Polikurovsky Outskirts and Massandra Beach in Yalta are the most known cluster of private mini-hotels.

Andrei KLIMENKO,

Chairman of Tavrichesky Institute of Regional Development,

Honoured Economist of the AR Crimea,

Chief Editor of BlackSeaNews

Tatyana GUCHAKOVA,
Director of Tavrichesky Institute of Regional Development (TIRD)

Leader of BlackSeaNews Project

 

Photo by Michael Rozenshtein, BlackSeaNews

Made from helicopter, June,20, 2007

Continued from: Crimean economy without myths(1) Exclusive from BlackSeaNews.

Crimean economy without myths(2) Exclusive from BlackSeaNews.

Crimean economy without myths(3) Exclusive from BlackSeaNews.

Crimean economy without myths about ... tourism (4) Exclusive from BlackSeaNews.

Crimean economy without myths(5) Exclusive from BlackSeaNews.

 

Crimea and
tourist industry competition in the BlackSea

The competitive situation in the Black Sea region makes the Crimea to answer the main question: in what segments of the travel industry it must "rush to catch up the run-away train", and where to look for new and ingenious ways of tourism development with due account of global trends ...

The authors’ aim is not to provide the prompt answer to this question, but they, by all means, hope that their search for such an answer will be of help to the Crimean tourism.

Comprehension, consideration and forecast of the trends and peculiarities of the competition in the tourism business in the Black Sea area is the serious - and perhaps the chief challenge for the Crimean tourism strategy. Moreover due to the strange tradition here in the Crimea they rarely paid regard to the other resorts in the Black Sea region, except, may be, the ones of Sochi and Antalya.

Against the background of the great number of certified hotels in the competing countries of the Black Sea area the Crimea in this case makes just the very first steps (and thank God that it has finally started to make them – it is necessary to give proper respect for this to today' leaders of the Crimean government ...)

The first and so far the only 5 star rated hotel in the Crimea came into being just in early 2011 (then this rating was assigned to the "Villa Elena" hotel after two years of reconstruction of its historical building on the Yalta seafront).

A 5 star hotel of Hyatt Hotels chain is planned to be constructed in the resort village of Partenit (Greater Alushta). At the moment, the Crimea has got 2 hotels of the global hotel chains - «Radisson» Hotel in Alushta and "Sevastopol" Hotel in Sevastopol, which is part of the «Best Western International». Negotiations have been started with the other world leaders of this business.

In early 2011, in the Crimea 20 accommodation facilities have been rated and got "star categories". Out of them,15 hotels were of 3 stars rating, 4 had the rating of 4 stars.

№	Name of Hotel	Area	Rating
1	Villa Elena Hotel & Residences	Yalta	5*
2	Oreanda Hotel	Yalta	4*
3	Palmira Palace Hotel	Yalta	4*
4	Yalta Intourist Hotel Complex	Yalta	3*
5.	Palas Tourist Resort Complex	Yalta	3*
6	Bristol Hotel	Yalta	3*
7	Levant Hotel	Yalta	3*
8	Krymskaya Riviera Hotel Complex	Alushta	4*
9	Slava Health Spa	Alushta	3*
10	Porto Mare Park-Hotel	Alushta	3*
11.	Ukraina Palace Hotel Comple	Yevpatoria	4*
12	Apogei Hotel	Yevpatoria	3*
13	Galeon Hotel	Feodosiya	3*
14	Lydia Hotel	Feodosiya	3*
15	Roza Vetrov Hotel	Sudak	3*
16	Ukraina Hotel Complex	Simferopol	3*
17	Imperial Hotel	Simferopol	3*
18	Victoria Hotel	Simferopol	3*
19	Moskva Hotel	Simferopol	3*
20	Sportivnaya Hotel	Simferopol	3*

It goes without saying that such a number of 3-5 stars hotels does give the Crimea a lot of reasons to hope to be part of serious competition for the most wealthy segment of tourists with the other Black Sea areas which have hundreds of certified hotels.

Of course, certification (and hence - the reconstruction, modernization and upgrading to match the quality standards) of the Crimean hotels should be and is to be continued. But the blindfolded way is not the road to follow. In order to catch the rushing-away train - one needs to understand where to and how fast it's moving away ...

Black Sea Competition in Tourism
Conclusions and Projections

Central part of Yalta: promenade, Mount Darsan, cable car, Alexander Nevsky Cathedral, "Villa Elena" and "Marino"Hotels

In the coming years, in the Black Sea region one can foresee a steep increase in the number of top quality hotel rooms owing to the hotels build largely in Turkey, Georgia and Russia. This will result in a number of consequences.

1.expansion of competition for tourists in case of a sharp increase of the number and standards of hotels may provoke dumping.

This will cause a decrease in profitability and increase in terms of payback period for investments in 5 star hotels.

The after-effects are quite easy to predict - in a few years numerous development programs of hotel chains in the Black Sea region can face the risk of being locked in.

In the meantime, this will force hoteliers to take systemic measures to reduce the cost of holidays (and in particular - to the massive employment of diverse energy-saving technologies).

2.One of the coping mechanisms, most actively used by Turkey and Georgia to attract tourist flows, is expansion of the visa-free regime, combined with strong development of air transport and provision of special discounts and conditions aimed at reduction of the air travel cost.

The EU countries - Bulgaria and Romania hardly have anything to oppose this: their nearest future is the Schengen zone. Long time ago, in 2005, Ukraine has cancelled visas for tourists from the EU countries, but the effect of this is enjoyed rather by Kiev than by the Crimea. It’s mostly due to the lack of air services development between Simferopol and European capitals.

3.Perhaps, the shortage of mid-range hotels could vividly reveal itself against the background of persistent fashion of the Black Sea countries to develop elite hotels (in the context of unfinished crisis processes in the European and world economy).

It is quite possible that plans of future development of Turkish Black Sea coast (the start of the program was announced in late 2010) will be focused on this very segment.

4.Such situation can make apparent the competitive advantages of Bulgaria and Romania, which hotel business more widely features this middle class (and relatively inexpensive) hospitality segment.

At the same time in comparison with the rest of the Black Sea region the possibilities of Bulgaria and Romania to increase the flow of tourists are somehow limited due to the visa requirements of these EU member states, which soon become part of the Schengen area.

5. In the years to come it will be very difficult for the Crimea to compete with the countries of the Black Sea for investment in the engineering infrastructure of the resort regions.

Unprecedented in the history of independent Ukraine investment from state budget in 2010-2011 (about 120 million dollars per year) in the Crimean infrastructure is very important for the Crimea, but it is still cannot be compared with billions of ongoing infrastructure investments from EU funds in Bulgaria and Romania and infrastructure investments at Black Sea coast of Russia provided from oil revenues of the budget of Russia and directly by oil and gas companies.

6. The importance of the objective factor, that the Crimea can not compete with all the other countries of the Black Sea in the sphere of winter holidays, is growing, while competition in the skiing segment in the Black Sea region does persist.

Thus,one of the formulae of the competitiveness of the Crimea is to find an alternative to the winter ski holidays, which is actively developed by all the countries of the Black Sea, except Moldova and Ukraine (Crimea).

7. In the next few years (in case of absence of any serious political risks) the Black Sea region will see further redistribution of tourist flows from Ukraine and Russia towards Turkey, Bulgaria, Romania and Georgia.

We want to repeat once again - the competitive situation in the Black Sea makes the Crimea to find an answer to the main question: in what segments of the tourism market it needs "to run after the rapidly departing train", and where to look for the new and original ways of tourism development with account of the global trends.

The inevitability of the pursuit run

Then, what is the reason for the Council of Ministers of the Crimea to identify the resort and tourism industry as number one priority, despite the problems of the Crimean tourism and complex competitive situation in the Black Sea region? Might it be just a mistake?

Our analysis shows that even with the view of complexity of the situation in the tourism sector, the Crimea simply has no other choice. As it stems from the previous publications in this series, the situation in other branches of the Crimean economy requires much more time, effort and investment than in tourism.

1. Resort and tourist industry of the Crimea, in spite of all its problems, generates now (together with the service industries) at least 25% of the revenues to the consolidated budget.

Total revenues of the consolidated budget of the Crimea (that is, all taxes collected in the area), directly related to provision of the tourist services (including the allied sectors of transport, trade, services, etc.) can be estimated at 25%.

This estimate is based on the fact that the three main mono-economic resort-focused regions welcome and serve more than 75% of organized tourists - Yalta (38%), Alushta (19%) and Evpatoria (19%) – and bring over 20% of the revenues to the consolidated budget of the Autonomy.

Revenues to the consolidated budget of the Autonomous Republic of Crimea from main resort areas of Crimea

	2009, mln. UAH	%	2010, mln. UAH.	%
Total revenues for the AR Crimea, mln. UAH, including:	4 247,6	100	5 230,1	100
Alushta	147, 95	3,48	168,03	3,21
Yevpatoria	241, 05	5,67	264,04	5,05
Yalta	529, 91	12,48	627, 27	11,99
Alushta+ Yevpatoria + Yalta	918, 91	21,63	1 059, 34	20,25

And here we want once again to emphasize, that the tourism industry is particularly critical for "business icons of the Crimea" - Yalta, Alushta and Yevpatoria and with the naked eyeone can see the historically-formed, unequal distribution of holidaymakers in the areas of the Crimea:

Rating of districts of the Crimea by number of organized holiday makers
in 2010

	City /District	Q-ty, people	% of total in the Crimea
1	Yalta	434 528	37,44
2	Alushta	221 607	19,09
3	Yevpatoria	220 619	19,01
4	Feodosiya	62 618	5,40
5	Saki (town and district)	62 220	5,36
6	Sudak	40 389	3,48
7	Simferopol district	34 024	2,93
8	Bakhchisaray district	29 941	2,58
9	Chernomorsky district	17 789	1,53
10	Kerch	13 741	1,18
11	Leninsky district	11 783	1,02
12	Razdolnensky district	11 310	0,97
	Total all over the Crimea	1160569	100

2.The development of the tourism industry gives rise to significant multiplier effects (with co-efficient of 3.5-4.0) in other sectors of the economy of the Crimea.

In 2010 direct revenues from resort industry enterprises to the budgets of all levels amounted to 6.12%, and to 6.37% - in2009. If to accept the above sound estimate, that associated with tourism share of income to the consolidated budget of the Crimea is 25%, it allows to assess the multiplier budget effect of the tourism with co-efficient of 3.5-4.0.

This means that 1 UAH of taxes paid directly by health spa hotels (sanatoria), resort hotels and travel companies, accounts for up to 4 UAH taxes paid by trade, service, transportation, and/or population involved in provision of services to holiday makers.

3. Services to tourists are the main and additional activities for more than 20% of the adult population of the Crimea and the major source of income for of at least 50% of the residents of the Crimea.

Starting from the 1970s, the number of tourists who use facilities, provided by population for temporary accommodation exceeds 3-4 times the number of tourists who use official tourist accommodation facilities (hotels, resort hotels, health spa centers and others). In 2010, the tourists private accommodation sector has shown its real market competitiveness and coped with two thirds of the annual increase of tourist flow.

Sociological surveys conducted in April 2011, for the first time provide opportunity to assess the extent and parameters of this economic phenomenon.

According to a study of the Razumkov Center about 4% of the adult population of the Crimea, including pensioners are engaged all the year round in activities associated with provision of services to vacationers (adult population of the Crimea is about 1.6 million people.) Thus, the amount of permanent employment in sphere of tourist services can be estimated as about 60-70 thousand people index. At the same time number of people employed directly at tourist accommodation establishments is equal to about 40 thousand.

But during the summer holiday season another 18 % in the Crimea as a whole join the 4% permanently employed in the tourist services sphere, including 9% in rural areas, 16% in industrial areas, 32% in the resort areas.

Thus, about 21% (or over 350 thousand) of the adult population are directly engaged in provision of tourist services in the Crimea. Moreover, such activity is the leading one for 27.9% (about 100 thousand), about 67.9% consider provision of tourists services as complementary work.

In resort areas each third adult person is engaged in such activities during the tourist season (while if to include the family members then this applies to almost the entire population).

At the same time less than half - 44.2% (i.e. about 155 thousand people) are engaged in renting of housing to holidaymakers.

Are you engaged in any activities related to provision of services for tourists (vacationers) ...% of all respondents (Razumkov Center, April 2011)

Response options/ areas of Crimea	Crimea as the whole	Areas of the Crimea
		Agricultural	Industrial	Resort areas	Sevastopol
Not at all	78,7	89,6	81,6	61,8	71,2
Yes, I am, but only during the holiday season	17,4	8,4	15,7	32,0	21,7
Yes, It's my permanent engagement (all the year round)	3,6	1,9	2,7	5,7	6,0
No answer	0,3	0,1	0, 0	0,5	1,1

The next table with the results of the Razumkov Center survey visually unveils another Crimean myth - Crimean population is engaged mostly in renting of accommodation facilities to holidaymakers. By no means ... Much more people are employed at private taxi and trade businesses, restaurants, bars.

What types of activities associated with provision of services for, are you engaged in?, % of those who are engaged in services sphere permanently or during the holiday season, the interviewed were asked to mark all acceptable answers)

Kinds of activity	%
Provision of accommodation facilities for renting	44,2
Private taxi	15,4
Service sector of hospitality and catering business (waiter, bartender, etc.)	14,5
Retail trade in the area of the city	10,5
Trading at the beach	8,7
Service sector on the beach	7,9
Excursion business	4,5
Employed as an animator	2,5
Currency exchange	0,2
Other	2,4

"Unofficial" segment of tourist business traditionally, for decades, evaded taxation. Its gradual legalization with preservation of its market advantages, creation of special legal framework, as well as the establishment of specialized professional standards allows to reckon on additional fiscal impact.
 

4. Large reserves of hospitality beds in existing accommodation facilities are available in the Crimea

Despite the challenging economic processes in the preceding 20 years, the Crimea for all intents and purposes managed to preserve both original number of health-resort establishments and the quantity of beds.
 

Dynamics of the number of health-resort establishments and hotels
(Goskomstat))

Hotels

	2000	2004	2005	2006	2007	2008	2009
health-resort establishments including:	519	567	569	565	556	553	554
Health spa hotels (sanatoria) and resort hotels with treatment	146	141	142	141	140	141	142
of the health spa hotels for children	33	29	29	29	29	29	29
Holiday houses and holiday hotels	107	129	136	131	131	130	131
Recreation centers and other recreational facilities	266	297	291	293	285	282	281
Hotels	89	74	78	81	82	93	96

It goes without saying that the term "hotel", widely and extensively used all over the world and in the Black Sea resorts and which brings the need of their certification and standardization, is beyond the limits of Crimean tourism tradition ...

And it is very likely that the diversity of the notions, which stems from the Soviet times, just hampers (or will hamper) understability of level of quality of services, which is crucial item in choosing of tourist destinations.

Growth of the number of beds in health-resort establishments and hotels
in the month with highest occupancy(Goskomstat)

 

	2000	2004	2005	2006	2007	2008	2009
Number of beds in health-resort establishments, thous.	121,6	127,9	127,2	126,4	122,1	121,1	119,6
In health spa hotels and resort hotels with treatment	57,0	55,6	54,5	53,8	55,0	54,1	55,6
out of these in health spa hotels for children	13,8	13,7	12,9	12,9	13,0	12,6	12,5
Holiday houses and holiday hotels	27,6	29,6	29,3	28,9	30,0	29,9	28,0
Recreation centers and other recreational facilities	37,0	42,7	43,4	43,7	37,1	37,1	36,0
Total beds capacity in hotels	11,4	12,3	12,7	13,5	14,0	14,8	15,3

All holiday accommodation facilities (including seasonal, operating only in during the summer period) have plots of land, located generally in recreational areas by the sea or with sea views, as well as buildings and structures, engineering infrastructure (though in most cases they require complete or partial reconstruction and modernization).

At the same time, coefficient of their capacity utilization , averaging about 0.33, clearly shows the available reserves.
 

Share of seasonal beds in the total capacity of the Crimean resorts
(based on data from the Ministry of Resorts and Tourism of the Autonomous Republic of the Crimea)

Region	Q-ty of year- round beds Max	Maximum q-ty of beds (July-August)	Q-ty and share of year- seasonable beds %	Number of nights (bed- days)	Number of days with annual occupancy per 1 bed	Annual occupancy rate
Alushta	14507	21286	6779/ 31,8%	2153604	101	0,28
Yevpatoria	16646	31030	14384/46,4%	3708113	120	0,33
Saki	5294	5632	338/ 6,0%	958740	170	0,47
Sudak	2164	4836	2672/ 55,2%	438581	91	0,25
Feodosiya	2528	10899	8371/ 76,8%	675465	62	0,17
Yalta	25153	32242	7089/ 22%	4651153	144	0,40
Total in above areas in 2010	66292	105925	39633/ 37.4%	12585656	119	0,33
Total in the Crimea in 2010	66924	132675	65751/ 49,6%	13931950	105	0,29

Reserve of capacity of the number of rooms of accommodation facilities in 2010 in the main resort areas including facilities which operate only during the summer season is 68%, and without taking them into account (i.e. year-round recreation facilities) - about 40%.

The logic of strategic decisions
in the Crimean tourism

In the context of competition in the sphere of tourism in the Black Sea region, as well as taking into account existing resources and problems, the logic of the strategic priorities of health resort and the tourist branches of the Crimean economy is as follows:

1.Competitive situation in the tourism sector in the Black Sea region calls the Crimea to make unprecedented efforts in "catching-up development".

However, the powerful progress in such a development became possible only in 2010 when they started to remove of blockages and problems, accumulated in the previous years, as well as launched the large-scale modernization of engineering infrastructure.

Solution of basic problems will inevitably take several years, during which the countries-competitors will increase their lead, implementing and consolidating their advantages in the tourism market.

2.Therefore, in parallel with the modernization of infrastructure, the strategy of the Crimean tourism rightly envisages commencement of a new positioning of the Crimea in the tourism market - the transition from beach tourism to the health recreational one and then to curative, medical tourism.

Its demand will enjoy the constant increase due to the global trends of aging of the northern hemisphere’s population. In the future this will significantly promote utilization of the available room capacities and compensate negative impact of the of seasonal factors on the economy of the resort.

3. In this case, the Crimea, in our opinion, should position itself first as 2 -star+ rated with further transition to the rating of 3 -star+ .

In the context of the competitive situation in the Black Sea region one can not see much point in the "race for 5-stars."

It is necessary to develop a mass market, relatively inexpensive, but quality (certified) type of holidays with exclusive medical component, the level and value of which will be growing rapidly through creation of conditions for development of modern medical clinics within the structure of the existing facilities.

The available in the Crimea number of rooms of considerable size in the numerous existing health resort establishments and holiday facilities of different types and with great location allows at the first stage not to launch mass construction of the new facilities, but focus on promotion of reconstruction and modernization of existing facilities with their mandatory certification in accordance with hotel business standards.

4. During the same period, it is necessary to launch the construction of several major iconic objects of class 4-5-star rank, run by the world's hotel chain’s operators.

This can help to achieve the showcase symbolic effect aimed at sending signal to the international tourism and investment business about commencement of the new stage in the development of the Crimean tourism.

5. During the transition period (during the development of the medical component of the resort and solution of infrastructure and environmental problems), the problem of increase of rooms’ occupancy rate and compensation of seasonal factors should be tackled with the help of marketing activities.

This refers to the public-private partnership aimed at creation of the new integrated tourism products with the ability to reduce the tourists’ expenses on holidays in the Crimea, as well as support of event tourism and promotion of convening of prestigious international top level sport competitions, festivals and conferences in the Crimea. This is what is done now by the Crimean Ministry of Tourism.

6. Legalization of the sector of provision of services to tourists by population should be targeted at the inclusion of this segment into the sphere of professional tourism activity in the market niche "2-stars+", with the view of the ultimate goal of achieving a harmonious combination of this sphere with the other options for treatment and holidays in Crimea …

Implementation of this strategy will require government support and incentives within framework of the introduction in Ukraine of reforms in legislation, taxation, investment, health care and etc...

To be continued