Number of Five-Star Hotels Set to Double Within a Year

By Yekaterina Dranitsyna

Staff Writer

Published: December 6, 2005 (Issue # 1128)

Intercontinental and Ramada are the latest international hotel operators to announce their arrival on the St. Petersburg market next year, while Rezidor SAS also signaled further expansion, Maxim Sokolov, chairman of the city committee for investment and strategic projects, was quoted by Interfax as saying.

“Intercontinental is at the moment in negotiations with those investors who have already started constructing hotels but are yet to find an operator,” Sokolov said.

St. Petersburg already has five 5-star hotels – Grand Hotel Europe, Astoria, Nevskij Palace, Radisson SAS and Emerald.

Earlier this month Raffles International announced the opening of a 5-star business-class hotel in the city by 2007 under the brand Swissotel, while the Renaissance construction firm plans to build a 5-star hotel by the end of next year with the financial backing of Indonesian company Sampoerna.

French operator Accor, which opened a 4-star Novotel in the center of St. Petersburg this year, has already announced the construction of 3-star Ibis and 5-star Sofitel.

According to Sokolov, the international operator Hilton has been interested in coming to St. Petersburg for a long time.

“This operator first held talks about a possible hotel in 1996. At that time they thought the local market was too small. Now any move is hampered by high prices and the lack of central locations suitable for development,” Sokolov said.

Nikita Savoyarov, an expert at the Russian Tourism Industry Union said that the local market is suitable for opening new hotels and Intercontinental, Ramada and Hilton could easily launch projects in the city.

“They are world brands. The process of globalization means hot locations are more important than short-term profits and other economic figures. And St. Petersburg is the eighth most attractive tourist destination according to UNESCO,” Savoyarov said.

According to Ernst & Young, the average occupancy of 5-star hotels in St. Petersburg was only 64 percent last year while in Moscow this figure was 77 percent.

Savoyarov said that transnational corporations could cover losses with profits earned from business in other countries, thereby sustaining 10-years’ worth of investment in a five-star hotel project.

As for factors that prevent the arrival of international operators in St. Petersburg, Savoyarov said that there were several.

“The five-star hotel segment is not supported by suitable infrastructure. It is problematic getting from the airport to the city center by any means of transport. [The main route there], Moskovsky prospekt, desperately needs reconstruction,” Savoyarov said.

The airline company Pulkovo’s ownership of the airport has hampered development of the transportation system and eliminated competition between transport companies, according to Savoyarov.

“Competition would decrease the cost of the transport element in tourist package holidays and increase tourism,” he said.

In Europe about 80 budget airlines like EasyJet make up 20 percent of all passenger flights while in Russia the only budget airline operates from Moscow. Entering the WTO would solve this problem, however, through the liberalization of the airline market, Savoyarov said.

“Large airline carriers always cooperate with large hotel chains because they have mutually favorable systems of providing discounts for regular clients. Large hotels can be used by airlines as bases,” Savoyarov said.

Market analysts agreed that St. Petersburg has a lot of potential.

“We believe that there is still room for the growth of branded hotels in the three-star, five-star and boutique hotel market in St. Petersburg,” said Marko Hytonen, area vice-president at Rezidor SAS Hospitality.

St. Petersburg is “definitely attractive for international chains,” Hytonen said, since it “is the second largest city in Russia and the cultural capital of the country.”

According to Martin Rinck, Executive Vice President Business Development & CDO Rezidor SAS Hospitality, “already today the market performance of St. Petersburg in an international comparison is extremely strong.”

“We are actively working on projects in St. Petersburg which we hope to complete realistically within the next half year. [In terms of our brands] I can see there being more than one Park Inn, a Hotel Missoni of 100 to 120 rooms, and at least another Radisson SAS with about 200 rooms,” he said.

“Three or four years ago it was really impossible to get Western European capital to invest in Russia and you were paying a premium which didn’t make it interesting for anybody,” Rinck said.

“If you look now there are more and more sources of foreign capital such as Norwegian, Irish, and German funds going into St.Petersburg and Russia in general,” he continued.