Sleeping beauty - Ukrainian tourism market
Lobby Premier Palace Entrance Hotel Kyiv
Although Ukraine has been strongly affected by the global economic crisis, the local tourism market has registered steady growth. Domestic tourism, in particular, is expected to boom with annual growth rates of 9.5% in the next five years. Inbound tourism is also growing because of the rising awareness of Ukraine as the venue for the upcoming European football championship in 2012. The market entry of low cost airlines such as Wizz Air and German Wings plus the substantial depreciation of the local currency are also good for tourism in the country. Roland Berger Strategy Consultants expects it to grow by about 7.5% between now and 2013. But a lack of infrastructure and hospitality framework may yet put the brakes on the upswing. About 90% of Ukrainian accommodation facilities date back to the Soviet era. A majority of the announced hotel projects will not be realized in the near future because of the economic environment.
"Ukraine has very few hotels that meet international standards. So, for international investors who are willing to take some risks, the window of opportunity is wide open," says Olga Andrienko-Bentz, Senior Project Manager in Roland Berger's Kyiv office. The number of visitors increased from 9.9 million visitors in 2005 to 11.7 million in 2008. International tourism really took off when visa requirements with the EU, US, Canada and other countries were abolished. Domestic tourism has been given a push by the rising living standards in Ukraine. Over the past few years, real disposable income of the population enjoyed annual growth rates of 27%. Little awareness of Ukraine as a tourist destination combined with underdeveloped infrastructure and no real hospitality framework are the main hurdles to becoming a premier international destination. "Over the last few years, Ukrainian tourists have preferred international destinations like Turkey or Egypt, which offer better value for money. But the economic crisis – and the resulting lower incomes – are making holidays at home more attractive," explains Andrienko-Bentz.
Lack of hotels that meet international standards
The main problem for Ukrainian tourism is a lack of hotels that meet international standards. "The hotel infrastructure is really outdated. 90% of the hotels were built more than 20 years ago and have never seen extensive renovation," notes the consultant. Service levels are also below the international average. For example, there is no mandatory hotel classification system in Ukraine. Most hotels are managed by inexperienced private owners or government institutions. Another problem is that the Ukrainian hospitality business is solely concentrated on the traditional business and holiday destinations. The western regions are famous for their winter resorts. Summer tourism in concentrated in the south and the Crimean region. Business tourism is focused on major cities such as Kyiv, Dnipropetrovsk, Kharkiv and Donetsk. But even there, you have a chronic shortage of high-class international hotels in all price segments. "You can find 95% of all high-quality hotel rooms and 60% of all hospitality resources in the traditional resorts and business destinations," says Andrienko-Bentz.
Window of opportunity for international investors
The few international operators that are present in Ukraine are skimming the cream off the market. Only 2.5% of all hotels are managed by international operators: Rixos hotels runs a 5-star hotel in Truskavets (Western Ukraine), Radisson two 4-star houses in Kyiv and Alushta (Crimea) and Hyatt has opened a 5-star hotel in Kyiv. "These hotels achieve significantly higher occupancy rates although the room rates are more than twice the average. Skyrocketing prices of more than USD 500 for a single room in Kyiv are normal. High occupancy despite peak prices in hotels managed by international operators are an indicator of substantial demand from wealthy visitors," notes the consultant.
International players such as IHG (Intercontinental, Crowne Plaza, Holiday Inn), Accor (Sofitel, Ibis, Novotel, Etap) and Hilton have already announced that they will enter the Ukrainian market – most of them with projects in Kyiv. However, about 85% of the announced projects will not be realized. The main reason is that most developers have only limited access to credit financing due to the global credit crunch. But many projects exist only on paper and have been announced to get fast-track access to land under the auspices of the EURO 2012 project. So for international investors, market entry is now attractive but also risky. On the one hand, demand for hotel rooms that meet international standards is high. On the other, the global economic crisis and the unknown future of EURO 2012 in Ukraine make market entry a real challenge. "These days, it is not easy to finance a hotel project. But a lot of Ukrainian hotels from the Soviet era are facing financial problems. They can be taken over at bargain prices. With extensive renovation, they can be raised to international levels and profitability. That is an attractive opportunity to enter an emerging market," concludes Andrienko-Bentz.
"Ukraine has very few hotels that meet international standards. So, for international investors who are willing to take some risks, the window of opportunity is wide open," says Olga Andrienko-Bentz, Senior Project Manager in Roland Berger's Kyiv office. The number of visitors increased from 9.9 million visitors in 2005 to 11.7 million in 2008. International tourism really took off when visa requirements with the EU, US, Canada and other countries were abolished. Domestic tourism has been given a push by the rising living standards in Ukraine. Over the past few years, real disposable income of the population enjoyed annual growth rates of 27%. Little awareness of Ukraine as a tourist destination combined with underdeveloped infrastructure and no real hospitality framework are the main hurdles to becoming a premier international destination. "Over the last few years, Ukrainian tourists have preferred international destinations like Turkey or Egypt, which offer better value for money. But the economic crisis – and the resulting lower incomes – are making holidays at home more attractive," explains Andrienko-Bentz.
Lack of hotels that meet international standards
The main problem for Ukrainian tourism is a lack of hotels that meet international standards. "The hotel infrastructure is really outdated. 90% of the hotels were built more than 20 years ago and have never seen extensive renovation," notes the consultant. Service levels are also below the international average. For example, there is no mandatory hotel classification system in Ukraine. Most hotels are managed by inexperienced private owners or government institutions. Another problem is that the Ukrainian hospitality business is solely concentrated on the traditional business and holiday destinations. The western regions are famous for their winter resorts. Summer tourism in concentrated in the south and the Crimean region. Business tourism is focused on major cities such as Kyiv, Dnipropetrovsk, Kharkiv and Donetsk. But even there, you have a chronic shortage of high-class international hotels in all price segments. "You can find 95% of all high-quality hotel rooms and 60% of all hospitality resources in the traditional resorts and business destinations," says Andrienko-Bentz.
Window of opportunity for international investors
The few international operators that are present in Ukraine are skimming the cream off the market. Only 2.5% of all hotels are managed by international operators: Rixos hotels runs a 5-star hotel in Truskavets (Western Ukraine), Radisson two 4-star houses in Kyiv and Alushta (Crimea) and Hyatt has opened a 5-star hotel in Kyiv. "These hotels achieve significantly higher occupancy rates although the room rates are more than twice the average. Skyrocketing prices of more than USD 500 for a single room in Kyiv are normal. High occupancy despite peak prices in hotels managed by international operators are an indicator of substantial demand from wealthy visitors," notes the consultant.
International players such as IHG (Intercontinental, Crowne Plaza, Holiday Inn), Accor (Sofitel, Ibis, Novotel, Etap) and Hilton have already announced that they will enter the Ukrainian market – most of them with projects in Kyiv. However, about 85% of the announced projects will not be realized. The main reason is that most developers have only limited access to credit financing due to the global credit crunch. But many projects exist only on paper and have been announced to get fast-track access to land under the auspices of the EURO 2012 project. So for international investors, market entry is now attractive but also risky. On the one hand, demand for hotel rooms that meet international standards is high. On the other, the global economic crisis and the unknown future of EURO 2012 in Ukraine make market entry a real challenge. "These days, it is not easy to finance a hotel project. But a lot of Ukrainian hotels from the Soviet era are facing financial problems. They can be taken over at bargain prices. With extensive renovation, they can be raised to international levels and profitability. That is an attractive opportunity to enter an emerging market," concludes Andrienko-Bentz.
Sprache
English | German
More news
A world without agents?
Imagine a world without insurance agents - It is hard to picture, but some in the European insurance... >>
Pricing in wealth management
Times in wealth management have been difficult since the recent developments in the financial... >>
New restructuring study from...
German businesses have come out of the financial and economic crisis in good shape: 63% expect to... >>
Roland Berger Strategy...
As new Partner and Competence Center head, Martin Erharter has been working on pharma &... >>
IN DIALOG - Prof. Dr. h.c....
In an interview with Germany's "Top Career Guide Automotive", Roland Berger, Founder... >>
Have we whined enough? (Die...
In an interview with the German daily newspaper Die Welt, Burkhard Schwenker, Supervisory Board... >>
