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Travel industry: against all odds
Written by: Klára Smolová & Anita Lišková
Photo by: Petr Poliak
Prospects this year for the travel
industry are good. Many hotels are now enjoying 80% occupancy
rates, and the state is lending support through advertising.
At the same time, it is pulling the rug out from under the sector
with higher taxes.
AFTER YEARS OF STAGNATION, it seems that the international travel
industry has turned the corner, which benefits the Czech Republic. "The
floods and the war are forgotten, and the attacks in Madrid aren't
affecting Prague," says Stanislava Cholelová, the manager
of sales and marketing for MaMaison Residences of Orco Group, which
runs several long-stay residences and the Riverside hotel in Prague. "There
was great demand for lodging around Easter. I think this season
will be fantastic." Directors of other hotels are equally
optimistic. They believe that EU accession, the advent of low-fare
airlines, and advertising promoting the Czech Republic over global
television channels are all factors that will increase tourist
interest in this country. But not everything is as rosy as it may
appear at first glance.
To whom, and for how much?
"
Prague is a very well-known city, so the question isn't how to
sell it, but rather how to sell it to the right people and in the
right way," says Martin Ykema, the general director of the
Ibis Praha City and Novotel Praha City hotels (both part of the
world-wide Accor chain). Ykema is alluding to the overall concept
for promoting the Czech Republic in other countries, including
the televised advertising campaign (see sidebar page 36), which
he claims is overly general and doesn't carry the proper message. "The
Czech Republic is portrayed as a cheap destination instead of as
a lovely country with a rich heritage," insists Ykema, who
pushed for the creation of the campaign. But he believes that the
resulting advertisement isn't good for the city, since so-called
budget tourists don't bring many economic benefits to the country.
At the beginning of the nineties, hordes of back-packers began
streaming to Prague in search of adventure in unknown eastern Europe.
In recent years they've been replaced by countless groups of young
Brits and Irish looking for cheap beer and sex. For example, according
to the Czech Tourist Authority - CzechTourism, the Irish have named
Prague the most popular tourist destination city for the fourth
time already. This phenomenon is fed by plane tickets that are
getting cheaper due to the competition of low-cost airlines and
make Prague an affordable destination for a weekend. "Long
weekends in Prague are very popular among Brits," says Michaela
Drahonovská, general manager of British Airways. "Often these
are young people, and weekend stays are the easiest to organize." While
such tourists are good, local hoteliers would certainly prefer
an influx of middle-class and wealthy clients, including businessmen. "The
level of our tourism could be improved," opines Klaus Pilz,
the Czech Republic regional director of Austria Hotels and vice
president of the National Federation of Hotels and Restaurants
(NFHR). Austria Hotels - Grand Hotel Bohemia, Crowne Plaza, and
Grandhotel Brno - focuses on corporate clients and higher-class
tourists. These hotels hope that EU accession will bring greater
numbers of tourists traveling on business. "It will have a
great, though progressive, impact," Cholelová claims. "The
Czech Republic will no longer be an unknown foreign country, and
rising prices will discourage tourists whose decisions are governed
by budget, such as students" she adds. Corporate business
is very important for Cholelová's MaMaison Residences, since managers
account for 50% of occupancy there.
Convention tourism is one way to attract this type of corporate
clientele to the Czech Republic. According to Ivo Hartmann, the
first deputy regional development minister, average convention
tourist expenditures are estimated at CZK 16,500 for a day and
a half. As a rule, large conventions last five days and are attended
by about 3,000 people. But the country continues to lag in this
area. Although it could make good use of its organizing of conventions
of global significance - e.g., the annual meeting of the International
Monetary Fund and the World Bank, and the NATO summit - this failed
to materialize, and the Czech Republic ranks twenty-fourth as a
convention destination, just ahead of Bangkok. "Prague has
a lot to offer for convention tourism. One of the federation's
goals is to bring the country into the top ten over the next few
years," says Pilz, adding that he sees no reason that the
Congress Center shouldn't be in use 120 days a year.
NFHR is placing great hope in the ASTA (American Society of Travel
Agents) convention, which will be held in the Czech Republic in
2006. The fact that this Olympics of the travel industry is to
be organized in this country is seen by experts as a great step,
because ASTA is the largest professional association in the world
to bring together travel industry subjects and boasts over 20,000
members. Furthermore, the Czech Republic will be able to draw over
CZK 3 billion from EU funds, some of which should be used for projects
by firms engaging in convention tourism.
Beyond Prague
What about the rest of the Czech Republic? The situation in the
regions is far more complex, which is borne out by the fact that
most hotel chains have no plans for expanding beyond the capital
city any time soon. "We aren't planning on opening any hotels
outside of Prague in the foreseeable future. Maybe later, in
Brno or Plzeň, when foreign investments start going there," Ykema
says. He points out that in the rest of the country there are
problems, like a lack of high-quality staff with knowledge of
foreign languages, as well as insufficient infrastructure. "For
a foreign tourist, travel outside of Prague is still difficult.
There's a shortage of information, or such every-day necessities
as roadsigns," Cholelová concurs.
Officials are aware that beyond the capital the rest of the country
is lagging in terms of services offered and an accommodating attitude
towards tourists. "In the regions, the services infrastructure
hasn't been sufficiently developed," affirms CzechTourism's
Čermáková. She attests to a case when she was unable to find a
suitable hotel in the Zlín area for foreign journalists.
The regions should attract people from neighboring countries for
vacations, for example, bringing much-needed revenues and helping
develop domestic tourism, which Ykema claims nearly doesn't exist
at all. "In Germany, for instance, 80% of all hotel guests
are Germans. Here it's exactly the opposite," he says. Ykema
further sees a large gap in terms of two-star hotel construction
- not only in the regions, but also in Prague - that would meet
the needs of Czech and foreign tourists alike for whom price is
the decisive factor.
Half-hearted assistance
The travel industry accounts for 5-6% of the gross domestic product,
foreign-currency revenues that last year reached CZK 100.3 billion.
This could have been what led legislators to think that they
could find badly needed money for indebted state coffers in that
sector. The new value-added tax law, which raises the rate for
hospitality services (hotels and restaurants) to 19%, could put
the brakes on the just-started travel industry development or
even set it back a few years. "If this step is taken, it
will result in the halting of investments in the travel industry,
to a decline in the number of foreign travelers, and thus to
a decrease in foreign-currency revenues," notes Roman Vacho,
president of NFHR. Because the change would take place without
any preparations, he believes that its negative impact on Czech
entrepreneurs will be even more destructive.
Hoteliers are voicing concern, too. "The marked destructive VAT increase
for hotels is simply hard to understand. It's very short-sighted to think it
will bring additional budgetary revenues," says Johannes Aldrian, general
director of K+K Hotels, pointing out that in Europe the average VAT rate for
hospitality services is around 10%. Since 1999 K+K Hotels has been operating
the four-star Hotel Fenix in Prague, with 130 rooms and an average occupancy
rate of 82%. The company intends to open its second, Hotel Central, in June.
This family-owned Austrian company has invested over EUR 30 million in the Czech
Republic. "We see Prague as one of the most important cities in central
Europe, but the higher VAT could have a negative impact on business over the
long term," Aldrian says. "Compared to other destinations, Prague isn't
cheap any more, at least in terms of lodging price, and the planned changes could
make it even less competitive," he adds.
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Awakening visitors to Czech
charms
Although revenues
for the travel industry reached over CZK 100 billion last
year, this sector is still undervalued in terms of support
from the government. There has been a lack of sufficient
marketing - the first comprehensive concept wasn't negotiated
by the government until 1999.
This trend was reversed by the intensive activities of the
Czech Tourist Authority - CzechTourism. At the beginning
of the new millenium, the mission of this "awakening" institution
resulted in the realization of the Czech Republic's first
advertising campaign.
The CZK 200 million project in support of international awareness
and the creation of a national image was prepared for this
spring in cooperation with the Ministry of Regional Development.
The thirty-second spots, in which golfers in mid-swing are
juxtaposed with shots of Prague streets and the main square
in Telč, were produced by the McCann-Erickson advertising
agency. They are being shown almost 1,500 times on five European-wide
television channels - CNN, BBC, Discovery, Eurosport and
National Geographic - from 4 April to 20 May.
"
What plays to our benefit is timing the campaign with the
Czech Republic's EU accession," says the Minister for
Regional Development Pavel Němec. "During which time,
an increased interest in the new member countries by the
current member countries is expected." The campaign
was preceded by research done by General Marketing, conducted
in two waves at many border crossings. "We surveyed
tourists coming to our country and their answers served as
a basis of a study that revealed how the Czech Republic is
perceived and what the motivation for visiting it is," explains
Hana Čermáková, press secretary of CzechTourism.
According to the statistics, most tourists come to the Czech
Republic to look around and relax, and take in some historical
landmarks. Tourists are also attracted by the low prices
and pleasant climate. The television spots should specifically
address these "typical" visitors, who account for
over 65% of all incoming tourists. "During the campaign,
the Czech Republic should be profiled as a calm and peaceful
destination overwhelmed by a pleasant atmosphere," Čermáková
explains. "The interesting thing is that up till now
no other country has presented itself in this way."
However, opinions about the project have been mixed. "The
campaign presents Czech Republic in a different way than
it really is. It also seems a bit old-fashioned to me," says
Jiří Pokorný, Director of IFB Bohemia, an agency that focuses
on incoming tourists. Klaus Pilz, vice-president of the National
Federation of Hotels and Restaurants and general director
of Austria Hotels (Crowne Plaza, Grand Hotel Bohemia in Prague
and Grandhotel Brno) doesn't even attempt to hide his disappointment. "It's
not what we expected," Pilz says. "I had hoped
that the campaign would be more focused on quality. This
one doesn't promote either culture or sport, it merely says
'come have a beer and relax'," he adds.
Anita Lišková |
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High-flying for low prices
According to information from the Czech Airport Administration,
last year almost 680,000 of its passengers, or 9% of all
travelers, used low-cost airlines. The first low-cost airline
entered the Czech market in 1999, when the former Go (now
easyJet) started arranging flights between Prague and London.
Today nine such airlines are operating in this country, and
another three should begin operations by the middle of this
year, including the first Czech low-cost airline, SmartWings,
operated by Travel Servis.
Experts allows that these low-cost airlines mainly attract
clients who, for budget reasons, have mainly used ground
transportation in the past. "Our goal is not to take
customers away from the traditional airlines, we are looking
for travelers who would otherwise never use our services
because they would rather go by bus or train," explains
Vlaďka Dufková, spokesperson for SmartWings. To lure such
travelers, her firm offers air tickets, including all fixed
fees, from CZK 1,590. A sharp cut in costs has made it possible
for these airlines to maintain low prices. "There are
many ways in which we can save money - we will limit administration
costs, cut the time airplanes spend at gates, sell tickets
over the internet and through call centers, and charge for
refreshments on board," explains Dufková.
The growth in the number of low-cost airlines in the Czech
Republic has also been supported by the fact that they can
use Ruzyně Airport, whereas in other countries these airlines
can rarely use the largest airport in the land. "At
the present time, Prague's airport offers incomparable opportunities
for low-cost travel in central Europe. Thanks to this, we
have become an interesting departure point for both local
citizens and those of surrounding countries," explains
Martin Kačur, general director of the Czech Airport Administration.
What do traditional airlines say to this? General manager
of the Czech branch of British Airways, Michaela Drahonovská,
notes that everyone should compare prices and take into account
such things as transportation from distant airports. "The
traveler must be aware of other advantages, such as refreshments
or seat reservation," she says. And Dana Dvořáková,
communications director for ČSA, which recorded a 30% increase
in ticket sales in the first quarter of this year, adds: "Compared
to low-cost airlines, ČSA travelers appreciate the regularity
of connections, the top-quality service, and the overall
care shown to our customers in all phases of transport," she
insists. ČSA is not worried about an exodus of customers
- rather the opposite. With tickets to 20 European destinations
at prices starting from CZK 2,990, they will probably continue
to attract potential clients of the low-cost airlines.
Anita Lišková |
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Breakpoint year
In many ways, this will be a breakpoint year for travel
agencies. In the beginning of the 2004, a tougher system
regarding liability insurance revealed the viability of most
of them. Then, very soon afterwards came some tax changes,
which drove many services into a higher VAT rate. As well,
global concerns over potential terrorist attacks have done
nothing to help the development of the tourism industry.
Almost everyone we spoke to agreed that the number of travel
agencies will decline this year. "The market will be
stabilized, meaning a reduction in the number of travel agencies," says
Petr Dimun, spokesman for the Ministry of Regional Development. "The
reason is a more fiercely competitive market, with too many
agencies in the Czech market," he adds. According to
the deputy director of OK-Tours, Martina Baumruková, we can
expect the arrival of some large foreign travel agencies
in the domestic market. "It will certainly result in
the closing down and merging of smaller agencies, similar
to what is done in other countries," she adds.
The planned changes in the VAT will also have an impact on
the market. "Making services in the Czech Republic more
expensive will make our position, compared to alternative
regions, more difficult. Still, even after the rise in prices,
we will not be an expensive destination," claims Jiří
Pokorný, director of IFP Bohemia, a travel agency that focuses
on incoming tourists.
It seems that a much bigger problem was that the changes
came at the last minute. "A complete ignorance of travel
industry procedures, and an unwillingness to consult with
us about the possible impact, is typical for this government," chides
Michal Veber, secretary of the Czech Travel Offices and Agencies
Association. "The tax changes, approved at the last
minute before EU accession, will be paid from the pockets
of entrepreneurs. So we are glad that, at least in the case
of some services, we succeeded in postponing the effectiveness
of changes to 1 January, 2005," Veber explains. Despite
this, the outlook for 2004 remains optimistic. "Prague
will experience a boom in tourism," Pokorný opines.
Anita Lišková
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