rated room types as well -- such as business class and suites," he said.

However, Novotel's Delaroff warned that the steady increases in occupancy since 1999 have merely been the result of the recovery from the financial crisis.

"Let's keep in mind that our Russian colleagues are more and more aggressively developing their hotels and, having learned from Western experience, are developing their market shares. Any development that is not well thought out in advance might prove to be difficult to pay back," Delaroff said.

Since November the market slowed, apparently related to concerns over the pending war in Iraq and curtailment of business travel plans by many companies both for security as well as cost-cutting reasons, Ernst & Young's Antel said.

But he said the Moscow market is dominated by business travelers and more protected than many other cities from such trends. "People have to travel for business, whereas tourism is more discretionary," he said.