Given the overall economic situation in the country, Russia’s domestic tourism industry could be an unexpected beneficiary, especially during the peak summer travel season.

Tourists at the central beach in Sochi, Russia. Photo: TASS

The situation in the Russian tourism sector is changing for the better in 2016. This comes as a stark contrast to last year, when many thought the travel and leisure industry in Russia was destined for collapse. The sharp depreciation of the Russian ruble, the economic crisis and the relative decline of people’s living standards all negatively impacted the tourism industry.

However, mid-way into 2016, the results do not appear to be as gloomy as originally forecasted. At the beginning of this summer’s tourist season, data from Rostourism and the Association of Tour Operators of Russia (ATOR) demonstrated growth rates in both domestic tourism and foreign travel.

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Russian travel abroad becomes more expensive

Outbound tourist flow from Russia could grow by 5-7 percent this year compared to 2015, predicts ATOR. According to Maya Lomidze, executive director of ATOR, sales data on early bookings hints at a slight recovery in the outbound tourism sector.

“This will be insignificant though, and we do not expect a return to indicators achieved in 2013 or even 2014. Nevertheless, consumers no longer want to save money on their holidays on the scale that we saw during 2015,” says Lomidze.

Earlier, the Russian Union of Tour Operators (RUTO) announced a 31.3 percent drop in outbound tourism last year, when the total amount of travelers was only 12.1 million. By way of comparison, in 2014 this figure was about 17 million. (However, in 2014 the dramatic fall of the ruble and the price increases only began after the summer season ended). This was the biggest decline in the industry in the past two decades. This drop can only be compared to the one in 1998 when Russia defaulted on its external debt, when the volume of outbound tourism collapsed by almost 25 percent.

In 2015, outbound tourism fell sharply in virtually all destinations that are popular for Russians from Egypt and Turkey to Finland and China. The number of tour operators working in the outbound tourism field also declined sharply – from about 2,000 to 900. The consensus opinion among experts is that economic reasons are behind this drop.

For example, a ticket to Vietnam for a Russian citizen, on average, has risen from 60,000 rubles (about $923 at current exchange rates) to 140,000 rubles ($2,153). Russians had to spend two times more money on their holidays in Asia, which was reflected in the number of tourists, which dropped in half.

According to Yuri Barzykin, vice president of RUTO, higher transport costs, often equal to about half of the cost of the entire tour, is also an important factor. However, the most crucial reason is the ruble devaluation: the Russian currency lost 30 percent to the Indian rupee, and 42 percent to the Thai baht over 2015. That makes travel to those destinations significantly more expensive.

Experts have different opinions on the immediate prospects for outbound tourism. Many do not believe that the current recovery in the market will change the overall negative trend. In this regard, Viktor Topolkaraev, general director of NTC Intourist, believes that the number of outbound tourists from Russia will not exceed 6 million people. Moreover, this will only happen under one condition - if Egypt will be opened to travel in the near future.

In the event that air flights to Egypt are resumed, that country could become the largest outbound destination during the summer season. However, the Russian minister of transportation, Maxim Sokolov, recently said that would not happen any time soon. Thus, apart from Egypt the most popular places for outbound travel would be Greece, followed by Bulgaria and Cyprus, predicts Topolkaraev.    

Maya Kotlyar, CEO of the MAYEL Travel Tour Company, offers quite an optimistic view about the future: “Our foreign partners are doing everything possible to reduce prices for Russian tourists, so that they can continue to spend their holidays abroad. Everything is being done in order to stabilize prices in foreign currency, in order to equalize them to the pre-crisis prices in rubles.”

As she points out, it’s the cost of air travel that has been affected most seriously by the crisis. And now many Russian travelers are adjusting to the new reality: “In general, each crisis has a cycle, and people gradually psychologically adapt to new exchange rates and new realities. The need for going on holiday will always remain.”

Economy class holidays

The reality and the circumstances of the past year demonstrated that Russians go on vacation mainly within their own country. The great reduction in outbound tourism has clearly benefited the domestic travel sector.

The head of Rostourism, Oleg Safonov, recently announced that the tourism industry is in the process of restructuring. At the end of last year, outbound tourism experienced a 31 percent decline, while domestic tourism saw a 20-25 percent increase.

According to Tatiana Belova, development director of the tour operator network of BSI Group, local resorts have posted growth rates in tourist inflows for the second season in a row: “There are two reasons for this – foreign resorts becoming more expensive, and significant efforts taken by the Russian authorities to develop domestic tourist and recreational destinations.”

However, the expert argued that, “We are definitely not talking here about people foregoing foreign travel in favor of their own country. The prices are also rising in Russia, and this quite noticeably – about 30 percent, and so there is not that much difference, when it comes to costs of vacationing at home or going abroad, in the same class of travel.”

Earlier, Russian resorts could never seriously compete with those of Turkey and Egypt – and this is not because the sea is worse and the beaches are dirtier at home. The main problem is that under much worse conditions and services, the prices at domestic resorts were much higher. This was due mostly to low profitability, lack of infrastructure and inadequate investments.

Now the situation has started changing for the better. According to the Ministry of Culture (which is in charge of the nation’s tourism portfolio), 50 million Russians are ready to go on vacation, or are already doing so in their own country. Add another 5 million people, who previously preferred to visit Turkey and Egypt, and that increase will provide tax inflows to the state treasury of up to 700 billion rubles ($10.8 billion) annually, leading to a sharp increase in the national GDP.

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Some experts are already predicting the domestic tourism market to grow by the same 30 percent that outbound tourism has lost. Moreover, the Russian Union of Tour Operators believes that by the end of the year, this growth will reach 15-20 percent.

Meanwhile, RUTO has reported that demand for vacationing in Crimea, based on the results of early bookings in 2016, has increased by 200 percent, compared to the previous year. In Sochi and the Krasnodar region in the south of Russia, demand has increased by 100 percent. The top 10 most popular holiday destinations this summer are also expecting an increase in travel volume: Sochi, Gelendzhik, Anapa, Yeysk, Yalta, Sevastopol, Koktebel, Yevpatoria, Sudak and Feodosia.

Problems facing the Russian tourism industry

However, there is no reason for celebration. In fact, the development of domestic tourism still faces numerous challenges and has serious problems to resolve.

One of the main factors making holidays unpopular inside Russia is their high cost. The main issue here is that often foreign resorts that provide services of much higher quality cost about the same as in Russia. This is especially true for resorts in Crimea and Krasnodar Krai.

The second problem with domestic tourism in Russia is the underdeveloped infrastructure. According to a recent study conducted by ATOR, the main complaints from the public, when it comes to tourist sites in the country in 2015, remain unchanged – grime, repairs, maintenance quality, and rude service personnel.

Another important factor is low transport accessibility. The high cost of air travel within the country can really scare off the average Russian. While travel to the cities of the Golden Ring [The ring of ancient cities northeast of Moscow featuring unique monuments of Russian 12th–18th century architecture, including fortresses, monasteries, cathedrals, and churches – Editor’s note] and Krasnodar Krai is still possible, without going beyond one’s planned budget, a trip to Kamchatka and Yakutia will be quite expensive.

“The most important problems, which everyone faces – are the high costs of air and rail transportation. Especially from the regions of Russia,” says Sergey Strebkov, the head of the Domestic Tourism Department at NTC Intourist. “Unfortunately, the transport component in Russian tour packages occupies about two-thirds of the entire cost of the holiday, which is unacceptable, because for overseas destinations, the cost of transportation is just one-third or even less,” explains Strebkov.

Nevertheless tourism is a hidden economic reserve for Russia, and a driver of growth, which would be very useful in the current economic climate. In any case, the demand for tourism will not drop – people always need to go on vacation.

Experts believe that it is the state’s job to create the proper conditions for businesses – to provide electricity, gas, roads and other infrastructure. For their part, Russian cities that want to attract travelers need to really think through the logistics – how to get to places, where to stay, what to eat, and what to watch.

Once that happens, investors will be willing to provide money for the needed infrastructure, and turn Russia into a thriving tourist destination. Ultimately, whether Russians will forget about going abroad will depend on whether at home they will be able to receive a quality competitive product at a reasonable price.