Russian visitor market continues to lapse

By Thomas Johnson

With oil prices dropping and the value of the Russian ruble following suit, the stream of Russian visitors to the region has been gradually going dry over the past year and a half. In the wake of reduced numbers from Japan and China, the drop in the Russian market comes as a great disappointment to the region’s hospitality industry, particularly for a segment that yielded so many signs of above-average growth potential and spend.

According to Perry John P. Tenorio, managing director of the Marianas Visitors Authority, Russia’s outbound travel market continues to experience major challenges due to the deep economic crisis, and total outbound travel from Russia has fallen year-on-year by 33.8% in the first half of 2015. The collapse of the Russian ruble last fall and soaring air ticket and tour prices in ruble terms have caused sales to all travel destinations to fall dramatically. While dollar- and euro-based travel destinations have been most affected, Tenorio says that even visits to the most popular and traditionally least expensive destinations have fallen dramatically.

Bartley A. Jackson — president of the Hotel Santa Fe, chairman of the Guam Hotel and Restaurant Association and chairman of the Guam Visitors Bureau’s Russian Marketing Committee — adds that the Russian segment has had a particularly high impact on the visitor market as a whole prior to its decline.

“When visa-waiver parole authority came, but before direct flight, we went from less than 1,000 Russian visitors to 4,000 to 5,000, which was really a big deal for us,” Jackson says. “Russians will stay for two weeks on average. If you compare that to the Japan market, which only stays three nights, every Russian arrival is worth about five Japanese arrivals.”

Jackson says that when direct flights from Russia were implemented, the market grew from 5,000 to 25,000 Russian arrivals over the course of a single year, the monetary equivalent to more than 100,000 Japanese arrivals. He also says that the Russian visitors tend to enrich the island as a whole, rather than specifically pouring their revenue into Tumon.

“They travel all over the island. They drink, they eat, they buy, and so the impact was really island-wide,” he says, “and now the arrivals are back down below 4,000, and we really miss them.”

In addition to the severely weakened ruble, Jackson says that international tensions between Russia and the United States have also factored into dwindling outbound travel. In response to recent conflicts, both internally and externally, the Russian government has been imposing a series of travel bans on many of its citizens over the past several years.

“It seems that the Russian government is intent on growing its footprint, and so the U.S. [and the European Union] have instituted some restrictions and sanctions,” Jackson says, “and Russia has responded by creating the same kinds of restrictions. So, even if it were cheap for them to come here, we wouldn’t have certain Russian citizens — government workers, for example — coming in because they’re discouraged from doing so. So it’s not just the price of oil, the Russian economy and the international tensions mean the government is encouraging Russians to travel domestically instead of internationally.”

Mark Manglona, GVB’s marketing officer II for Russia, says that Guam has lost approximately 82–85% of the Russian market since the same time last year, and Natalia Bespalova, general manager of local Russian tour agency Guam Voyage, estimates that the value of the ruble is approximately half of what it was at the same time last year, making Guam effectively twice as expensive for Russian visitors.

“Depending on the month, the market has dropped from as low as 50% in June to as high as 80% in March,
compared to last year,” she says.

Bespalova adds that many of the tour companies who service Russian visitors saw the situation coming and were able to adjust their marketing accordingly. She also says that booking requests are still coming, far less frequently than in the market’s 2013–2014 heyday, but enough to keep some of the region’s Russian tour companies in operation.

“Luckily, from the very beginning, Guam Voyage was targeting higher income clients,” she says. “They still have the money to travel and stay in upmarket hotels, so we’re very fortunate from that point of view. But on the other hand, some Russian tourists do still go online and find affordable hotels, just not necessarily on the beach, which is one of their main reasons for visiting.”

In addition to the reduction in visitor numbers, all direct charter flights between Russia and the region have been discontinued, and plans to establish regularly scheduled flights were scrapped by then-interested Russian airlines.

“Not only has travel to the CNMI been impacted by the economic crisis and the rapid devaluation of the Russian ruble,” Tenorio says, “but the charter airline, which was flying direct non-stop from East Russia to the CNMI, went bankrupt, eliminating the CNMI’s direct air link to the Russian market. In fiscal 2013 and fiscal 2014, there were direct charters from Far East Russia to the CNMI.”

According to Manglona, the few Russian visitors who continue to visit are forced to come through Korea and Japan.

“A couple of groups have expressed interest in flying direct, but it’s just not an economically viable business until the currency calms down,” Jackson adds. “People are interested to fly, but they won’t even schedule a charter flight until the currency stabilizes and moderates a bit.”

The lower numbers and lack of direct charters are further compounded by a marked increase in competition from more affordable destinations vying for Russian tourist revenue. “A lot of budget destinations are stepping up their effort to attract the Russians,” Manglona says, “because they know most Russians aren’t going to take a long-haul flight to the U.S. and stay at resort-type destinations like Guam.”

Bespalova agrees that other destinations are trying very hard to get Russians, pointing out that Southeast Asian destinations, like Thailand and Vietnam, are pushing particularly hard to get Russian attention. “[Vietnam has] built several high-class resorts that are offering much cheaper rates compared to Guam. Plus, they still have access to charter flights, which makes package tours much more affordable.”

On that front, she points out that even lower-cost destinations are suffering lower Russian arrivals across the board and, having recently returned home, she fears that the Russian economy will get worse before it gets better.

In spite of the adversity, however, GVB and the MVA continue working to maintain the region’s presence in Russia, and Manglona, along with Haven T. Torres, GVB’s Marketing Officer I for Russia, say that this temporary downturn in the market is a welcome bit of breathing room from the unexpected growth spike that Guam experienced during the previous year.

“The growth was just too quick for Guam,” Torres says. “Looking at it from a different angle, I think this downward spike will help our industry take better advantage of the opportunity by giving us a chance to get all the signage correct and get all the right people in place. So when Russia comes back — because they will — we’ll be ready to give them a proper reception.”

Manglona agrees that the need to adapt to the new market nearly overnight was overwhelming to many operators within the hospitality industry. “Going from being mostly Japan-centric to having to accommodate another market so quickly, it was a shock to the industry as a whole. Japanese operators had to try and release more rooms for the Russians, and the timing was much different because Russians stay for much longer periods.”

In the meantime, however, Jackson, Manglona, Torres and other GVB representatives to Russia will be visiting key cities in Far East Russia, particularly Vladivostok, Khabarovsk and Sakhalin. According to Manglona, the group will be meeting with travel agents and media in the three cities providing them with product updates and information about coming events and attractions.

Manglona says that the group will be attending two major trade shows this year, the Moscow International Travel and Tourism Fair in Moscow, and the Pacific International Tourism Expo in Vladivostok. According to Manglona, the MITT is a consumer show, meaning that Guam representatives will have a booth and be able to distribute information about the island.

“We also try to meet with partners like Korean Air and get in touch with the U.S. Embassy there, but the main purpose of having that booth is to inform general consumers about Guam, especially because we’re still fairly new in Moscow compared to the Far East.”

While Manglona and Jackson admit that GVB may be re-allocating some of its Russian market resources to other markets with higher growth potential for the time being, they also say that GVB wants to continue investing in its presence in Russia.

“Our strategy is to stay in the market, keep the name of Guam in the market and to keep doing business,” Jackson says. “So we want to spend a little less but keep the name active. We visit there twice a year, and I’ll be visiting our agency up there, telling them what we want to do and making sure they understand the strategy, which is really just a holding pattern for now.”

In addition to pursuing more traditional tourist revenue, Manglona says that the group will include Carlos R. Taitano, deputy director of professional and international programs for the University of Guam. Taitano will be meeting with representatives from several Russian universities in hopes of establishing a Russian contingent of the university’s English foreign language exchange program. This form of educational tourism has become increasingly popular among Japanese and Korean students who visit the island to participate in activities and social immersion.

MVA is also optimistic in the face of reduced Russian arrivals, and while the economic situation in Russian remains unstable, Tenorio says Russian tourists will simply need time to adjust to the new price points and economic realities. “In this environment, the MVA continues to work with the key travel trade in Russia to target less price-sensitive segments of the market to launch co-op campaigns with Asiana Airlines, which continues to provide one-stop service from Russia to the CNMI via Seoul, and to work with potential new charter airlines in an effort to secure new charter flights from Russia to the CNMI.”

A sign written in Russian on Mac & Marti’s cigar lounge in Tumon advertises that it is an American bar open to all with a Russian menu.