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Hotel Market of Ukraine: Development Factors

January 2009 - Hotel business depends to a great extent on the tourism. The statistics shows that with every year people travel more and more, try to open new places in jungle, ices, deserts and even in space, but as before people always need a comfortable bed and a roof over their heads to rest after new experiences. 

The Dynamics of Demand for Hotel Services 

According to the date of State Statistics of Ukraine the quantity of foreigners which visit our country grows from year to year. So, for 6 months, 2008 11.3 Mill of foreign tourists visited Ukraine, that is for 19% or for 1.8 Mill people more that for the same period of 2007. In whole, in different parts of Ukraine approximately 70 ths. tourists have to overnight out of home. Besides, considerable amount of travelers weren’t included in statistics reports. 

Satisfaction Possibilities of Demand for Hotel Services 

The Minister of Culture and Tourism V. Vovkun, while commenting the readiness of infrastructure in those regions where EURO-2012 will take place, told: “When we started to calculate the hotels in the regions and define its classes, neither regions nor cities could tell us their quantity and above all their owners. And this is in XXI century!” These words can be referred with confidence to all hospitality market of the country, which seems to be like pyramid or most likely iceberg with shapeless lines where on different levels both official and shadow legal and physical entities cooperate and compete. 

  •  Official licenced hotels, motels, boarding houses, camping sites, holiday centers, hostels, youth and ski resorts; 
  •  rental agencies; 
  •  the owners of available flats; 
  •  the owners of free spaces in occupied flats 
The average cost of per room per night in Ukraine is £203 that exceeds the costs in hotels of New York, Paris, Rome and other cities. 

Comparison table of pricing policy 
Average hotel prices per room per night 
Moscow £207  £192 
New York £188  £169
Washington £120  £108
Paris £114  £105
Rome £112  £110
Munich £111  £98
Dubai £107  £105
Warsaw £75  £66
The source: © L.P. 

Unfavourable Factors 

The great demand for cheaper hotel services stimulates rapid development of alternative and shadow market, especially during high seasons in the most attractive regions. 

Today practically any of numerous rental agencies in every city offer comfortable apartments for rent. One of the most available and profitable kinds of business is flats buying for future lease which is often illegal. The scale of shadow hospitality market in Ukraine is difficult to exaggerate as well as define. According to the State tax administration of Ukraine in 2007 only the quantity of people who bought the lease licenses (monthly payment for the licence is 15-20 $) reached 3 548 ths. people that in comparison with the previous year is more for 663 people or for 70.6 %. 

Actually the trains and long-distance coaches are considerable competitors for hotel owners and rental agencies. The majority of long passenger traffics in Ukraine are overnight, the coaches and bus chairs become the lodging for the night taking considerable part of clients for two nights from hotels, especially those who travel on short time business trips “the night there- business day- the night back”. According to the data of the State Statistics of Ukraine only by railroads in Ukraine for January – July, 2008 263.2 Mill passengers were carried, i.e. more than 1 Mill a day, it means that hotel services lost at least10 Mill USD. 

It is difficult to forecast what serious consequences for hotel business will cause international relations with participation of Ukraine. First of all it concerns the freedom of movement. Simplified travel conditions for Ukrainian citizens to EU is formally working since the first of January, 2008, which was brought in answer to visa-free system for the citizens of EU aiming to visit Ukraine. However de facto EU brakes enactment even of such system which causes resentment of Ukrainian citizens and Ukrainian politics who threaten to bring back entry visa in Ukraine at least for some countries. What is it fraught with for hotel business? If Ukraine put entry visa in force the steam of rich clients will decrease, and first of all the losses will be born by 3-5 stars hotels. In case of simplification or cancellation of visa system for Ukrainians considerable part of Ukrainian clients will give preference in favour of EU countries where mostly people can rest more comfortable and practically for the same money. 

Besides, closer relations with EU on visa issue can be connected with hardening of visa requirements for CIS citizens who in turn being appeared in front of closed door would prefer spending time and money in other countries. So, for hotel business of Ukraine the current circumstances are profitable - visa-free system for West and East and entry limitations to East and West for Ukrainians. 

What attracts travelers to Ukraine? 

We can point out some main factors of Ukraine attractiveness for foreign and domestic tourists. 

First of all – business relations. The country continues to generate stable interest all round foreign businessmen. In spite of complicated political situation, direct foreign investments until financial crisis were steadily growing. The volume of direct investments from UE countries to economy of Ukraine for January the first, 2008 were equal to 22.9 billion USD, that is 77.8% of total investment volume to Ukrainian economy (for January the first, 2007 – 16.3 billion USD. 75.2%). With the beginning of the Global Financial crisis the tourists flow decreased as well as investments, but the interest of investing and to real estate objects did not disappear as in time of crisis the pricing policy of objects and business for sale decreased and soon will downfall. 

It should be forecasted that henceforth the steam of businessmen to the capital and other industrial centres will increase, which will support the growth of demand for 3-5 stars hotel services, primarily in Kiev, Kharkov, Donetsk, Odessa, Dnepropetrovsk, Lvov, etc. 
The main attraction of Ukraine is nature. According to the quantity of world nature heritage Ukraine occupies the 39 th place in the world at the same level with such attractive countries as Italy, Germany, Poland, Slovenia, significantly higher than the Netherlands, the Czech Republic, Austria, Belgium, etc. 

Salubrious climatic (climate that promotes good health) resources of the Black sea and Sea of Azov, the Crimea and the Carpathian Mountains traditionally attract practically all population of the sixth part of the planet for spending holidays and to rehabilitate. In Ukraine there are 400 springs of mineral water and more than 100 deposits of therapeutic mud were explored. 

Another factor of attractiveness is trade tourism, when the flows of traders from different corners of the country as well as from neighbouring states of CIS, rush by trains, buses and cars in ports and other frontier cities where foreign goods flow together. This significant stream could be a serious client under the condition of cheap hotels with good services near large wholesale & retail markets and frontier cities. 

The factor of Ukraine attractiveness for tourists is also its cultural and historical monuments. The government stands guard over 70 ths. of historical and cultural memorials (including more than 12 ths. the most significant) which are examples of monumental masterpieces since the III century AD. 

One more factor should be noted – improvement of legislation. Among significant events of the last year it’s important to point out the approvement of the Law of Ukraine ? 877-V On the Main Regulations of State Control in the Sphere of Economic Activity which aimed to introduce proper order in the implementation of state control and the new version of Rules of Obligatory Services Certification for Temporary Accommodation which are Provided by the Parties of Tourist's Activities in the Joint and Individual Means of Accommodation (27.12.2007 for ? 1418/14685) which will allow to improve significantly the quality and control over services.. 

The Factors which can Positively Influence on Hotel business and Tourism Development of Ukraine 

First of all it’s availability though neglected but huge natural and historical places of interest such as warm seas, mountains, virginal forests, cities and fortresses, etc. 

Secondly – the potential possibility of political situation improvement inside the country. 

Thirdly the forthcoming UEFA EURO 2012 which will attract million of football fans and mostly will be first acquaintance with the country. 
Fourthly, it shouldn’t be forgotten that in Europe the prices for tourists and hotel services do not stand still and play an important role while choosing the route by the tourists of middle incomes. 

Finally, it’s logically that Ukrainian government will start cleaning the Augean stables in the shadow market of hospitality services. 

© All rights reserved Author: Mayger Consulting Company


Nikolay  Mayger
Founder & President
Mayger  Consulting
6,Yevreyskaya str.,of.4
Odessa, 65014, Ukraine
Phone//fax: +380-482-343-333
[email protected]




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