How are Tour Operators Connected with the situation in Ukraine?

This article was initially published on LinkedIn on March 2, 2022. For the original article by Gregory Tugendhat, please click on this link.

The plight of the people of Ukraine is well documented and their situation dire. It is absolutely right that the world’s attention is focussing on them at this trying time. Less than six days ago, the Russian incursion into Ukraine led to economic sanctions from the EU, the UK and the United States among others in retaliation for this pre-meditated and un-provoked attack. What has not been discussed at such great length yet is the impact on the tourism sector.

There are a number of elements of interest: Russian money in tourism, the Russian tourism market generally and finally those individuals that went on holiday six days ago or more. To start with the latter, I wanted to focus on the Ukrainians and Russian tourists currently around the world.

There are now around 17,000 Ukrainian and Russian tourists in Red Sea resorts. They arrived anytime in the last week and a half on airplanes provided by Russian tour operators that are currently grounded in places like Marsa Alam, Sharm el Sheikh and Hurghada. With no dollars or Euros available to re-fuel, and no possibility of flying over EU airspace, they have effectively, no possibility of return. The Ukrainians in particular have found themselves separated from their country, their relatives and their desires to protect their homeland, let alone their possessions. Deprived of access to funds on account of the banking system effectively being shut down, unable to return and hoping not to be forced to stay, they are in their own version of a nightmare scenario. The same is true of other countries currently offering a warmer climate than Northern Europe.

The Egyptian state has been quick to react to the thousands of tourists stuck against their will without any possibility to change their situation. They have been working with the leading destination management companies and hotels to waive fees and provide support until such time as clarity appears on the best course of action. Suffice it to say that there does not appear to be an obvious solution to the problem. The hotels, usually full at this time of year on account of the clement weather afforded by the Egyptian coast, are indeed full, but they too are suffering. Hotels usually brimming with business, and arrivals and departures, are stuck themselves, unable to turn out their guests, unable to accommodate new clients.

Egypt is not alone. The Republic of Cuba is also facing a similar crisis. Until last week, there were two flights per week from Moscow to Havana, taking just over 12 hours – presumably flying over European and UK airspace along the way. There are thousands of Russian and Ukrainian visitors to the island at this very moment. Of all the places in the world to be stuck, Havana has to be fairly high on the list of desirable places to be and yet, the situation must be harrowing for all concerned. There are of course countless other destinations, but with these two in particular, it seems difficult to imagine how the situation will resolve itself in the short-term. Victims of a war, but both out of sight and out of mind of the world’s media.

The Russian tourism market generally has been seeing something of a resurgence recently on the international scene, more so than others as far as RegiÔtels is concerned, after the recent two year global travel hiatus caused by the Coronavirus pandemic. For example, in Egypt, since the downing of Metrojet Filght 9268 by Islamic State in 2015, Russian tourism has been non-existant save for the Ostrovok clients daring to go it alone. The first flights arriving into Hurghada started arriving in November 2021 as the much needed, little publicised saviours of the Egyptian tourism sector. Hotels of 5, 6 and 700 + rooms throughout both Cuba and Egypt have been desperately trying to repair the damage from the bankruptcy of Thomas Cook at the end of the 2019 leisure season (just in time to capitalise on the summer season but too soon to pay any of the bills). Hotels were counting on the 2020 season to recover their losses. Corona struck, losses mounted, consternation and fear for the future grew as investment in the products slowed. 2020 rolled into 2021 and again, no respite was found.

As the end of 2021 approached, the tour operator model started to take root again, but with a twist. Previously, in Egypt, in those halcyon days when the likes of Thomas Cook ruled the global tourism flows, credit provided by the hotels for the season was obligatory and rooms were sometimes paid for up to 17 months after the date of stay. These delayed payments were sometimes on account of claims made by clients without merit, instigated by and encouraged by said tour operators to recoup the fees owed to the hotel in exchange for a voucher in another destination for the guest. Other delays were caused by the local destination management companies would take their cut and hold onto to the cash for the interest (the low interest rates in the European banking system did not apply in the destinations). Either way, in both cases, behavior was at the cost of the hotels. Still the hoteliers soldiered on, between a rock and a hard place – desperate for business but not controlling so many aspects of the pre and post client experience.

Russian tour operators arrived in November in Egypt with suitcases of cash – US dollars – eye watering sums – 5, 8, 10 million dollars a time to pre-pay for resort exclusivity for Russian tourists, the hoteliers would never again allow credit to tour operators and wanted to be sure of the business, even if it meant accepting average room rates of USD 25 per night. And so it was in both Cuba and Egypt, idyllic destinations desperately in need of higher paying visitors to help restore the struggling sector but settling for what there was. This has now been shattered once more and gone are the companies capable of putting the money on the table before the stay.

What is left in the tourism sector are the larger players, well known, albeit on a lesser scale, to the Cuban and Egyptian hospitality sector in the pre-2019 period, but hoped for as the saviour for the future, subject to the right payment terms. Tui Group is the company that jumps to mind first and foremost as one of the world’s largest tour operators. Doomsday predictions of the fall of Tui Group throughout 2020 did not prove accurate, in spite of their taking (in some cases) up to 9 months to reimburse clients of the pre-booked holidays that were then subsequently cancelled on account of the Coronavirus pandemic. By the end of January 2022, bookings were already at 72% of the bookings of 2019 at the same time. By the end of the first week of February 2022, 100% had been achieved, pointing to a return to pre-covid booking patterns. Tui was already predicting roaring success in 2022. As we move into March, is that still the case? What of the structure of Tui? How will this survive the current war being waged in Ukraine? The largest shareholder of Tui, Alexey Mordashov has been placed on the EU sanctions list. It would appear that not only are Russian tourists everywhere, so too is Russian money. Tui Group has stock market listings in both Germany and the UK. What of the future of a company awash with 34% ownership of sanctioned money?

How can the tourism sector keep moving from crisis to crisis without any sense of a break? Only last week Omicron was the top story affecting the world. On the 21st January, Cambodia was hailing a new era of tourism collaboration with Russia, Cuba was seeing a revival and Egypt was making the best of bad situation. More than the sector at large, my concern is the hotels in the various markets around the world (if not those Ukrainians currently experiencing a living hell of bombardment and 40 mile long convoys of impending death snaking towards them). Egypt and Cuba in particular have not learned the lessons of the last three years, and it will prove their undoing if there is not an immediate concrete change in direction. Digitalisation of the tourism sector from a hotel perspective is essential and long overdue.

The question remains, why are independent hotels in non-EU countries still putting all of their eggs in the same basket and only going for tour operator business? Why are hotels basing their very existence on the tour operator model that was started in 1841 and not that of 2007, the advent of the smart phone with portable booking capabilities? All of the hotel owners have the latest iPhones, travel throughout Europe booking their own travel, and yet, for their own businesses, rely on the most antiquated of systems. Why are so few of the hotels bookable online and taking control of their own inventory? The crisis caused by both Corona and this Russian war of aggression is still not convincing hotels quick enough to digitalise and take control of their future. It is a very worrying trend for the sector generally as it is difficult to see how they can possibly survive, being dependent as they are on so many factors that are completely out of their control. Without digital distribution, they will simply not survive another year. This is now their third in the same position.

This crisis is not just impacting the hotels themselves but also the ancillary industry players. Banks that have been counted on throughout the last two years to keep the tourism industry on life support are beginning to tire of the constant begging bowl approach of the hospitality sector. They are cutting credit lines and access to funding so necessary for the entities to stay afloat. The issues are therefore not just the hotel sector, but the entire supply chain of tourism globally. The situation, while promising only a week ago, is once more starting to look as bleak as the first weeks of April 2020.

RegiÔtels was created with the sole intention of assisting independent hotels digitalise and capture the online opportunities available at the right rate, chosen by the hotel, for the right guest. Assisting our hotel partners compete with the processes and systems of global hospitality groups is essential to ensure that the consolidation and homogenising does not stretch to every accommodation establishment. There are enough Marriott, InterCon, and Accor hotels out there. And while it is difficult to imagine a world without them, it is getting easier to envisage a world without the independent hoteliers – of all sizes. RegiÔtels work with hotels from 6 rooms to 730 and everything in between in fifteen countries on four continents. It is with a very mixed emotion that I write this article, for it is clear that if ever there was a need for the services of RegiÔtels in countries such as Egypt and Cuba, it is now – the opportunity is overwhelming and we are in exactly the right place at the right time with the perfect team to deliver a diversification of clients to benefit the hotels and ensure their survival. It just seems like a terrible price for the Ukrainians to pay to highlight to hoteliers yet again why they should stop focussing on the antiquated tour operator model and move to have control of their destinies.

www.regiotels.com is a hospitality agency with digital expertise specialising in assisting independent hotels to drive more business using the cutting-edge tools and best practises of the sector available to hotels around the world with offices in Luxembourg, Germany, Egypt, Cambodia and soon to be Cuba.

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