Hospitality industry of Ukraine

Industry overview
Hospitality industry
of Ukraine
3
A
D
ear Reader,
It is my great pleasure to introduce you to our new
publication about attractive sectors of Ukraine, made in
partnership with Deloitte.
favorable geographic position, vast consumer market, ample resources and high level of education
– all these factors ensure great investment potential for
the economy of Ukraine.
We developed these brochures to make information
about sectors of Ukraine accessible and easy to understand. The booklets provide analysis of economic
attractiveness, as well as comparative characteristics
and undiscovered opportunities.
At present, Ukrainian market is at the development
stage. There are many niches and opportunities for introducing new players and strengthening the positions
of existing ones. However, most of Ukraine’s industries lack investments, though international investors
are highly interested in them. We believe that foreign
investments will be very successful and promote economic growth if a favorable investment climate is created in Ukraine.
Ukraine enjoys a long industrial tradition, robust transportation and technical infrastructure, rich natural resources, strong secondary and tertiary education, a
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InvestUkraine offers individual support to investors and
is here to assist potential investors with setting up production in Ukraine. We offer professional support in obtaining information and analysis, legal advice, site visits,
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I encourage you to consider Ukraine as a place for your
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Sergiy Yevtushenko,
Head
InvestUkraine
State Agency for Investment and
National Projects of Ukraine
To assist you in determining the most promising areas
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Deloitte experts in cooperation with InvestUkraine have
conducted this research.
We hope that this overview will be useful and interesting for all companies interested in investing in various
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Vladimir Vakht,
Managing Partner
Deloitte
4
Table of contents
1. Executive summary
5
2. Industry overview
9
3. Trends and developments
12
4. Leading players
13
5. Legislation
15
6. Organizations and associations of the industry
16
7. List of references
17
5
1. Executive summary
Hospitality industry of Ukraine has started to develop
dynamically in the 1970-80s. Extensive use of buildings
and complexes without regular renovation resulted in
outdated hotel facilities. The majority of existing hotels,
motels, camping sites, health resorts and tourist camps
built in Ukraine do not conform to international standards. In particular, hotels usually lack a well developed
infrastructure – air conditioners, public areas (halls, lob-
bies), let alone conference halls, fitness centers and underground parking lots. Based on 2010 data 317 hotels
were awarded 1,2 or 3 stars according to the Ukrainian
hotel rating system, which is quite similar to the British
AA rating system and American AAA system. As many as
456 hotels were not rated at all, due to costly and complicated rating procedure and poor hotel services. Profitability of such hotels is as low as 3-15%.
At a glance, 2010
Source: State Statistics Committee of Ukraine
According to the State Statistics Committee of Ukraine, a total of 67 4-star hotels operated across Ukraine in 2010.
4 star hotels
City
Hotels
Kyiv
Avanti
Dniprovskiy
Dnipro
President Hotel
Natsionalny Hotel
Radisson SAS
Dnister Premier Hotel
George
Grand Hotel Lviv
At Burgher
Odesa
Londonskaya
London
Oreanda
Leto
Academia
Catalonia
Viva
Gostinii Dvor
Lviv
Odesa
Yalta
Dnipropetrovsk
Kirovograd
Kharkiv
In Kyiv, despite the existing demand for about 10-12
4-star hotels, there were only six of them available. Likewise, Lviv has too only few such hotels with situation being even worse in other cities.
Although the volume of investments in the 4-star and
5-star hotels is approximately the same, profitability of
4-star hotels is higher (in Kyiv, it is up to 40-50%). Four
star hotels are more flexible in terms of discounts and
cooperation with travel agencies.
Presently, there are 15 hotels in Ukraine awarded with
five stars according to Ukrainian national standards
(Kyiv - Premier Palace, St Sofia Regency Hyatt, Intercontinental and Opera, Donetsk - Donbass Palace,
Dnipropetrovsk – Grand Hotel Ukraine, Odesa – Otrada,
Bristol, Kharkiv – Superior, Kharkiv Palace). In 2005, the
first ever 5-star hotel (Rixos-Prykarpattya) was opened
in Western Ukraine, followed by Royal Grand Hotel in
Truskavets (a 137-room hotel of the Royal Hotels & SPA
Resorts network).
6
5 star hotels in Ukraine
Source: State Agency of Ukraine for Tourism and Resorts
Over the last decade, the hotel indastry of Ukraine has
been developing rapidly. In 2011, three new hotels were
opened in Kyiv – Ibis (3 stars), Autograph (4 stars) and
Cosmopolite (4 stars). Unmet demand for hotel rooms remains one of the major market drivers which pushes the
prices up.
In particular, over 2011 the average daily rates have increased by more than 30%, thus reaching pre-crisis levels. Ukraine is one of the top ten countries in terms of hotel room rates and had one of the highest growth of room
rates in 2011.
In Kyiv, the average occupancy rates of 4-5-star hotels
is approximately 60-65%, and 3-star hotels – 65-70% in
2011.
According to official statistics in Ukraine in 2011 operated
2,573 certified hotels, of which 503 were rated (1 star– 96
hotels, 2 stars – 100 hotels, 3 stars – 215 hotels, 4 stars –
77 hotels, 5 stars – 15 hotels).
7
Ukrainian hotels by category, 2011
Source: Ukrainian State Agency for Tourism and Resorts
Approximately 40% of revenues are generated by foreigners coming to Ukraine and this percentage is growing
steadily. In Kiev, the level is much higher reaching 60%.
In 2011, 21.4 m foreigners visited Ukraine, with the majority coming from Russia, Moldova, Belarus, and Poland.
From those 1.2 m foreigners came for tourist purposes,
640 thsd for business purposes, and the majority (more
than 19 m) travelled to Ukraine as private visitors.
those related to the hospitality industry). Three hotels
were opened in Kyiv in 2011, with another 7 (including two
5-star) hotels expected to be commissioned in 2012.
According to market analysts, the most promising segments are 2-star and 3-star hotels which normally boast
higher occupancy rates than those reported by 5-star hotels owing to lower cost services.
In Kyiv, demand for hotel services is driven by business
visitors and vacationers, with the former accounting for
80% of occupied rooms. Therefore, during the business
week occupancy rates normally reach 75-85%, whilst on
weekends only 40% of rooms or less is occupied. In an
attempt to attract customers on weekends, hotels offer
a wide range of discounts and loyalty programs to them.
As a Euro-2012 co-host, Ukraine has spurred the development of its hospitality industry over the last couple
of years. As many as 1.4 m tourists are expected to visit
Ukraine’s four host cities in June-July 2012. In preparation for the European football championship, the Ukrainian state authorities and investors have undertaken to
implement nation-wide construction projects (including
Currently, there is unmet demand for medium and low
priced rooms. With 4-5-star hotels predominantly occupied by foreign tourists, whereas Ukrainian citizens prefer
lower priced hotels.
In Ukraine, on average there are only 2-3 hotel rooms per
1,000 citizens, whereas in Western Europe 6-15 hotel
rooms are available per 1,000 citizens.
8
Hotels in Ukraine
60
Source: State Statistics Committee of Ukraine
Although the hotel industry of Ukraine is expanding, some
international hotel operators are still wary of entering
Ukrainian market. The hotel industry of Ukraine is responsive to market sentiment. In 2008, Kyiv-based hotels were
hit hard by the crisis, with the occupancy rate decreasing
by 10-20%, although room rates were reduced by staggering 40%. Overall, the market is heavily dependent on the
political and economic landscape.
Nonetheless, market analysts are optimistic about the future prospects of Ukraine’s hotel industry as travel agencies are becoming more focused on Ukrainian market as
one of the most lucrative tourism markets in the world.
9
2. Industry overview
To date, there are approximately 1,700 hotels with more than 76 thsd rooms, with the total residential area of 1.7 million m2.
Hotels location
Source: State Statistics Committee of Ukraine
The occupancy rate of well-known hotels is around 35-45% during the low season and 60–70% during the high season.
Occupancy in Ukrainian hotels, m people
Source: State Statistics Committee of Ukraine
10
As much as 39.8% (UAH 1,018.6 m) of operating revenues was generated from services rendered to foreign tourists. In
Kyiv, foreign tourists account for 62.3% (UAH 634.9 m) of total revenues.
Hotel services by regions, 2010
Region
Hotel revenue,
USD m
Hotels
Bed spaces
Average hotel
capacity, customers
Served
customers
Ukraine
269
849
76 355
90
3 054 905
Kyiv and Kyiv region
130
105
12 666
152
1 046 914
Crimea
38
62
8 244
133
227 092
Lviv region
31
84
7 170
85
263 484
Odesa region
17
45
5 235
116
186 499
Donetsk region
13
53
3 856
73
138 982
Kharkiv region
10
24
2 116
88
135 517
Dnipropetrovsk region
8
60
4 769
79
107 739
Ivano-Frankivsk region
7
27
3 372
125
67 934
Source: State Statistics Committee of Ukraine
Based on the data provided by the State Statistics Committee of Ukraine, in 2010 pre-tax profit generated from
hotel services amounted to UAH 2,137.8 m, a 13.7% y-oy increase (UAH 332.5 m). Of this amount, Kyiv accounts
Hotel revenue by regions in 2010
Source: State Statistics Committee of Ukraine
for 45.7%, the Autonomous Republic of Crimea – 11.9%,
Lviv region – 9.7%, Odesa region – 6.4%, Donetsk region
– 4.1%, Kharkiv and Dnipropetrovsk regions – 3.1%.
11
In 2010, pre-tax profit per hotel room in Ukraine was UAH
28 thsd on average. The highest profit per hotel room was
reported by Kyiv hotels (UAH 77.2 thsd) and hotels located
in the Autonomous Republic of Crimea and Kharkiv region
(UAH 30.8 thsd), and Lviv region (UAH 29.0 thsd).
Throughout 2010 in Ukraine 4,047.8 thsd customers received hotel industry services, which is an 11.8% y-o-y
increase, of which 3,054.9 thsd (75.5%) customers were
served by hotels.
In 2010, Ukrainian hotel industry reported pre-tax profits of
UAH 6,738.9 m, with hotels accounting for 90.0% of profits. The total pre-tax profit of hotels in 2010 increased by
UAH 1,971.3 m (48.2% y-o-y) and reached UAH 6,063 m.
Hotel revenues distribution in 2010
Source: State Statistics Committee of Ukraine
More than 30% of all revenues were generated from hotel accommodation services. While 13.8% were earned from additional services and 51% - from other operations, which is indicative of the on-going process of diversification of services
offered to customers.
Hotel subdivisions, 2010, units
Source: State Statistics Committee of Ukraine.
12
In 2010, 25.4 thsd people were employed in the hospitality industry, a 6.1% y-o-y (1.6 thsd people) decrease,
which is largely attributable to the dismissal of personnel
due to scale-down of operations. In 2010, the average
number of people employed per hotel was 30, with an average monthly salary of UAH 2,085.3 (roughly USD 260).
Sole proprietors who mainly operate small hotels and own
private houses and apartments are regarded as competitors for companies operating in the hotel industry, includ-
ing large hotels. They offer a full range of essential and additional services to their clients at a lower cost. According
to the data provided by the State Tax Administration, the
number of sole proprietors who rendered accommodation services to non-residents in Ukraine totaled 6.5 thsd
people in 2010, of which 2.7 thsd people (or 42.0%) operated hotel businesses. The amount of income received by
them increased by UAH 35.9 m, or 10.7% y-o-y, to reach
UAH 371.1 m (56.5% of total income of sole proprietors
who rendered accommodation services).
3. Trends and developments
Official statistics state that the volume of services rendered by Ukrainian hotels in 2011 reached UAH 3,458.5
m, thus achieving 27% y-o-y growth. Service fees related
to other places of permanent residence amounted to only
UAH 974.6 m.
Nowadays, hotel services cater to the following categories of customers:
1. First group – businessmen, politicians, people of art
who tend to choose a standard room in famous 4-5star hotels, rather than a luxury room in a 3-star hotel
for the same price;
2. Second group – middle level managers, employees of
foreign and domestic companies who normally stay in
Foregin citizens* visiting Ukraine, m
* Including one day visitors
Source: State Statistics Committee of Ukraine
hotel rooms ranging from 3- to 5-stars. For this group,
one of the most crucial points is the level of service.
Cost is an advantages ( preferred range is USD 120250 per night);
3. Third group – domestic business travelers, the number of which has risen markedly in the last 2-3 years.
The acceptable room price for these customers ranges from UAH 75 to UAH 200. Therefore, they choose
2-star and 3-star hotels, hostels or private accommodation providers;
4. Fourth group – foreigners and domestic tourists who
stay in a wide range of rooms – from luxury 3-star hotel rooms to standard 5-star hotel rooms.
13
Approximately 40% of revenues is generated by foreigners
coming to Ukraine and this percentage is growing steadily. In Kiev, the percentage is much higher reaching 60%.
In 2011, 21.4 m foreigners visited Ukraine, with the majority coming from Russia, Moldova, Belarus, and Poland.
Around 1.2 m foreigners came for tourist purposes, 640
thsd for business purposes, and the majority (more than
19 m) travelled to Ukraine as private visitors.
According to market analysts, the most promising segments are 2-star and 3-star hotels which normally boast
higher occupancy rates than in excess of those reported
by 5-star hotels owing to lowerprices.
As the Ukrainian economy develops so will the tourism
industry, thus inevitably leading to increased demand for
moderately priced hotel services.
Now that Kyiv market appears to be reaching a saturation
point, operators are increasingly start to focus on other regions of Ukraine.
4. Leading players
There are two ways to go about hotel development project: (i) hotel facilities are developed to meet the requirements of an
international hotel operator, with subsequent involvement of such hotel operator in project management, (ii) hotel facilities
are developed by a development company independently. The first approach is more widely practiced in Ukraine.
Top 5 hotels
Hotel Opening
Category
Number of rooms
Room rates, USD
Premier Palace
2001
5*
285
375-990
Donbas Palace
2004
5*
129
375-1072
Opera
2006
5*
140
445-940
Hyatt
2007
5*
234
400+
InterContinental
2009
5*
272
400+
Source: Kontrakty Magazine.
By attracting international operators, developers seek to
increase occupancy rates and curtail the payback period
to the extent possible. Radisson SAS, 4-stars, in particular, commenced operations in Ukraine with prices exceeding those quoted by 5-star Premier Palace by 15%. One of
the major disadvantages of cooperating with international
operators is restricted flexibility in terms of construction
process and quality standards. Additionally, none of international operators is able to ensure high occupancy rates.
To make things even worse, only a few international hotel
networks seek to act as investors, with the majority of them
entering Ukrainian market as operators.
14
Top management companies
Brand
Management company Category, (*)
Reikartz
Hotels&Resorts
Reikartz Hotels
Management
2-4
Seven 3-4-star hotels (Transcarpathian region, Lviv,
Mykolaiv, Pochaiv, Kirovograd). The company operates
a 2-star hotel in Sevastopol
The hotel network is expected to be expanded to
include 20-25 hotels until
2015
A’ccord hotels
Premier
International
3
Three hotels: Rus, Art-hotel
Bakkara (Kiev) and Yunist
(Odessa)
N/a
Seven days
Clubhouse Group
Holdings
3
Thee hotels (Kyiv, KamianetsPodilskyi, Zaporizhia)
In 2007, the company
decided to expand the
hotel network to include 12
hotels until 2015 (but this
number was reduced)
Accor group
UDC Holding
2-3
Hotel Ibis (213 rooms, Kyiv)
Opening of 5 Ibis hotels in
Ukraine. The hotel network is to be expanded to
include 25 Etap hotels
InterContinentals
Hotels Group (IHG)
Toronto-Kyiv
3-4
Holiday Inn (210 rooms)
N/a
Wyndham Hotel Group
DeVision
3+
Opening of Hotel Ramada Encore (325 rooms) is scheduled
for April 2012. The hotel Atlas
in Donetsk is to be renamed
into Ramada Donetsk
Opening of 15 hotels in
Kyiv and other cities with
population exceeding 200
thousand people until 2018
Louvre Hotels &
Golden Tulip
UDC Holding
3 and 3+
Campanile hotel (Donetsk)
Opening of 5 hotels in Kyiv,
Lviv, Odesa and Dnipropetrovsk
3
No data
Previously 2-3 (and subsequently, 8-10) hotels were
planned to be constructed
in Kyiv, Kharkiv, Odesa,
Kryviy Rih, Dnipropetrovsk
and Luhansk until 2012
Rezidor Sas Hospitality No data
Projects (on-going and completed) Development strategy
Source: Official websites of respective companies
During 2012-2014, several well-known hotels, such as Hilton (5*, 257 rooms), Swissotel (5*, 513 rooms), Holiday Inn (4*,
210 rooms), Sheraton Kyiv Olympiysky Hotel (5*, 190 rooms), are expected to be opened in Kyiv. A number of Kyiv’s popular hotels will be renovated, e.g. “Sport” (3*, 173 rooms) etc.
15
Hotels managed by international operators to be opened in Kyiv in 2012-2015
Hotel Hilton
Swissotel Kyiv
Sofitel
Holiday Inn
Crown Plaza
Renaissance Marriott
Autograph Hotel
Ramada Encore
Total
Category
5*
5*
5*
4*
4*
4*
4*
3-4*
Operator Number of rooms
Hilton International
Fairmont Raffles Hotels International
Accor Group
Inter Continental Hotel Group
Inter Continental Hotel Group
Marriott Hotels International
Marriott Hotels International
Wyndham Hotel Group
257
513
276
210
225
178
272
325
2 514
Source: Official websites of respective hoteliers
Now that Kyiv market appears to be reaching a saturation
point, operators are becoming increasingly focused on
other regions of Ukraine. More specifically, Starwood Hotels Group, an international hotel network, opened 4-star
Four Points by Sheraton in Zaporizhia in 2011. Over the last
couple of years, another two hotels were opened - Ramada
Encore in Donetsk and Best Western in Sevastopol.
In an effort to meet demand for hotel services in Ukraine’s
regional centers, new market players, such as Marriott
and Hilton, have already announced their plans to increase
presence across Ukraine. In particular, Hilton signed a
contract with Е.G. Development to manage a 5-star hotel
in Yalta. Moreover, Rezidor Hotel Grouр signed a deal with
ESTA Holding to manage a 3-star hotel in Donetsk, and
Swissotel & Resort entered into a contract with Interpoint
Development to manage a 5-star hotel in Odesa.
Overall, only 5% of Ukrainian hotel business is managed
by international operators, whereas in Europe this figure is
close to 80%.
5. Legislation
There is no special law in Ukraine governing hospitality industry. The basic legislation act is the Law of Ukraine “On
Tourism”, since hospitality services are considered to be
part of the tourism industry. Furthermore, hospitality industry is regulated by legislation on the protection of consumer rights.
Various state authorities oversee the hotel industry, including but not limited to the State Agency of Ukraine for Tourism and Resorts, the Ministry of Economic Development
and Trade of Ukraine and the State Committee of Ukraine
for Technical Regulation and Consumer Policy.
Hotels are subject to certification aimed at ensuring compliance with life and health safety regulations. Upon successful completion of compulsory state certification proce-
dures, a compliance certificate is issued by the competent
authority, followed by the inspection of accommodation
facilities and rating (assignment of a star category). Hotels
and other accommodation facilities (e.g. motels, boarding houses, etc.) are classified into the following five categories: “five stars” or “first level”, “four stars” or “second
level”, “three stars” or “third level”, “two stars” or “fourth
level” and ”one star” or “fifth level”.
A special committee of the State Agency of Ukraine for
Tourism and Resorts is authorized to award “star categories” to Ukrainian-based hotels.
Hotels are awarded their “star category” for a period of
three to five years, provided that they have a certified quality management system in place.
16
Currently, few hotels in Ukraine are certified and have relevant certificates (less than 19%), with the overwhelming
majority of them remaining self-rated. Experts say that the
application of the European system of classification may
turn out to be far-reaching in that the market will be dominated by either 2- or 4-star hotels, with only some of them
qualifying for the 3-star category.
In 2010, the Ukrainian government sought to boost investment into hotel construction projects. The Verkhovna Rada
adopted the Law of Ukraine “On amendments to certain
laws of Ukraine regarding the development of infrastructure for the 2012 European Football Championship”. With
effect from January 2011, 3-, 4- and 5-star hotels are exempt from income tax for a period of 10 years.
As part of major tax reforms in Ukraine, the above provision was incorporated into the Tax Code of Ukraine effective from 1 January 2011. However, the Tax Code restricted
businesses eligible for tax incentives. In particular, exemption from income tax is applicable, provided that income
from accommodation services is at least 50% of the total
income of a hotel within the appropriate tax period in which
the exemption is effective. Furthermore, tax exemptions
shall be used for designated purposes (e.g. to increase of
the volume of services, to renovate facilities, etc.).
Additionally, under Resolution No. 760 of the Cabinet of
Ministers of Ukraine dated 6 July 2011, interest on bank
loans provided in preparation for the EURO-2012 football
championship for hotel construction, renovation or reequipment purposes is partially reimbursable.
The industry has responded positively to such innovations. Many hoteliers decided to take advantage of these
tax incentives by accelerating the pace of construction and
renovation.
6. Organizations and associations of the industry
The tourism and hospitality industry of Ukraine is regulated by the State Agency of Ukraine for Tourism and Resorts (the “Agency”) and the Association of Small Hotels
and Apartments of Ukraine (the “Association”).
oping domestic and inbound tourism. The Agency closely
cooperates with the Ukrainian government to solve taxation issues, promote tourism, raise awareness of pollution, etc.
The Agency is mainly engaged in managing and regulating the tourism industry in Ukraine. The operations of
hotels are controlled by the Department of Tourism Infrastructure, Hotels and Accommodation Facilities.
The Department of Regulatory Policy, Standards and
Licensing is in charge of issuing licenses to travel companies. According to the Agency, 2,426 companies have
licenses, of which 2,035 allow the provision of services
related to domestic, inbound and outbound tourism and
391 authorize operators to engage in domestic and inbound tourism only.
The Association is a non-governmental organization registered on 29 December 2006 with a mission to expand a
network of small hotels and apartments across Ukraine,
promote the efficient utilization of resources, implement
construction programs, develop quality regulations, etc.
In particular, the Association offers services related to the
organization of professional exhibitions in Ukraine and
abroad, participation in conferences with government officials and mass media (e.g. UITT 2011, Hotel& Restaurant Expo, etc.). It publishes catalogues and reference
books containing information on the members and partners of the Association.
Nowadays, the Agency and the State Administration of
Railroad Transportation set up a team tasked with devel-
The official web-site of the Association provides on-line
booking and a search tool for hoteliers.
17
7. List of references:
1) 2011. Hotel Property Market // (2011 год. Рынок гостиничной недвижимости) // Knight Frank Research, 2011 - knightfrank.com.ua/research/page1/?sectorid=5; knightfrank.com.ua/on-line/ua/
files/+research/9710FCE6-2779-4FFF-B160-0F5100B8FB69/2011_annual_kf_hotel_market_report_kiev_
rus.pdf
2) Real Estate Market Review // (Огляд ринку нерухомості) // Colliers international, 2011 - dsg.colliers.com/
document.aspx?report=1022.pdf
3) Business service industries / / Goskomstat, -12.1 (available only in Ukrainian) - Ukrstat.gov.ua
4) Media: Business, Contracts, Expert, Kommersant, Property Times, Commercial Property, Domobaza, Kiev
2011 (available only in Ukrainian/Russian)
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18
Notes
Industry overview