Potential of Ukraine Hospitality Market

Change generates more change.

Niccolo Machiavelli

 Dynamically changing situation complicates the forecasting of results. Definitely, the recession influenced badly the world economy. Moreover, recession showed promising trends of economy development. During last 2 years many reforms were carried out in different sectors of economy including hotel business. A very important goal of Ukraine is to show itself to good advantage during Euro 2012. If foreign investors and businessmen are confident in stability of Ukraine they will enter the market.

 Hospitality Market of Ukraine

 According to statistics, hotel market of Ukraine recovers from recession gradually and slowly.

Stage

Number of Hotels

Project

187

Construction

164

Put into operation*

43

Renovation

70

* Hotels put into operation in 2010-2011 (including renovated ones) 

Source: domobaza.info

Considering the fact that some of those 43 objects, which were put into operation were renovated and about 360 hotels should be ready for Euro 2012, the conclusion is that the number of hotels is insufficient. A lot of hotels are at the construction stage, and it may be delayed due to the lack of financing. 

Hotels put into operation in 2011 (including renovation)

City

Royal Grand Hotel

Truskavets (Lvov region)

Park Hotel

Kharkov

Theater Hotel

Zaporozhye

Villa Elena

Yalta

BonBon

Donetsk

The Sapphire Accord Hotel

Alexandria (Kirovograd region)

Reikartz Medival Lvov

Lvov

Reikartz Pochaev

Pochaev

Reikartz Dnepropetrovsk

Dnepropetrovsk

Reikartz Kirovograd

Kirovograd

Reikartz Sevastopol

Sevastopol

Bristol

Odessa

Ramada Donetsk

Donetsk

Four Points by Sheraton

Zaporozhye

Accor IBIS Kiev Centre

Kiev

Some hotels are opening for Euro 2012. E.g. Royal Grand Hotel was opened in Truskavets (Lvov region), 3* Theater Hotel was opened in Zaporozhye, mini hotel Park Hotel was opened in Kharkov. 

Moreover, there are new hotels which are not dedicated to Euro Championship, e. g. club hotel Villa Elena was opened in Yalta, mini hotel BonBon was opened in Donetsk.

Opening of new hotels proves the positive dynamics in hotel business of Ukraine.

The following situation is observed on budget hotels market: from about 2000 registered hotels only 300 are 2* hotels. This segment of hotels will be in demand by those tourists who travel around Ukraine and need hotel to spend the night in one of the cities and leave next morning.

Hostels are wide spread among youth in Europe. Not everybody can pay few hundred dollars per night. Still there is lack of hostels in Ukraine. E. g. only 93 hostels are registered on Hostelworld.com in Ukraine, to compare with 162 hostels registered in Paris, 158 – in London,172 – in Berlin, 125 – in Milan.

Hence, there is lack of high quality budget hostels in Ukraine, therefore it is a promising kind of accommodation. Such kinds of tourism as hiking, ecotourism and agritourism are actively developing in Ukraine, therefore hostels and budget hotels are preferable accommodation for this tourist group. 

City

Number of hostels

1

Kiev

29

2

Lvov

19

3

Odessa

13

4

Kharkov

2

5

Yalta (The Crimera)

4

6

Bakhchisaray (The Crimera)

1

7

Chernovtsy

3

8

Khust (The Carpathians)

1

9

Genichesk ( The Azov Sea)

1

10

Yablunov (Ivano-Frankovsk region)

1

11

Kamenets-Podolskiy (Khmelnitskiy region)

5

12

Kolomiya (Ivano-Frankovsk region)

2

13

Mukachevo (Zakarpatie region)

1

14

Nikolayev

1

15

Peschanoye (The Crimera)

1

16

Sevastopol

1

17

Simferopol (The Crimera)

3

18

Slavskoye (The Carpathians)

1

19

Sydak (The Crimera)

2

20

Uzhgorod

2

 

Total

93

Source: Hostelworld.com

Price Policy

Hotel room prices in Ukraine were very overrated comparing to average prices in Europe. Owing to crisis and occupancy rate decline hotel room prices were lowered. In January Kiev headed the list of the Biggest Price Falls of Average Room Prices. Average room rate fell from $124 to $96, it made up 23%.    

Biggest Price Falls in January 2011 Month-On-Month

City

Average
Room Price
December
2010 (USD)

Average
Room Price
January
2011 (USD)

Change
Month-On-
Month
(USD)

Average
Room Price
December
2010 (Local
Currency)

Average
Room Price
January
2011 (Local
Currency)

Change
Month-On-
Month
(Local
Currency)

Kiev

$124.74

$96.03

-23.02%

UAN1004.71

UAN773.81

-22.99

Genting Highlands

$97.49

$77.15

-20.87%

RM305.85

RM241.56

-21.03

Bandung

$84.36

$66.97

-20.62%

Rp612167.44

Rp607038.79

-20.84

Moscow

$151.56

$121.51

-19.83%

€4700.4

€3760.27

-20.01

New York

$218.18

$179.22

-17.86%

$218.18

$179.22

-17.86

Source: hotelscombined.com

Last year hotel chains in Ukraine had to reduce room prices. In May, 2010 room prices in luxury hotels made up about $ 350 – 400 per night. In August Standard Guest Room price made up $ 318 in Radisson Blu Hotel, Kiev. Though, room rates in Ukraine are higher than in Europe. In August Standard Guest Room price in Radisson Blu Centrum Hotel, Warsaw is lower than in Kiev, it made up $ 101 vs.  $ 318. Exactly the same situation with standard room price in Intercontinental Hotel, Warsaw is $ 153 vs. $ 490 in Intercontinental Hotel, Kiev.

3* and 4* hotels reduced prices by 20-25% in 2010, e.g. in August standard room price in Accord Hotels including VAT is about $ 75.

Average room prices in hostels are approximately the same as in Europe and make up $ 20-30 per night.

Hotel chains implement loyalty programs offering guests some services (transfer, spa, food, etc.) free of charge, bonus cards or discounts for rooms for last night while booking a number of nights in succession (e. g. about 3-4 nights) instead of price reducing.

Rapid fall of room prices should not be expected this year as food prices, public services costs, etc. increased and room maintenance cost increased accordingly. Hotels will not work at a loss. However, room rates remain much higher in Ukraine than in Europe.

Ukrainian Hotel Chains

Many Ukrainian companies planned to develop hotel chains. Some companies implemented their plans, other are still planning. At the moment there are about 5-6 national hotel chains in Ukraine, though all of them are incomparable with international ones. Not all hotels can comply with chain standards in Ukraine, due to the fact that the majority of buildings were built in Soviet Union and some of them were not designated for hotels initially or that Ukrainian businessman who know nothing about hotel development strategy and develop hotels at their own discretion. Notwithstanding, Ukrainian hotel chains expand.

Premier International included three star mini-hotel The Sapphire under Accord brand into chain, which is situated in Alexandria (Kirovograd region). It is the fourth hotel under Accord brand, three other hotels are situated in Kiev and Odessa. It should be mentioned that Accord Hotels are managed by Premier International.

Reikartz Hotels & Resorts opened the second hotel in Lvov and in Pocaev in January, in Dnepropetrovsk – in May, in Sevastopol and finished renovation of the hotel in Kirovograd in June. At the moment, the number of hotels reached 10, in 2011 it is planned to open hotels in Mariupol and Kharkov.

Vertex Hotel Group is hotel chain, which functions on the market from 2005, opened five star Bristol Hotel after renovation in Odessa, beside Bristol chain includes 4* President Hotel (Kiev) and Londonskaya Hotel (Odessa).

Management company Ostvesttour operates three hotels Lybid and Slavutich in Kiev and Cheremosh in the Carpathians and plans expansion.

International Hotel Chains

Ukraine is still free market niche for international operators, attempting to enter the market, but only some of them managed to operate newly opened hotels in dynamically changing circumstances and resist incompetence of investment project owners in Ukraine.

On the 1-st of September opening of Accor IBIS Kiev Centre took place. It is the first IBIS hotel in Ukraine. Starwood Hotels & Resorts Worldwide postponed opening of Four Points by Sheraton in Zaporozhye to September 29th, 2011. Though hotel is opened in September the official opening is planned for October. Four Points is the first hotel opened by Starwood Hotels & Resorts Worldwide in Ukraine.

At the moment the tendency to delay hotel project deadlines is observed. Opening of those hotels that was planned for 2010 and first half of 2011 was postponed.

Opening of Park Inn Dnepropetrovsk Hotel was announced for 2011, though due to the start of construction in 2011, opening of hotel this year should not be expected as it is still at the construction stage.

HELIOPARK Hotels & Resorts plans opening of HELIOPARK Waterville in Vinnitsa region to an end of 2012. HELIOPARK supports hotel construction and signed Management Agreement for 25 years.

In May, 2012 Ariks Hotel is announced to open in Kiev. Hotel will be managed by AZIMUT Hotels Company.

April 1st, 2011 Wyndham Hotel Group signed Management Agreement with Atlas Hotel in Donetsk. Now it is Ramada.

Economy hotels orientated on average tourists and businessmen, who prefer high quality and cheap hotels, will be in demand. These hotels offer high quality of services at a reasonable price. Until 2010, there were no 3* hotel under management of international operators in Ukraine. Exactly such hotels will be in demand among tourists during and after Euro 2012. Currently, international management companies operate three economy hotels Best Western Sevastopol Hotel, Ramada Donetsk and IBIS Kiev Centre.

Many operators announced intension to develop hotel chains under their brands in Ukraine, though no one did it. Last year French operator Louvre Hotels & Golden Tulip together with developer UDC Holding announced intension to develop 6 hotels under Campanile brand in Ukraine.

There are three strategies of entering Ukrainian market for international operator, two of which are not easy to implement.

The first is to enter Management Agreement with hotel owner, when hotel is at construction stage. It is easy ex facte, though Ukrainian owners make it rather complicated. Very often cost cutting measures implemented by owners consist in skipping the stage of market research and market analyses and starting project with business plan or designing and relying on the architect’s experience. No architect can develop high quality hotel without standards. Then such owners search for operators. It is clear that no international operator will manage such a hotel.

The second is to enter Management Agreement with owner of the functioning hotel. If there are difficulties with construction process, the way out may be to find finished hotel. Nevertheless, there are nuances. As the majority of hotels were patterned after the before mentioned scheme or built in Soviet period, so it will be difficult to find hotel complying with international standards. This wide-spread in Europe strategy is recently implemented in Ukraine, e. g. Best Western Sevastopol Hotel and Ramada Donetsk.

The third and the only right strategy to enter Ukrainian market for foreign investors and developers is to cooperate with Ukrainian specialists and develop projects according to international standards.

It proves that Ukrainian hotel market is a key market for international management companies, though there are obstacles for opening hotels.

Laws

Hotel market development greatly depends on the laws regulating this business field. Authorities in many countries work on improvement of conditions of hotel market development. Reforms in many EU countries aim at lowering tax rates, which are paid by hotel and accommodation owners.

Country

VAT rate for hotels

Germany

7%

Poland

8%

Bulgaria

9%

Latvia

12%

Cyprus

15%

Ukraine

20%

The tendency of lowering VAT rates is observed in Europe. E.g.in Bulgaria VAT rate is 9%, in Cyprus - 15%, in Latvia - 12%, Germany - 7%, Poland - 8%, to compare with Ukraine, where VAT rate makes up to 20%, and will be lowered (in 2014 up to 17%) plus tourist duty in the amount of 0,5 - 1%, charged to the city budget from each guest (Article 268, Tax Code of Ukraine). Some hotels announced readiness to pay the duty themselves.

It should be mentioned that hotels in Europe are in equal conditions. Tax benefits are implemented for all hotels unlike Ukraine, where only some of 3, 4, 5-star hotels will be exempted from tax for 10 years. Before mentioned tax exemption will not change the situation dramatically, just provide some hotels with advantages over their competitors. It is impossible to build and put into operation a greenfield hotel, and train personnel in a short period of time left before Euro 2012.

New edition of the Rules “On Compulsory Certification of Services Relating to the Temporary Stay” was adopted and came into force on August 27th , 2010.

According to new addition of the Rules the procedure of certification should last for 60 days only. One more necessary introduction is that accommodation that fails to meet the star standards will be given levels (from 1 to 5). Levels will be applied to classify boarding houses, recreation centers, campings, etc.

Carrying out of the “Rules of Certification” is regulated by Article 18 of Law of Ukraine “On Tourism” from September, 15th , 1995 № 324/95 and Paragraph1 of Rules № 37, “Compulsory Certification of Services aims for prevention of realization of hazardous to health and life services, protection of people’s property and environment protection.” Fines for violation of rules are determined by subparagraph 4 part 1 Article 23 of Law of Ukraine “On Protection of Consumers” from May, the 12th, 1991 № 1023 organ of State Committee of Ukraine for Technical Regulation and Consumer Policy (Gospotrebstandart) may fine noncertified hotel providing services for 300% from price of the provided service, the sum of fine makes not less than 25 minimum exemption limits – UAN 425.

Moreover, according to Article 1701 of Code of Ukraine on Administrative Offenses administrative fine is foresighted for noncertified hotel providing accommodation services, the sum of fine ranging from 3 to 88 minimum exemption limits – form UAN 51 to UAN 1496.

Those steps are necessary to reveal shady business of non-certified hotels claiming insufficient star rating. The majority of such objects do not meet the criteria of the announced star rating.

In the second half of 2011 the start of Q-label implementation is expected. Q-label is European standards of hospitality services quality evaluation. European association of hotels and restaurants HOTREC recommends to implement Q-label in Ukraine. Now this system is used in Switzerland, Germany, Austria, Luxemburg, Greece, Latvia, Belgium and some enterprises in Italy. 

Ms. Chantal Beck, who is the general manager of the program, supposes that” implementation of the program is urgent on the threshold of Euro 2012”. Moreover, Vise-President of Sport and Tourism Federation and Chairman of the Board of Tourism and Resorts of Ukraine Mr. Eugene Samartsev noted that “besides the high quality of infrastructure, quality of complex services offered to tourists. I mean human factor. Q-label program shows the way to assure this”.

May, 23-d a list of “100 top hotels in Ukraine” was issued. This list includes hotels of all the regions, the majority of nominated hotels are situated in Kiev, Lvov, the Crimea and Odessa.

It should be mentioned that Vice-Prime Minister – Minister of Infrastructure Mr. Kolesnikov will coordinate functioning of State Agency for Tourism and Resorts, which was stipulated in presidential decree No. 370/2011 of April 6, 2011. Agency will be responsible for the realization of state policy in spheres of tourism and resorts.

In conclusion, the situation on the hospitality market of Ukraine is changing for better. Opening of new hotels is a positive factor of economy development, as last year no large hotel was opened in Ukraine. Verhovna Rada adopts new laws supporting the sector development and above all improving the quality of services. Notwithstanding, some laws (e.g. tourist duty implementation) may influence on image of Ukraine negatively. Likewise, it should be mentioned that there are some difficulties with project documentation endorsement, unreasonable actions of investment project owners and other features of hospitality market of Ukraine.