Russian travel services industry has changed through several periods of transformation. What opportunities can foreign players use to enter new market?

Over the past three years, Russian travel services market has changed significantly through several periods of transformation. In 2020, due to closed borders, customer demand shifted to domestic tourism, while pre-pandemic trends gradually began to recover in 2021. Last year, the focus moved to domestic tourism, as well as to Asian destinations.

For 2022, increase in the number of domestic trips was 10% compared to 2021. This data quotes Sergey Romashkin, Vice-President of the Russian Tour Operators Association. At the same time there is a noticeable growth in demand for some regions: for example, Dagestan in 2022 was visited by 53% more tourists than in 2021, Caucasian Mineral Waters – by 41%, St. Petersburg – by 37%. Growing popularity of domestic tourism is not only explained by blocked connections with some countries and increased prices, but also by development of regional touristic brands, launching of tourist programs and state support.

Outbound tourism also has potential for growth. Illya Umansky, President of the Russian Union of Travel Industry, considers that growth of outbound tourism in 2023 may reach 15% (25.8 million trips) due to opening of some time-proven destinations and introduction of tours to the new locations.

Challenges and Risks

Temporary closing of a number of destinations. Since February 2022 it became challenging to purchase tours to a number of countries, especially in Europe. It is clear that sooner or later the situation will return to normal and these destinations will be available again, but currently booking a tour to Europe is a very complicated task. This particularly affected those agencies that specialized in travel to Europe.

Some aggregators stopped operations. Last year, two major booking aggregators, booking.com and Air BnB, suspended their activities in Russia. About 1.5-2 million Russian tourists and about the same number of foreign tourists used their services annually. Therefore, hotels were forced to look for new promotion and sales channels in order to retain visitors.

Reduction in airline subsidies. In May, the program for subsidizing regional flights was adjusted: its amount was reduced by RUB 1.5 billion (from 9 to 7.5 billion). The reason is optimization of federal budget expenditures, and this program is covered by it as well. Unfortunately, the Federal Air Transport Agency treated the government's order formally and excluded from the program only the routes that did not have contracts for co-financing with regional authorities. Among the affected regions are popular touristic destinations: St. Petersburg, Dagestan, North Ossetia, Tatarstan, Tyumen Region. No doubt, this will have an impact on touristic flow.

Points of Growth

Introduction of new tours. Let's make it clear - we are talking not only about completely new destinations (primarily to Africa), but also about popular countries, where there is a low season. The latter include, for instance, Sri Lanka, the Maldives and Thailand. The reason for Asian destinations popularity is at least 15% reduction of prices compared to winter. Reasonable price and relatively comfortable logistics attract a number of tourists who, until recently, not even considered such destinations.

Among other interesting and not so accessible there are Malaysia, the Philippines, Laos, Cambodia, Ethiopia and Zimbabwe. Based on the data of insurance companies, the demand for travel policies to these countries has increased several times over the past year.

Increased popularity of Chinese resorts is also worth mentioning. Recently, China was considered mainly for event and educational tourism (acquaintance with the ancient and unique culture), currently tours to Chinese beach resorts (for example, Hainan) are quite popular.

Free niches in the hotel market. Since February 2022 a number of major hotel operators, including IHG, Hilton, Hyatt, Marriot, Sheraton, Ritz-Carlton, have left Russia. The strongest impact on the high-budget hotel segment, where the highest standards of service quality, reputation and recognition of the brand are important. Undoubtedly, the "old" team сan enter the market under the new name, preserving all the standards, but it takes years to build up an image and reputation. This situation opens a window of opportunity for well-known hotel operators from China and the Middle East. They are at least as good as the largest European and American players in terms of availability and service quality.

Autotourism development. Russia currently has a number of opportunities for development of automobile tourism. New highways are under extensive construction (for example, M-12 "Moscow-Kazan") and the existing highways are being reconstructed. There are plenty of attraction points: from monasteries with centuries of history to natural landmarks. Is also worth mentioning that according to Federal State Statistics Service over the past decade (2012 to 2022) the number of cars in Russia increased by 44% - from 35 to 50 million. There is growing interest in auto travel, because travellers do not depend on the aircraft (or train), group schedules and can choose suitable traffic rhythm. The most popular destinations are the Russian North, Altai, North Caucasus and the Golden Ring.

However, the infrastructure for road travel is still not so well developed. We are talking primarily about car and campigng. For example, the portal Objasnyaem.rf reports that there are about 300 caravanning sites in Russia. At the same time, in Europe and the United States their number exceeds several thousand. Moreover, such sites are equipped with everything you need - electricity, space for sewage disposal, for both tents and camper vans. Given growth in domestic tourism, we should expect development of the motels located on the major highways. All of this opens up excellent prospects for new market players.

State support. Since 2020, the state actively supports domestic tourism. For hotel developers there is an opportunity, for example, to get preferential loans at discounted rates, to acquire land for construction under simplified procedures (without tenders). There are gradual recovery in domestic tourism and resumption of communications with China, so the Russian hotel segment is becoming attractive for investment. Domestic market players are interested in cooperation with the international companies to improve their own competencies and level of service, to meet and implement the world's best practices in their work.

MITT is a great chance to enter Russian market

MITT show is one of the most effective international B2B-events, allowing the participants to address a wide range of business issues. Every year it is attended by the largest Russian and international companies. In particular, MITT 2023 was visited by 768 companies from 57 regions of Russia and 21 countries: tour operators, hotels, IT-companies, HoReCA. Almost 15 thousand people from 83 regions of Russia and 54 foreign countries visited the show, and 67% of them were industry professionals involved in decision-making. Participation in MITT provides an opportunity to explore current offers from the major market players, to find new customers and enhance relations with the existing partners, to learn about the latest trends. Special MITT feature is MITT Connect community. This platform offers networking opportunities, access to the latest news, industry analytics and expertise, as well as online events. This will help foreign companies not only to get acquainted with the specifics of Russian market faster, but also find new partners.

MITT 2024, 30th International Travel and Hospitality Show will take place from 19 to 21 March 2024, IEC Crocus Expo (Pavilion 1).

Russian Tourism Market: Current Situation And Prospects