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.

Martin Ykema

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 In recent years they’ve been replaced by countless groups of young Brits and Irish looking for cheap beer and sex.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.

Hana Čermáková

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.

Awakening visitors to Czech charms Jiří Pokorný 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

High-flying for low prices Vlad’ka Dufková 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

Breakpoint year Martina Baumruková 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