Demographics in place for fast adoption of online travel booking in Russia
Published: 22 Jul 2008
Travel Distribution Russia Special
Strong economic environment, aggressive growth in the aviation sector, Internet penetration and the huge potential of online credit card usage are some of the characteristics, which make online travel distribution market in Russia an attractive proposition in the time to come.
Overall, from travel distribution perspective, there have been quite a few significant developments in Russia over the last few years.
In case of inbound tourism, the Russian government investment into the tourism infrastructure is developing, with the designation of a number of Special Economic Zones dedicated to tourism. These zones offer highly favourable tax conditions and are attracting interest from Russian and international players in the travel market. The programme reflects the commitment to exploiting the huge potential resources for tourism in the largest country in the world, according to EyeforTravel Research, which recently came out with its Travel Distribution Russia Report.
The decision to hold the 2014 Winter Olympics at Sochi has stimulated further investment pledges from both the government and private sector. Sochi is at the heart of the Krasnodar region, where around 50 percent of Russian tourists go every year.
In its report, EyeforTravel Research, highlights that the volume of GDP per capita in Russia is expected to reach US$21,000 by 2015. According to the forecast, annual growth of GDP in 2008-2012 will reach 6.1 percent. Russia's share in the global economy will increase from 2.6 percent in 2006 to three percent in 2015.
Domestic and Outbound tourism
In 2005, around 23.1 Russian citizens took holidays in the Russian Federation. 15 million of these organised their travel through tour agent or operator. The market value for domestic tourism in Russia in 2005 amounted to more than 285 billion roubles (over US$11 billion). The Federal Tourism Agency estimates that in 2006, the number of Russians taking internal holidays increased to 27 million and a further increase of around 10 percent to 30 million was estimated for 2007.
On the other hand, outbound travel in Russia is growing overall at between 10-15 percent. In 2003, Russian citizens spent around US$11.2 billion on travel abroad, and in 2004, the figure touched US$12.9 billion.
The high increase in private and VFR visits and growth in outbound tourism also reflects on the growth in prosperity and spending power of Russian citizens in recent years.
It is noted that in general Russian tourists abroad spend more money than tourists from other countries. On average, wealthy Russian tourists are estimated to spend five times more per night than travellers from other countries. The middle income sector is now taking 2-3 trips per year; these will be a mixture of
internal trips and foreign holidays.
Growth in aviation sector buoyed by increasing capacity
Among travel suppliers, airlines continue to expand their capacity at a rapid pace. In 2006, overall passenger numbers carried by Russian operators increased by 8.34 percent to 38 million, compared with 2005. Similar growth was projected for 2007, too.
The leaders in the domestic market are: S7, Aeroflot – Russian airlines (RA), Transaero and UTAIR, with Aeroflot RA the market leader. The leaders in the international market are S7, Aeroflot RA and Transaero. There are currently 383 airports in Russia, 69 of which are international airports, amounting to 18 percent. Of 1352 registered aircraft, 882 were in use in 2007.
During 2007, it is estimated that only three percent of air passengers were booking e-tickets, and only 50
airports in Russia were technologically enabled to handle e-ticketing.
A number of low cost foreign carriers have started operating in Russia in the last two years. They include Germania Express, Air Berlin, Germanwings, Norwegian Air Shuttle, Wind Jet and NIKI. Since the beginning of 2006, the low budget airlines have secured 10 percent of the market for international flights in Russia, with over half a million passengers.
In the hotel sector, the total volume of the market in hotel services was estimated at between US$1.7 and 2 billion, approximately one half of which is concentrated in Moscow. Growth in the market is rising at between 20-25 percent per annum. In June 2007, industry experts estimated that in Moscow there were 9,700 hotel rooms conforming to European standards, and 4,700 in St Petersburg.
The car rental market in Russia was worth US$40 million in 2005, with between 90 and 95 percent concentrated in Moscow.
Offline versus Online distribution
According to EyeforTravel Research, significantly, a system of commission payments exists between airlines, tour operators and travel agents. Aeroflot has already stopped paying commissions to intermediaries, similar to some western airlines. To date, this has not proved popular with agents and operators in Russia, so other airlines have not followed suit.
The value of indirect sales in 2006 was around US$66.7 million, based on average costs of tickets.
"There are numerous websites specialising in airline and tourist advertising. Airlines, tour operators and travel agents all use the services of these sites. Banner advertising is popular and these websites use sophisticated banner sharing links and click through facilities to other tourist websites. Pay-per-click is gaining popularity, although this must be put into the context of a general low level of online purchases," stated the report.
On the other hand, the total online sales of hotel accommodation in Russia has only started to take off very recently. However, according to industry experts from the reservation and distribution technology
sector, the demographics are in place for fast adoption of the online model now fully established in the US and western Europe.
"As more Russians get broadband web access at home and credit card use increases, there is no reason that Russia should not become one of the top five online hotel markets in Europe very quickly. The following graph forecasts a growth to 15 percent online bookings by 2012 from an average of two percent in 2007. The predictions are based on an annual growth rate of 20 percent," according to the report.
The majority of hotel bookings are implemented by indirect methods using travel agents and tour operators, which for internal bookings in Russia currently accounts for approximately 97 percent of sales. This is due to the domination of the domestic market by tour operators and agents rather than the lack of technology infrastructures.
It is estimated that the value of the OTA market in Russia is currently around 0.5 percent, and is forecasted to grow to 18 percent by 2012.
The Russian traveller – search and buying behaviour
Consumers research the markets using traditional and electronic methods. There are still numerous Russian citizens in the lower income brackets who will continue to rely on traditional routes for information and purchases, such as television. Travel agents are another popular traditional source, where printed promotional materials are plentiful.
In 2007, there were around 28 million Russian citizens with access to the Internet. By 2008, this figure is expected to reach 40 million.
Practically all users of the Internet (98 percent) know about the possibility to make purchases online; however in practice only 53 percent of users chose to do so. Credit card use is increasing, although many Russians still have no credit facilities and are only familiar with the concept of a debit card.
The total turnover from online shopping in 2006 was estimated at US$1.5 billion. In terms of the proportion of online sales relating to the travel industry, current estimates are around 2-3 percent.
The online travel market in Russia accounts only for a small share of the total travel e-commerce pie but it is one segment, which is being tipped to grow aggressively in the time to come.
The same issue will come to the fore as EyeforTravel gears up to conduct its inaugural Online Travel Market Russia 2008 conference on 24-25 September 2008 during the Leisure Exhibition at Crocus Expo in Moscow. For more information, contact: Tim Gunstone - +44 (0)207 3757557/ tim@eyefortravel.com
In order to know more about EyeforTravel Research's Travel Distribution in Russia report, please contact:
Amy Scarth
Tel: +44 (0)207 3757545
Email amy@eyefortravel.com
Ritesh Gupta
EyeforTravel.com
==
Comments
You must be logged in to post comments.
tromba said on 27 Jul 08:
The trade talk in travel and tourism is about the expected rapid growth in China and India. But, for a variety of economic and cultural reasons, I believe that in the next several years we will see equal or larger expansion in Russia.
Congratulations on having the foresight to organize and produce this conference.