Feliks Magus: Exceptional year for Tallinn

Running the cheapest
hotels in the world
nThe cheapest 4-star hotels in the
world in 2010 were in Tallinn, charging
an average of €62 a room, according
to a new study made by Hotels.com. This
corresponds to 13% decline from 2009. In
comparison, a night in a 4-star hotel cost
€101 in Helsinki and €129 in Stockholm.
Comparing the city's luxury hotels,
Tallinn also offers the best value. Some of
the city's luxury hotels are charging as little
as €46 for a room. A price comparison
shows nearly €100 in savings compared
to similar hotels in Berlin or Budapest.
Estonian Association of Hotels and
Restaurants President Feliks Magus commented
on this story when it broke in
March that shortly before the start of the
recession a number of new 4-star hotels
had opened their doors, including the
one he currently runs, the Nordic Hotel
Forum. “The recession brought down
demand while competition was getting
tougher and prices fell by between 30%
and 40%,” he told reporters.
Magus added, however, that this
was bound to change and room prices
were expected to go up by at least 10%
in 2011. With Tallinn being European
Capital of Culture this year, a decline
in hotel prices will certainly provide an
additional incentive to would-be visitors,
which should in turn raise rates.
We spoke to Feliks Magus about
these and other issues facing hotels
in Estonia.
How’s business? The prospects
for the Estonian accommodation sector
seem bright.
Compared to 2010 and 2009, business
is good. But compared to the prerecession
times there are still losses.
Occupancy in the 3-to-5-star segment
during 2010 on average was 55%. That
compares to 65% in 2006. Outside the
capital, spa hotels are doing OK.
The problem now is the extremely
low average daily rate. The downward
trend changed in the second half of 2010,
but after a huge decline in 2008-09 the
average daily rate still declined on average
in 2010. Overall rates have fallen by
more than 30%.
You saw the Hotels.com research
that Tallinn’s 4-star hotels are the cheapest
in the world, at around €60 a room.
We ourselves calculated the net rate with
breakfast and VAT and it was €55. That
compares to €120 in Helsinki. There are
different studies and ways to reach the figures,
but whether we’re the cheapest or the
third-cheapest there’s not much difference.
We saw a record number of overnights
from foreign guests in 2010, so
demand is growing and we can start to
work on revenue management.
8 No.2/2011 Baltic Stand By
Is it the biggest hotels with more
rooms to fill that have suffered the most?
All hotels are suffering. Those that
opened immediately before or during the
recession suffered in particular, because
there was no time to bring them to the
market. Those already established in the
market were able to keep their position.
The recession put pressure on all
hotels and all segments. Five-star hotels
were forced to sell at 4-star rates; 4-star
hotels had to sell at 3-star rates, and so on.
The number of rooms sold was low
as demand fell away, and everyone suffered
equally – international or local, big
or small. Full-sized hotels managed better
because a wider range of services was on
offer and customers chose those hotels that
could offer more services for low rates.
Won’t Tallinn being European
Capital of Culture be hugely beneficial
to hotels?
The impact of being capital of culture
is not yet known. I can’t say that in
the first three months I’ve seen an impact.
There will be many more cultural events
that will have an impact, especially in the
summer. But there are several factors at
work on the big increase in overnights in
Q1 2011, not just that.
My clear understanding is that guests
don’t come to Estonia just for the good
hotels. They want to see the architecture
and feel the atmosphere of the Old Town,
the untouched nature of the countryside,
the culture, performances and exhibitions.
The fact that we survived such a deep
recession was also good PR for Estonia.
Are you happy about the continuing
low VAT rate on hotel services at 9%?
It’s a reasonable rate for hotel services.
Accommodation services are one of
only very few exceptions from the standard
VAT rate of 20%. What concerns us
is that VAT on restaurant services is still
high. Lower VAT there would definitely
support the hotel sector and create jobs.
In other European countries, low VAT has
resulted in prices going down.
Looking back, was it a struggle getting
a reduced rate for hotel services?
It was quite a struggle. We had a
lower level before, but politicians wanted
to raise it. The association conducted
extensive lobbying to convince them that
doing so would not be wise. The Reform
Party are in favour of one standard level
for all sectors and keeping it simple.
The danger now is that it could
increase again. Many politicians assume
that the hotel business is booming because
of the rise in guest numbers, that we have
too much money. They shouldn’t be wor-
Feliks Magus, President,
Estonian Hotel Association
“The recession
put pressure
on all hotels
and all segments.”
travel news
ried. It will take a long time to recover the
losses incurred during the recession. And
if money is accumulated after the debts
are paid we have to invest to improve the
products and train staff.
Have any hotels closed during the
recession and its aftermath?
No hotels have closed, only the
Laulasmaa Spa on the coast 30 km from
Tallinn. But there the owner had other
financial problems. The property has now
been sold and there are plans to reopen
it, possibly as soon as this summer. Some
smaller guest houses may have closed.
The reason why we survived was
that all parties were flexible. Everyone
understood that we had to solve the problem
together. The banks made terms worse
initially but soon softened their position –
what were they going to do with an empty
property? Staff accepted lower salaries.
Service providers accepted less. There
were lower lease levels.
How is conference tourism progressing
in the current climate?
It’s rebounding. It took a hit, with
2009 being by far the worst year. Those
clients who used to book conference rooms
and lunch no longer took the lunch. Those
who’d asked for coffee breaks no longer
asked for coffee breaks. And in general
much fewer conference rooms were sold.
There is a definite recovery in 2011, to
the point where it’s almost booming. There
are several days in spring when all conference
centres in Tallinn are full. But rates
are still very competitive compared to Helsinki
and Stockholm where package rates
are at least €100-€140. It’s much lower here.
For leisure travel, the hotel rates are
not very low compared to the European
level. But conference-level rates are far
too low.
The mid-sized conference business
has improved substantially. But we are
also seeing requests for events for 1,000-
2,000 participants and these are passing
us by, as Tallinn lacks a big conference
centre. There is a clear need for a 2,000sized
conference venue with additional
room for seminars. Transport and connections
are also a problem for Tallinn.
Why is air transport still a problem?
Tallinn, like Vilnius, is way behind
Riga. The number of passengers using TLL
has increased quite a lot this year. The
arrival of Ryanair has helped a bit. For
the leisure traveller it works well, but not
so much for the conference and business
travellers. So there’s lots of work to do.
It’s a government priority to improve
connectivity and this should be easier to
achieve now that Estonian Air belongs to
the state. The problem is that the country
and population are so small it doesn’t
justify many more routes. So there has to
be another strategy.
Tourism:
a €1.08 billion business
Estonian companies earned €1.08 billion
from tourism in 2010. Last year
produced a 4.5% increase in spending
by tourists in total. That included a
4.2% increase in income earned from
foreign tourists, resulting in an overall
increase of €43.6 million in spending
compared to 2009. Of the 2.4 million
tourists in total accommodated in
Estonian accommodation, around 1.6
million were foreign tourists.
It’s likely that the strategy will be to
fly frequently to nearby hubs – Helsinki,
Copenhagen, Stockholm, Riga – in time
for connecting flights to a wide variety of
destinations that we can’t offer in Tallinn.
Passengers will be able to reach their final
destination in the morning and fly home
in the evening. This is the only possible
solution, as I see it. Then there needs to
be a much bigger number of planes to the
main direct destinations, if the demand
is there among local people. n
Monthly bednights in Tallinn
350000
300000
250000
200000
169 957 +26%
Monthly bednights 143 149
150000
in Tallinn
100000 Monthly bednights in Tallinn
50000
3500000
300000
250000
200000
150000
100000
50000
0
+21%
169 957
Passenger air traffic at Tallinn Airport 2006-2011
Passenger air traffic at Tallinn Airport 2006-2011
150 000
January
Accommodated foreign
Accommodated visitors foreign in visitors 2010
in 2010
www.standbynews.info www.standbynews.info
Baltic Stand By No.2/2011 9
+26%
143 149
February
March
2006 y 2007 y 2008 y 2009 y 2010 y 2011 y
April
May
June
July
August
September
Passenger 100 000 air traffic at Tallinn Airport 2006-2011
50 000
150 000
111 205
137 302
100 000
50 000
104 198
0
October
November
December
Source: Tallinn Tourist Office & Convention Bureau, Statistics Estonia
200 0000 2006 2007 2008 2009 2010 2011
Russia
United Kingdom 9%
3%
Scandlines offers three routes via the Latvian Russia ports of
United Kingdom 9%
Ventspils and Liepaja to Germany and Sweden.
3%
+21%
January
111 205
January
February
104 198
February
March
March
April
Accommodated foreign visitors in 2010
Finland
53%
137 302
April
May
May
June
June
July
July
August
August
September
September
October
October
November
November
December
Source: Tallinn Tourist Office & Convention Bureau, Statistics Estonia
200 000 2006 2007 2008 2009 2010 2011
January
February
THE EASIEST WAY TO
Tallinn Tourism / Toomas Volmer
March
April
Accommodated foreign visitors in 2010
May
June
WELCOME ON BOARD!
Finland
53%
July
200 000 2006 2007 2008 2009 2010 2011
150 000
111 205
100 000
137 302
104 198
50 000
0
August
January
February
March
September
April
May
June
July
Russia
9%
October
August
September
October
November
December
Source: Tallinn Tourist Office & Convention Bureau, Tallinn Airport
November
other
19%
United Kingdom
3%
2006 y 2007 y 2008 y 2009 y 2010 y
Latvia
3%
Norway
3%
Sweden
2011 5% y
Germany
Finland
53%
5%
Source: Tallinn Tourist Office & Convention Bureau, Tallinn Airport
December
Source: Tallinn Tourist Office & Convention Bureau, Tallinn Airport
SCANDINAVIA AND GERMANY
Tickets and information: Telephone +371 677 96900
other
19%
other
19%
December
Lat
3%
No
Lat
Sw 3%
No
Germ
5% Sw
Germ
5%