Worth around EUR 500 million in 2011, business travel in Romania is the only sector of the local hospitality sector that is efficient and on the up. Industry consultants and the managers of major airlines, travel agents, hotels and corporate associations tell The Diplomat – Bucharest what conditions are required for this segment to soar next year.My wife worked in a corporation headquartered in Switzerland where the meetings were held in front of the office building on the grass. She loved the idea and this was one of the inspirations when we started to develop our pension,” Emil Munteanu, owner of the five-star guest house Arta Doftana in Valley Doftana, tells The Diplomat – Bucharest of the pension’s genesis.
The facility, which caters for both leisure and business customers, was built with an investment of EUR 1 million, with 20 percent of the sum coming from European funds. The location is suitable for leisure meetings or department team-building sessions.
“For example, last month a company came to hold an internal team-building. We don’t have a conference room and I did that intentionally because I wanted to have a different approach. I think it’s much nicer to go out with your laptop in your arms and sit on the grass, or around the fireplace, so we are not stuck in conference standards,” says Munteanu, adding that he opted for something different because business tourism in Romania is pretty standardized.
Continental picture
Which invites the question: is Romania truly a business destination? According to the latest study on tourism conducted by Romanian Commercial Bank (BCR), into the purposes of visits to Romania, 90 percent of foreigners said that they had come here on holiday.
This is more or less the case in Hungary, while, at the other end of the scale, Poland has a higher share of foreigners coming on business.
Austria, Croatia and Czech Republic have by far the highest numbers of foreign visitors, with almost 18 million for Austria, against 7 million for Hungary between 2006 and 2010, while Romania barely registered 2 million during the period.
Still, the statistics show that foreign visits to Romania increased by 6.9 percent in September 2011 compared with the same period of 2010, reaching almost 700,000.
According to the National Statistics Institute (INS), most of the foreign tourists came from European countries and almost half from the EU.
Almost 33 percent of the total foreign visitors came from Hungary, while Italian and Polish travelers accounted for 10 percent and 5 percent respectively of overall foreign tourist numbers in September.
The average net occupancy rate was estimated at 28.1 percent for September this year, down 0.4 percent compared with September 2010.
Downshift
In line with the overall economic downturn, tourism, including corporate travel, has been affected by changes in travelers’ habits, say representatives of tourism operators. “While three years ago if a group of businesspeople had a meeting in Frankfurt on Thursday, they flew out on Wednesday night and returned on Friday. So, for one meeting they stayed in the German city two nights. Now, they are leaving early in the morning and returning that night to save money. Before the crisis, people used to fly with traditional carriers; now they use both traditional and low-cost airlines. Also, they stayed at five-star hotels, now they choose three- or four-star facilities, and the business class segment has shrunk a lot,” Javier Garcia-del-Valle, executive vice-president and CEO of Happy Tour Group, tells The Diplomat- Bucharest.
Since the downturn started, tourism in Romania, like other sectors of the economy, has faltered considerably, according to major tourism companies in Romania. “The estimates that we have, and the best indicator is the IATA value regarding airline tickets sold in Romania, are that in 2009, the market decreased dramatically compared to 2008, by 30 percent,” says Sorin Vaduvoiu, executive director at travel agency Perfect Tour. According to Vaduvoiu, tourism in 2010 recorded an increase of 5 percent on 2009, and this year, the business increased over last year by slightly more than 10 percent. “We still have not reached the 2008 figures, but that dramatic fall was caused by panic,” he comments.
Companies cut travel budgets and invested in videoconferencing and other methods, but failed to do business, so they have started to increase travel budgets as the need for travel is increasing. Elena Anghel, director of travel agency Paralela 45, added, “Although 2009 brought both a decrease in the number and duration of trips, meaning fewer nights, in 2010 and in 2011 things started to recover, but they have not reached the 2008 level.”
Airlines hope corporate tourism takes off
Corporate business is also generated by airlines. For instance, in 2011 flagship German carrier Lufthansa expanded its flight capacities in Romania, its representatives recently announced. The airline recorded a 20 percent hike in passenger numbers for flights to and from Bucharest, and expects a new record by yearend, according to Ofer Kisch, GM of Lufthansa Group for the CEE region.
The German airline announced a new direct flight, between Berlin and Bucharest, following the opening of a new airport in Berlin. The new direct route will have four flights per week from Henri Coanda International Airport in Bucharest. From the summer of 2012, Lufthansa plans to double the capacity for flights operated from Sibiu airport, from 7 per week to 14.
The cost-trimming that persuaded some businesspeople to take budget flights has improved the numbers of another airline on the Romanian market. Low-cost carrier Wizz Air transported 28 percent more passengers in 2011 than 2010, and intends to fly over 2.5 million passengers this year. For 2012, the airline plans to post growth of 10 percent in passenger volume, based on its route and fleet expansion plans. From mid-2012, it will operate a new route from Bucharest to Verona and will increase the flight frequency for its existing destinations in the CEE region. Next year Wizz Air will operate 10 A320 aircraft from its 4 existing bases at Baneasa Airport in Bucharest, Cluj Napoca, Timisoara and Targu-Mures.
Flight revenues are directly linked to the yearly business calendar and display seasonal fluctuations, according to Paula Ardelean, sales and marketing vice-president of Carpatair.
“In summer months, when businesspeople take their holidays, corporate travel is compensated for by leisure passengers,” says Ardelean. The company has not felt a recovery in the market compared with 2008. “The travel segment depends very much on Romania’s strategies to attract investments and, as a result, an increasing corporate travel segment,” Ardelean tells The Diplomat – Bucharest.
Another dent in corporate travel has been caused by employers’ human resources strategies and personnel cost-cutting. Ardelean notes that many multinational companies first entered the Romanian market with their own specialists, which meant increased flight traffic. After some years, once the expats were replaced with local staff, the value of corporate travel also decreased.
Meanwhile, Malev officials showed The Diplomat – Bucharest a report suggesting the Romanian capital offers huge business potential for Malev, as a result of the increasing number of passengers flying via Budapest to Western European destinations like Hamburg, Berlin, Amsterdam and Copenhagen.
A tale of several cities
“Business tourism is the only component of the hospitality industry in Romania which can be objectively identified as efficient and growing,” says Paul Marasoiu, owner of hospitality consultancy company Peacock Hotels. Despite the relative stagnation of the last two years, the consultant argues that hotels count on business travelers. According to market estimates, the total revenues gained from business tourism ranks from 70-95 percent of a hotel’s total business performance.
Marasoiu believes that business travel could be worth over EUR 500 million (RON 2.2 billion) this year, with the largest percentage coming from corporate travel, meaning direct demand generated by companies. The level is 9 percent below the peak of 2008, he says.
The features characterizing this segment vary between Bucharest and Romania’s other business-orientated cities. For instance, while hotels in Bucharest can sometimes post 95 percent occupancy and revenues from business travel, for cities such as Cluj and Timisoara revenues go to 75-80 percent, according to calculations by SBS Hospitality Consulting & Management. “If we refer to the traditional mountain resorts in Prahova Valley, business tourism represents around 60-65 percent of check-ins,” Bogdan Sendrea, managing director of SBS Hospitality Consulting & Management, tells The Diplomat – Bucharest.
Different expectations
Within its Romanian operational and marketing plan for 2011-2015, the consultancy company Fivestar Hospitality, also the local representative of multinational network Horwath HTL, predicts significant changes as regards foreign tourists’ stays in the country.
“In our estimations, corporate tourism represents around 50 percent of the total volume of check-ins in accommodation units in Romania. However, the percentage should gradually fall to 30 percent by 2016, being compensated for by an increase in the leisure segment,” says Sorin Ionescu, managing partner at Fivestar Hospitality. According to him, a major competitiveness advantage for Romania is its size.
“That is why I am more than sure that Bucharest is a major business destination in the CEE and SEE regions. Moreover, Romania has several other large cities which will confirm their corporate travel potential in the future, such as Cluj, Iasi, Constanta, Timisoara and Craiova,” says Ionescu. Regarding the turnover gained from local corporate tourism, the consultant estimates that for a turnover of EUR 500 million, the growth since last year can be estimated at 20-25 percent.
“The signals regarding the next year are mixed, with optimistic projections indicating a similar level to this year but worries stemming from the external economic situations of Italy, Spain and even France,” he reports. Currently, for Fivestar Hospitality, the main business destinations in Romania are Bucharest and Cluj-Napoca.
Sleep means money
The crisis has also hit hotels. “2009 was the most difficult year for us. The situation of a hotel is reflected in the economic and financial situation. Those who come to your hotel depend on their business. We are also dependent on the economic and financial climate,” says Sonia Nastase, general manager of Howard Johnson, adding that she has learned to deal with lower incomes and adjusted expenses. In addition, since the economic crisis began, people have become more demanding, looking much more at what they are spending and expecting to receive the same quality for less money.
Plus, bookings are now coming in at the last minute. “While before the crisis, a group might make a reservation a few months before, now it happens a week or two in advance, because budgets are tighter, so you can confirm an event today or tomorrow for next week,” says Dana Chiriac, marketing and PR manager at Intercontinental Bucharest Hotel. Businesspeople now also spend on average two days fewer at Bucharest’s five-star hotels, according to market players.
“The employment market has fallen, but the average room rate has fallen even further. However, this year there was an increased occupancy rate in the four- to five-star hotel market, while some well placed hotels had an increase in the average room rate, which varies from hotel to hotel,” says Daniela Dumitrescu, director of marketing at Radisson Blu Hotel. Although the hotel opened during the crisis, three years ago, it has registered growth from year to year. “However, thanks to the downturn we do not have those great figures from before the crisis that others hotels had,” adds Dumitrescu.
One of the problems the big hotels in Bucharest are facing is that Romania doesn’t attract many five-star tourists and, therefore, hotels in this category have lowered rates by 50 percent to lure customers away from three- or four-star competitors, according to Radu Enache, president of the Hotel Industry Federation, quoted by a news agency. Enache says that tourists who come to Romania generally can’t afford to pay normal five-star rates. Room rates in the top hotels in major world capitals vary between EUR 150 and EUR 250 per night. In Romania, prices are generally below EUR 100, and can fall to EUR 70-EUR 80.
According to Ministry of Regional Development and Tourism (MDRT) statistics, there are 1,535 hotels in Romania, of which 31 are ranked at five-star, 236 four-star, 746 three, 450 two and 72 one-star. Still, according to data provided by Peacock Hotels, the average daily rate (ADR) in 2008 was EUR 90 in Bucharest, with an occupancy rate of 63 percent. In 2010, an ADR of EUR 69 for a four-star hotel brought an occupancy rate of 55 percent, while in 2011 an ADR of EUR 72 led to an occupancy rate of 60 percent.
Back in business?
“Things will never be at the same level as in 2007 and 2008. The business landscape has changed completely, the applicants for jobs are different, some things were relocated to other bases, people are more careful – but this does not mean that things are standing still,” Anghel tells The Diplomat – Bucharest. This year, travel agents have seen an increase compared with 2010 since companies have realized that they cannot abandon the personal approach and face-to-face meetings with clients. “But they continue to keep costs down,” adds Garcia-del-Valle.
On the other hand, according to Cristina Nitu, marketing and PR manager at JW Marriott Bucharest Hotel, 2011 has brought an improvement in the European financial situation and a series of large-scale cultural, political and economic events (for instance, the Enescu Festival and NATO Summit). “The hotels operating in large international chains and benefiting from the international marketing and sales infrastructure are expected to create strategies in order to attract a larger amount of international corporate events to Romania,” says Sendrea.
According to Patrick Andersen, executive vice-president of travel management company Carlson Wagonlit Travel (CWT) for Northern countries and Eastern Europe, Bucharest has the right infrastructure for organizing large-scale events or other corporate proceedings, even though the tariffs for accommodation are too high compared with other European cities. The infrastructure, in conjunction with a dynamic strategy and efforts to create attractive packages, has led to an increase in occupancy rates in hotels in Bucharest.
But players must work to take advantage. “We have to improve in this direction to be completely satisfied. We expect the upward trend of this year to continue in 2012 and our hotel strategy aims at increasing rates in particular, and continuing occupancy rates,” Nitu adds. Although business is still below the levels of 2007 and 2008, most hotels are posting numbers above the figures in 2009 and 2010, and for next year the expectations are of further increases.
“All this will happen if things remain stable on the external market. Some 90-95 percent of our customers are foreigners and our evolution depends very much on how the international economic situation goes,” says Dumitrescu. Both hotels and travel agencies say that the external situation affects their business. Currently, they agree, the situation in Europe is rather gloomy. If the trend in 2008 had continued – major investments, with companies coming here and investing – things would be much better now, say players on the hotel market.
“We hope that companies will make new investments in the country. We depend on them,” says Vaduvoiu, adding that he plans to strengthen the business. Garcia-del-Valle also hopes the climate will improve next year. “At the same time, I am worried about the economic situation – when an economy catches a cold, travel gets the flu,” concludes the Happy Tour chief.
Business destination or not?
For businesspeople travelling a lot, especially in the CEE region, Bucharest is definitively a business destination, while for some it can even be a “home from home”.
With many corporate organizations, exclusive business clubs and associations established in the last decade to meet the networking needs of business people, Bucharest, and Romania overall, “is among the first choices for an executive,” says Sotiris Chadzidakis, the CEO of the business association CEO Clubs, which has been operating for 34 years in most worldwide business cities. “First of all, we are talking about the biggest market in the region. Almost all major companies have brought their business here, there is a lot of entrepreneurship and the country is business-friendly in terms of both attitude and infrastructure. For corporate tourism, I think the country is at a good level but can surely develop further,” Chadzidakis tells The Diplomat – Bucharest.
“Romania is definitely a business destination because there are many regional firms. For example, many Austrian companies have invested in Romania. Our country is a very important market for them. If you look at the schedule of flights to Austria, every day there are about ten flights to Vienna,” argues Sorin Vaduvoiu, adding that Bucharest is mostly seen strictly as a business destination.
Besides Bucharest, other business cities in Romania are Timisoara, Cluj, Brasov and Constanta. But by volume, Bucharest is the top destination. Given this situation, Perfect Tour has had a strong business travel development strategy in recent years. While at the end of 2007, corporate travel represented 10 percent of a total tourism turnover of EUR 12 million, in 2008, on double the turnover, it accounted for 30 percent. In 2009, the percentage increased to 50 percent.
But Bucharest cannot yet be considered a priority business destination for hotel investments, compared to Hungary or the Czech Republic, says Bogdan Sendrea of SBS Hospitality Consulting & Management. “The international hotel chains are keeping their interest in investing locally, as in the cases of Wyndham, Hilton and Louvre, but mostly through franchise contracts and rarely through management contracts, due to the market risks,” says Sendrea. “Usually, such hotel chains don’t invest in hotel premises.”
Business tourism is not marked by the seasonality of the leisure segment, but it is true that business trips are rather rare in summer. “Tourism is a seasonal business that remains fairly constant, but changes little in the profile of services. Well attended corporate events are mainly in the spring and autumn, with summer instead seeing team building,” says Anghel. Marasoiu adds, “The corporate travel of business trips and events is concentrated in the periods outside the traditional holidays, contributing to the occupancy rates of hotels active also on the leisure segment.”
But Javier Garcia-del-Valle of Happy Tour says that Romania is unfortunately not a top business travel destination, like Hungary, Poland or Serbia, and the main barrier is the infrastructure.
“It takes twice as long to go between cities in Romania as when travelling abroad. To go from Bucharest to Arad, for example, takes eight hours by train or by car. And the investments have decreased in the past three years,” he says.
Hotels in Bucharest are business oriented because there is potential on the market. “Efforts are being made and we all know of new projects to increase the number of tourists in Bucharest, but these projects have not yet contributed consistently enough to change the balance, and the business segment clearly remains the predominant one in our hotel,” says Larisa Budaca, general manager at Golden Tulip hotel, where the leisure-business split is 30-70. Given the business potential of Bucharest, the Golden Tulip this month opened a conference hall with a capacity of 50 seats. “Our hotel has always suffered because we didn’t have a conference room, despite being a business hotel. We have a room with 14 seats, but that did not meet the requirements,” adds Budaca, adding that companies sign contracts with hotels offering all the facilities.
A European view
Western Europe is still the main focus of hotel transactions. But what are investors searching for? According to Lukas Hochedlinger, manager of business development for Austria & CEE at Christie +Co, the current capital market outlook for the hotel segment reveals a tentative approach by investors, with transaction activity concentrated in Western Europe, in countries such as the UK, Germany, Spain and Italy.
Regarding the CEE region, investors are still cautious but signs of recovery have started to show, especially with banks becoming more open as of H2 of 2010. Investors’ capital expenditure is focused on distressed assets, high-profile trophy assets and primary rather than secondary locations. “Opportunities at a discount” are sought after, but, according to the Christie +Co consultant, deals worth over EUR 50 million remain challenging.
The total European hotel transaction volume reached EUR 6.5 billion in 2010, a 110 percent increase on 2009. According to data provided by the HVS London office, the sum is far below the 2006 peak, when hotel transactions in Europe reached EUR 20 billion.
In the years since 2006, the average transaction was EUR 10 billion, half the figure from the previous years, according to Saurabh Chawla, director of asset management services at the London office of consulting and valuation company HVS. Still, the consultant detects improved investor sentiment in the region, within an overall context of liquidity restrictions.
Trends on the hotel market in 2012 are likely to include more capital expenditure, and the exchange rate is expected to affect transactions. Meanwhile, the BRIC countries are likely to play a more and more important role and distressed assets may still be the subject of deals in 2012.
