russia market report_2016-2

Russia Market ReportOctober 2016 27.10.2016

Kirsi-Maarit PoljatschenkoOlga Makeeva& RenataAkzhigitova

Finpro, Visit Finland Russia

Contents

1. Analysis of summer season 2016

2. Prospects for winter season 2016-2017

3. Other important factors

4. Program themes and marketing themes

5. Free word / messages for the Finnish travel trade / Visit Finland

Market report 2016 / 2

1. Analysis of summer season 2016 What factors have affected the results of the summer season, especially with regard to Finland?

1. Reasons for the increase/decrease in overall outbound travelling from your market?

• In summer 2016 the flow of tourists from Russia to other countries decreased by 25–30% in comparison to the previous year.It’s the third summer season when tour operators report the decreaseof sales.

• Reduction in incomeand decline in welfare of the Russianpeopleremainthe major negative factor1.

• Amid decline in welfare the Russian people tended to cut their expenses on leisure. The stabilized dollar and euro rates didn’thelp.

• The experts also connect poor summer results with continuous growth of the number of people restricted to travel abroad:whilst in 2015 they counted up to 5 million2, including mainly police, military and security officials and their families, now alsopublic servants are recommended not to travel abroad. The list of people having travel restrictions also includes those withunpaid debts (mainly bank loans) over 10 000 RUB (145 Euro)3.

• According to the Russian Public Opinion Research Centre (VTsIOM)4, only 55% of employed Russians took summer vacationsin 2016; 7% travelled abroad, 11% went to the Black Sea in Krasnodar and 4% visited Crimea. According to official statistics(Federal Stats agency) the total number of employed population in Russia is over 72 000 000; thus the total number ofoutbound vacation travellers in summer 2016 wasapp.5 mln5.

• The majority had to stay in their domestic region, mainly on economic reasons and thus there was a declined number of thosewho can afford travelling duringthe vacation:25% two years ago and only 20%in summer 2016.

1. According to Russian federal state statistics service (Rosstat), the real disposable money income of people decreased by5.8 %.

2. http://www.kommersant.ru/doc/3071754?ut m_source=kommersant&ut m_medium=doc&ut m_campaign=vrez3. At the moment there’re more than 4,5 million of such people according to the expert estimates, which is about 6% of the

economically active population in Russia.4. VTsIOM survey was held in 130 towns and cities of 46 regions, territories and republics and 8 federa l districts of Russia on

10-11 September, the sample size is 1600 people.5. According to the leader of the Travel Industry Union of Russia, who refer red to the Boader Control statistics, the total

number of outbound tourists in the first half of 2016 (Jan-Jun) was 3 970 500. This number does not include businesstravellers. Market report 2016 / 2

• 45% of Russians tended to be thriftier in respect to vacation expenses and didn’t book their travels in advance. This numberhas been increasingsince2014 when itwas 38%.

• Amid a decline in outbound tourism the flows have reallocated. The leaders of beach destinations have changed, as Egyptand Turkey6 closed for Russian tourists were replaced by other countries. The leading destinations were Tunisia, Cyprus,Spain, Bulgaria, Italy, Montenegro, Croatia, Serbia and Greece. Tourists took the main interest in proven hotels with goodservice and moderate prices. Operators from St. Petersburg also mentioned Norway as one of the major competitors toFinland.Switzerland with its luxury ski resorts is the main competitor in winter time

• The number of requests for sightseeing programs has considerably reduced and the vacation period has shortened to 5-8days.

• According to the Association of Tour Operators of Russia (ATOR), business travelling has also suffered from the economiccrisis and foreign policy escalation. Even largest companies chose to cut their business trip budgets by shortening the tripsand choosing the time and place more carefully, giving preferences to less expensive CIS countries and inbounddestinations.

• VIP tourism segment offering exotic and luxury tours has remained basically unaffected by negative trends. The demand forsuch tours among wealthy Russians remains is stably high. This claim is supported by local TOs who sell luxury cottages inFinland – some of them have even reportedofa certain growth in comparisonto 2015.


6. Many industry experts reported restrictions on travelling to Turkey and Egypt as a significant reason for decline. On 27 August, the ban on charter flights to Turkey was raised and this direction is rapidly restoring the volume of tourist flow from Russia. In September, Turkey accounted for 40% of the total sales of tour operators.

7. Official statistics for Summer 2016 will be available by the end of 2016.

29,5

15

810,5

10

7

6,56

4 3,5

Top 10 travel destinations of outbound Russian tourism in Jan – May 2016as reported by Association of Russian TOs (ATOR) in August 20167

Tailand Spain TurkeyVietnam Cypros AustriaFinland Israel BulgariaSouth Korea

% from total number of 1,7 mln

1. Analysis of summer season 2016

Reasons for the increase/decrease in travelling to Finland?

• All tour operators interviewed in Moscow and the regions confirmed severe reduction in the number of tours to Finland sold inthe summer compared with the same period of 2015. Some of the interviewed companies noted no or single requests. Thetour operators in Samara, Kazan and Yekaterinburg sell Finland only in individual tours, and one regional tour operatorprovides max.50 tourists annually.

• The situation in Saint Petersburg has been different: there are tour operators that report a certain growth in comparison tothe previous year; there are also companies that declare up to 100% growth. At the same time there are many others that onthe contrary, had experienced serious challenges this summer and a severe decrease in sales. In general we can notice thatan increase has been a result of intensive and expensive marketing, including outdoor advertising. Companies that did notinvest in sales and/or switched to inbound and beach destinations did not sell Finland at all or got very poor results.Successful TOs are usually in the higher (VIP cottages, fishing) or the lowest (one-day bus shopping) price zone; the middleclass,whoever survivedthe recession, travels independently.

• One of the reasons for a decrease in sales of Finland as a travel destination is the growing popularity of Baltic countries andespecially Estonia. The Estonian agency for travel promotion – Visit Estonia – has reported an increase in sales to Russians;the largestgrowth of21% was noticed in April 2016.

• The Finnish Ministry for Foreign affairs has reported that they have got app. 50% less visa applications than in 2015.Prognisis for 2016 is 300 000—400 000 applications with a daily rate of 2 300—2 800 applicants. The forecast was howevermade before the summer season and therewas a certain increase in summer months.

• In October 2016 YLE reported that Russians with purchasing power have begun to return Finland's shops in the south-east.Many retailers in Imatra and Lappeenranta clocked 40-60 percent growth in Russian sales in September. "In September thenumber of purchases made by Russian customers in the Lappeenranta Prisma supermarket grew by 40 percent, and by morethan 60 percent in Imatra," says Risto Punkkinen from the South Karelia Co-operative. An unofficial bus index shows thesame trend – the parking lots of supermarkets are lined with a dozen or so Russian tourist buses on busy days, where a yearago there were only a small handful of them on similar days.The buses are also larger.8


8. http://yle.fi/uutiset/osasto/news/rise_is_rouble_brings_shopping_russians_back/9234287

2. Winter season 2016-2017 prospects

What are the prospects for the coming winter season?

The overall outlook of travelling to Finland for the coming winter?

• In September 2016, ATOR announced that the rate of reduction in the flow of tourists from Russia to other countries started toslow down. The trend of the flow to other countries remains negative but the gap between 2015 and 2016 is reducing. Thelevel of tourist flow to other countries is still declining but not so intensely as in 2014-2015. ATOR forecast the reduction in theflow of tourists from Russia to other countries at year-end 2016 of about 20% and the increase of the internal tourist flow of10%.


• Since the beginning of October the tour operatorshave been observing, for the first time in the lasttwo years, though slight but growth in demand forEuropean directions by about 5-10%. Theincreasing interest is felt both in mountain skiingand sightseeing. However the market playersconsider it early to speak about recovery of themarket. It is just because with the halting fall of therouble the travellers start planning their trips inadvance.

• The analysts noticed that the sales grow notablyas soon as €1 goes below 70 RUB. The touriststry to pay the major part of expenses at thefavourable rate anticipating the future growth ofthe currency value. When the currency falls inprice by 5-7 %, the demand increases by 10-12%.

For comparison: most popular requests in winter 2015/2016

Prague

Roma

Istanbul

Barcelona

Munich

Bangkok

Phuket

Sri-Lanka

Dubai

Goa

Affordable Europe and Sun&Beachdestinations prevailSource: www.beboss.ru/journal/franchise/articles/2829tourism_in_russia_2016_statistics

2. Winter season 2016-2017 prospects

What are the prospects for the coming winter season?

The overall outlook of travelling to Finland for the coming winter?

• According to the tour operators, the sales of tours to Finland at the stage of early booking increased by3-5% as of the mid of October compared with the previous year. Some large tour operators reported theincreased demand for the next winter: the booking is earlier than in the previous year, the interesttowards Finland is higher and the market situation is quite encouraging;

• Several weeks ago two large Moscow operators opened sales of tours to Finland; another largecompany is in negotiations with Finnish destination management companies, considering Finlandpromising as a travel destination;

• Most of the operators are looking forward winter season with moderate optimism.

Marketing opportunities

• Co-marketing with local tour operators;• Promo events;• PR, i.e. promotion of Finland as one of the safest destinations;• Social media, especially direct promotion to potential customers, mainly millennials;• Cooperation with Russian travel agencies in order to develop Russian-Finnish joint products to Asian

clients. Russia is now one of the most attractive holiday destinations for Chinese tourists due to theclose cultural and political ties between the two countries, the geographical proximity and the currentfavorable exchange rate.


3. Other important factors

New distribution channels

• Blogging and Some – not just pictures but stories and travel tips• FinRelax – we can try such new marketing channels as large fitness club networks, yoga clubs, private

clinics; however, it is essential to develop clear business proposals and promo materials that may beused for the purpose

• Combining efforts with organisers of cultural event i.e. design forums of different kind of Nordic weeks inSaint Petersburg http://nordicweeks.ru/ and with other TF players.

Online channels

Channels where Visit Finland should be present:• www.the-village.ru• http://awd.ru• https://www.tripadvisor.ru and especially https://www.tripadvisor.ru/GreenLeaders• www.onetwotrip.com and http://www.ozon.travel/

Other popular websites where VF may be present:http://guruturizma.ru , travel.ru , otzyv.ru , turizm.ru , tury.ru , tophotels.ru , votpusk.ru , komandirovka.ru ,ski.ru , otpusk.com , zamnoy.com , marshruty.ru , 100dorog.ru , coral.ru , turistua.com , svali.ru, ayda.ru,pssp.ru, turpoisk.ru, kurortmag.ru, planetolog.ru , tourdom.ru , tonkosti.ru

How to be present: travel tips and articles about Finland, ideas of trips, product descriptions, references,participation to ratings, news


3. Other important factorsCompetitors actions

• German Beer Festival arranged by the Russian-German Chamber of Commerce and the Embassy of Germany.http://russland.ahk.de/ru/2016/09/16-17-oktoberfest-2016/

• Day of France city festival at Flacon design factory: thematic art installations, trade fair of designer products, foodmarket, wine degustation, performances of street musicians and theatres, street art, various entertainment programs forchildren, educational program, exhibition of French bulldogs, fancy-dress ball, draw of a trip voucher to France for twopeople. Organizers: the Embassy of France in Moscow, French Institute in Russia, French-Russian Chamber ofCommerce and Industry, About France national tourism office, AirFrance. Sponsors: Leroy Merlin, Peugeot, Citroёn,Total etc. http://flacon.ru/events/affiche/den-frantsii-na-flakone

• Festival of Italian Culture and Gastronomy at Flacon design factory: master classes held by specialists of traditionalcousin from various regions of Italy, lessons of Italian language, lectures about the life of the country, its cities, routes,sights, nature, festivals, style of life, customs and traditions. Organizers: Italian week festival and Alitalia.http://flacon.ru/events/affiche/priklyucheniya-s-italyantsami-na-flakone

• Greek Salad Festival on the Red Square: performances of show business stars, prize drawing, competitions, entertainments. Organizers: Greek National Tourism Organization and Mouzenidis tour operator.http://www.greek-salad.ru

• Visit Wonderful Indonesia, two day festival in the Hermitage Garden: culture and traditions of the country, traditional Indonesian cuisine, shadow puppet theater, fashion-show of famous Indonesian designer, authentic goods and souvenirs brought Java, Bali and Sumatra, performance of Indonesian artists and musicians. Special zones «Eat», «Pray», «Love»: to try the exotic Indonesian cuisine, find the harmony and take a part into Indonesian-style wedding ceremony. Organizer: the Embassy of Indonesia.http://indonesiafest.ru/

• Austria participated to Design Saturday at Flacon design factory in May 2016 with a Digital Detox Projecthttp://seasons-project.ru/festivals-design-subbotnik-2016-partnerskie-proektyi


3. Other important factorsCompetitors actions

• Promo events and national stands at the largest travel exhibition INWETEX in Saint Petersburghttp://travelexhibition.ru/calendar/inwetex2016.html?subPage=178 (Greece, China, Cyprus, Czech republic,Hungary, India, Slovakia, Thailand, Turkey) and MITT in Moscow http://www.mitt.ru/ (Italy, Cyprus, Bulgaria, Israel,Greece, Slovenia, Czech republic, Portugal, Montenegro, Hungary, Slovakia, Poland, Armenia, Azerbaidzhan, Norway,Malta)

• French weeks in SaintPetersburg http://www.ambafrance-ru.org/Francuzskie-nedeli-v-Peterburge

• Probably most important competitor for all foreign travel agencies in Russia is the Russian Government that is keen totake advantage of the weaker ruble and challenging economic situation to boost domestic travelling. It has been thehottest topic in Russian travel media and both Russia TV and streets of the cities of Russia are full of inbound traveladds.

• Some countries are still active with outdoor advertising despite its painfully high prices, i.e. Tunisia, Turkey, Jordan,Spain,Cyprus,Morocco, Israel,Switzerland and Norway.

• A serious competitor to Finnish service providers in Saint Petersburg is St. Peter Line https://stpeterline.com/en , aferry operator of St. Petersburg that offers regular cruises along the routes «St. Petersburg — Helsinki — Stockholm— Tallinn» and «St. Petersburg — Helsinki». Though its ships — Princess Maria and Princess Anastasia — areconsidered to be of a lower class than those of Viking or Silja, they are extremely popular among Russian and alsoChinese travellers due to very affordable prices. Many local tour operators and travel agencies of Saint Petersburghave informed us that in terms of “selling Finland” they sell mainly St. Peter Line cruises – which means that a lion’sshare of revenues stay in Russia: many clients buy “all-included” packages, thus saving on food and accommodationabroad. It has been reported recently that Moby Lines, an Italian cruise operator, has acquired a share in the equity ofthe company. With the new co-owner joining St. Peter Line, the development concept will change." In particular, a newproduct offer is planned to be made, e.g. "Italian vacations at the Baltics." A cruise offer with such name may belaunchedin April 2017.StPeter Line also expects to increaserevenues by attractingItalian tourists.


4. ThemesWhat program themes / marketing themes are the most interesting in your market area?

• As for Saint Petersburg, Finland is still most popular as a leisure and wellbeing destination during summertime, andmost of the clients visit Finland for staying in a summer cottage (a lake and a forest are the must), fishing etc.; spahotels are also popular; some local tour operators in Saint Petersburg report selling cottages to their clients fromMoscow and other major cities ofRussia.

• In winter times there is a moderate demand for ski resorts; however, many clients think Finnish resorts to be notcompetitive enough in comparison to Europe. Some clients, especially are not satisfied with lack of big mountains andinsufficient luxury. In Saint Petersburg, both customers and travel industry professionals are concerned withquality/priceratio: to their opinion,prices in Finlandcannotbe at the same level as in Switzerland.

• As for Saint Petersburg, there is a limited but steady demand for cultural and historical tours with sightseeing whichusually implies a two day bus trip with a Russian guide;

• As for Finland / St. Petersburg, most popular destinations this summer were Åland, Saimaa and Lahti; Helsinki is stillpopular, butmostof the customers travel thereby themselves or by St.Peter Line (see previous slide);

• Finland is no more a major shopping destination for NW Russia – but there was an increase in sales noticed recently(see slide 5).

What themes we still need development with? Why? Suggestions regardingproduct development• Cultural Finland could be interested for some TOs and a certain target group at least in Saint Petersburg: according to

some ofour local partners, there is a steady demand for content travelling;

• Open data tours may be a good option for independent travellers;

• Involving non-capital regions of Russia into marketing activities is important – people who do not travel much have tochoose destinations carefully and there is a clear trend to try something new each time. The situation in Russia is linewith the global trend: according to TripBarometer 2015, 69% of global travellers are planning to try something new in2016, and only 31% book their trips on their own past experience. The most potential destinations are cities with a visacenter and direct flight connection to Finland (Kazan,Yekaterinburg).


5. Free wordWhat’s hot right now on your market (BtoC and/or BtoB)

• Internal travelling highly promoted - Crimea still remains in the key focus of Russian media as avacation destination: every fourth material about vacations mentions the peninsula but many touristswho visited the Crimean peninsula and other Russian resorts are not satisfied due to extremely highcosts, poor service, infrastructure and quality of food. According to some experts, Crimea lost 34% ofinterest

• Millennials who are the second largest age group of travellers, are willing to spend more on content,including sightseeing and adventure; they are also especially fluent and comfortable with booking tripsonline. Mobile-optimized businesses are ahead, and 2015 saw online travel sales recording a very highvalue growth of 24%. In 2015, the number of active Internet users in Russia was estimated at 58 millionpeople. Online travel sales are expected to increase app. 12% annually reaching 800 billion rubles in2020. – thus nurturing an online presence in Runet is a daily task for companies that would like toattract Russian tourists, and a special attention should be paid to mobile-optimized solutions.

• Social Media remains highly important sales channel, but it is not worth trying to be active on everysocial media channel. A service provider needs to identify its target group and find out where thecustomers are.

Something else that you would like to say to the Finnish travel trade or Visit Finland

• Continuous growth and promotion of Asia as a region in light of Russia’s ongoing tension with Europeand the US

• VIP clients are still there• Independent travelling grows – B2C promotion is a must• Increasing online presence and building up positive reviews is invaluable


russia market report_2016-2

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