Latvian hotels withstanding tough times

  • 2009-07-29
  • By Olga James

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RIGA - The economy of Latvia, an EU-member country since 2004, was once the fastest-growing in the European Union, until the global financial crisis prompted a substantial decrease in the country's economic prowess.
The crisis negatively affected absolutely all business sectors of the troubled economy, from medicine to financial services to manufacturing to tourism.

In the past, Latvia's accession to the EU had undoubtedly stimulated the tourism industry.  The number of tourists visiting Latvia has gone up dramatically from 2004 to 2005, reaching a 24 percent increase. In 2006, the boost of 32 percent year-on-year revealed strong sustainable interest in the Baltic country, with the historic towns of Riga, Sigulda, Ventspils and Cesis serving as main attractions and the resort of Jurmala traditionally drawing large crowds from the East as well as the West during summer seasons.

At the beginning of 2007 it seemed that hoteliers were poised for yet another successful year, when the changed economic reality all over the world dampened the spirits of Latvian businessmen. Even now, in the second quarter of 2009, the polls show that Europeans continue to travel, but their trips typically are less expensive, shorter or limited to their home countries. The combination of relatively high prices of rooms and hotel services in Latvia as well as diminishing purchasing power of tourists all over the world caused some industry analysts to fear that  the momentum of interest towards 'the heart of the Baltics,' as the country is called on the state-run online travel advisory,  might be petering out.
Also, in recent years the country has received a lot of negative publicity depicting it as the land of scam artists, and tourists as far away as Ottawa have been warned to watch out for unsavory businessmen operating in bars in the Latvian capital.

It is clear that reversing the negative trend and operating at a profit in this economy is difficult, but is it impossible? 
For centuries Latvia has been known as a well-being and medical health resort with unique healing traditions. Nowadays, with the prices of European healthcare rising every year, Latvia has been able to carve out a very lucrative niche market for itself as a great destination for medical tourism. Many spa hotels in the country are offering quality medical services in combination with leisure and relaxation programs. The extensive list includes dental and blood work, plastic surgery, x-rays, EKG and maternity services. The opportunity to receive comprehensive, flexible, international-standard, EU-certified medical care for a fraction of the cost ensures a steady stream of clients to Latvian spa centers.

A large number of travelers prefer to stay off the beaten path and visit the Latvian countryside and rural communities. The owners of the country's guesthouses are eager to capitalize on this trend and the ads with charming Latvian cottages surrounded by picturesque scenery are well known to the tourists, particularly from Western Europe. However, the guesthouse by itself will not generate a sufficient flow of business, and therefore specialization is the key to success. Among the most popular services are scenic tours and coach tours, as well as organized activities such as sight seeing, boating and fishing. No guesthouse will open its doors until it's equipped with a 'pirts,' or the traditional Latvian sauna.

The organic meats, vegetables and dairy that are served in the small, owner-operated restaurants typically come from the neighborhood villages, and most of the kitchens offer not only traditional Latvian, but also pan-European cuisine. The emphasis on flexible, demand-driven service tuned in to the market needs has been essential for developing regional travel in the country. Even though Latvian guesthouses are facing tough competition from the Estonian and Lithuanian counterparts, this is expected to be one of the fastest growing segments of the tourism sector going forward.

The hotels in the capital city, Riga, are faced with an entirely different set of challenges.
While the big hotel chains are benefiting from brand recognition which brings in the customers, especially business travelers, regardless of the economic situation, the lesser known brands are forced to be creative and innovate in order to survive. The owners of the smaller businesses are faced with a tough choice: quite often, creative ideas require extensive investments, but spending money in these uncertain times seems a very risky enterprise.
The hospitality industry in Europe and particularly in Latvia has been significantly impacted by the global economic crisis and lack of capital. The lenders are waiting on the sidelines and it is difficult to predict when the hotel owners and operators will get access to the fresh sources of funding. As one of the hotel owners in Riga commented, it is crucial to have a good ongoing relationship with the credit institutions in order to be able to negotiate the most favorable conditions of the deal. The key often will be whether the hotelier is willing to put more time and effort into cultivating the atmosphere of mutual understanding and trust, when the lender will be willing to grant the borrower the necessary funds. In fact, even the businessmen that are facing temporary financial difficulties need not automatically adopt the worst-case scenario. Initiating a straightforward dialogue with your banker, maintaining the level of transparency that the financial services provider is comfortable with, and making sure there is no ambiguity in the messages that are being communicated often mean the difference between riding out the financial downturn and shutting the doors permanently.

This difficult economic environment has forced hotel management to adapt a proactive, hands-on approach to finances, and nowadays the age-old adage that a penny saved is a penny earned rings especially true. "Before the crisis, no one was watching how much electricity we were using," says Juris Lacis, the manager at one of the hotels in suburban Riga. "If the water pipe was leaking, it was not the first priority of the day to get it fixed. Now, the situation is different."
Business owners are constantly searching for new ways to maximize efficiency and originate the new, improved operational models that will enhance competitiveness and ultimately result in increased revenue. This can be achieved by controlling expenses, reducing payroll costs, investing in energy efficiency programs and leveraging online resources to boost recognition and ultimately differentiate the business from the competition.

Talking to the employees and encouraging everyone to be cost conscious, looking at ways that the hotels can save on utilities and insurance, as well as promoting good work ethics are some of the many steps the hotel owners are taking in order to optimize operating efficiency. "I understand the importance of talking to my employees," says Lacis. "They need the work, and I need them to keep my business running, but it's more than that. I know that I can rely on my team in difficult times, and it really helps to keep the business afloat." He also admits that nowadays he is more willing to listen to  innovative ideas, take calculated risks and adapt novel approaches. "I am thinking of using Facebook and Twitter to market my hotel," says Lacis. "Being so far away from Old Riga, I need all the buzz I can get."

'Generating the buzz,' being visible online and having a viable social media marketing strategy is crucial for attracting new clients. In the modern Internet-driven world it is not enough to create an informative interactive Web site that is fun and easy to navigate. Equally, if not even more important, is getting the potential tourists interested in the place that they are planning to visit by underscoring the unique aspects of the cultural, ethnical or social environment. For instance, the newly-built Web site of one of the Kurzeme hotels features interesting facts about the region, national cooking recipes, and even a couple of dainas- funny Latvian folk songs. The information is being updated on a monthly basis, and the clients can subscribe to the weekly newsletter and receive information in Latvian, Russian or English. 
From medical resorts to rural retreats to posh hotels in Riga's center, the hotel industry in Latvia is sufficiently robust and the market players are facing the difficulties with confidence and a large dose of healthy optimism.