Palanga resort cashes in on Russian inflow, as others lament with no recovery signs ahead

  • 2010-08-25
  • By Linas Jegelevicius

HURDLES REMAIN: Lower VAT and better visa availability would result in even more incoming tourists, says Evalda Siskauskiene.

KLAIPEDA - With more direct flights to Vilnius and particularly to Kaunas, with its Ryanair cheap-flight 40th worldwide base, Lithuania is reporting a 20 - 40 percent tourist hike this summer. However, the increased tourist flow does not turn in bigger turnover at local hotels. “We see a 30 - 40 percent guest volume increase in Vilnius’ Radisson Blu Hotel. However, it does not counterbalance our revenue decrease due to hiked-up value added tax (VAT), from 5 percent to 21 percent, since 2008,” Radisson Blu Hotel director Kestutis Kazlauskas maintained to The Baltic Times.

Evalda Siskauskiene, Lithuania’s Hotel and Restaurant Association (LHRA) director, also observes a tourist number rise this summer. “For many, it is quite unexpected. We have had more foreigners this year than in the previous year, when thousands of people came for Lithuania’s millennium anniversary. I relate that not only to the improved transport with Lithuania, but I see it as a foreign tourism market recovery,” Siskauskiene points out. According to her, this season Lithuania has welcomed a multinational stream of previously scarcer tourists from Spain, Finland, Italy and France, as well as a bigger than ever influx of Russians, Germans and Belarusians.

Had the VAT been slashed to 9 or 11 percent, as is being deliberated, the national tourism sector would have bounced back to the pre-crisis level, the LHRA president is convinced. Also, had the Slavic tourism-crippling hurdles been lifted from the Lithuanian side, local hotels and restaurants would have cashed in on the flow in a geometric proportion, she asserts. This summer, Lithuania’s embassies in Minsk and Moscow have been overflowing with Russians and Belarusians attempting to receive Lithuanian (Schengen) tourist visas. However, the embassies, downsized due to austerity measures, could not handle the abundance of the applicants in a fast enough period of time, often making them wait for a visa nearly two months. It is estimated that because of diplomatic mismanagement, Lithuania has turned its back on thousands of its closest neighbors, Siskauskiene claims.

In order to set off losses due to a 16 percent VAT spike, many hotels, including unrated motels and luxury hotels, have slashed their prices 10 - 40 percent this summer. With the tourist flow increase, the low prices inched up gradually in most hotels, reaching the usual summer prices in most of them. As hotels differ a lot in their capacities, marketing policies and, most importantly, locations, conclusive generalizations regarding their effectiveness should not be drawn upon all of them, Siskauskiene suggests.

“Obviously, all hotels have been affected by the increased VAT and the general trends in the industry. However, you cannot put on a par a hotel in the Palanga resort, one in Vilnius or another one in a provincial town,” the LHRA president emphasizes. Because of the smog of the extended massive fires in Russia, Palanga has become an escape destination for many Russians this summer. Palanga’s many hotels are reporting a 20 - 40 percent Russian tourist increase this July and August.

Palanga’s Hotel and Restaurant Association President Gintaras Siciunas claims “Russian tourists make up a considerable segment of the resort’s tourist flow. It is significant every season, but this summer it has gone 15 - 40 percent upwards from the usual level. Besides, we do see considerably more Spanish, French, Italian and Scandinavian tourists in the resort.”  However, he downplays the importance of more frequent Ryanair flights to Kaunas, attributing the influx to the highly publicized venues – Christmas alley in winter, Margutis (a decorated Easter egg) festival in spring and others.
Speaking of the Russian tourists, by the end of August, a time of rapid slowdown, hotels are still fully occupied by Russians, particularly Muscovites. In Palanga, Russians have been dubbed “golden guests” - they are known for being very lavish, usually staying at Palanga’s hotels on lengthy vacations. “Though the high season is about to end, our hotel’s occupancy is still 80 percent, and Russians account for a whopping 90 percent of the guests,” says Palangos Vetra Hotel Reservation Department head Roman Stulov. Po Kastonu’s owner Sigitas Soplickas is also happy about the season. The owner of this small three-star hotel in Palanga says “In the beginning of the season, being anxious about the downturn’s affect on our guests, we slashed our room rates 10 - 20 percent. Such a policy paid off, resulting in a higher than usual turnout. During the high season, the hotel room rates have gone to the pre-crisis level -  300-400 litas (116 euros) per night.

Nevertheless, our hotel has been fully occupied throughout the summer. We mostly cater to families, providing free toys and other extra services for kids. Our business experience has proved that we have found the right niche in the segment. Interestingly, this summer, we had more Scandinavian families, with one of the spouses being Lithuanian,” the hotelier revealed.

However, some moderate-priced hotel owners, preferring not to be named, complained about the high season, calling it “so-so.” One two-star motel owner sadly acknowledged that “We were not able to compete with hundreds of grannies and granddads out there.”

The Palanga resort has been long known for its elderly, virile residents, who, during each summer, spend days on the resort’s entries, clutching sheets with room or apartment rent rates and jumping in a flock to a pulled up car, hoping a vacationer will pick up their offer. Therefore, the Palanga resort has been dubbed “Grannies’ Palanga” ever since.
LHRA president Siskauskiene is frustrated over the tax-evading seniors. “It does create a big problem. While big hotels can manage their rates in a wider range, one- or two-star hotels or motels cannot do that. Thus, with the flocks of grandfathers and grandmothers on the outskirts of the resort, the hotels and motels lose in competition. Obviously, there is a significant part of the shadowy economy in the business. Particularly, it applies to country tourism homesteads, where only a small part of them work legally,” Siskauskiene maintained.

Far from the resort, in Udra village, in the south, Udra motel owner Stasys Dumbliauskas laments over his deteriorated motel business. “Before, it was going quite well. Located at the crossroads, the motel, especially in summer, used to be nearly always full, accommodating tourists, truckers, bikers and motor cyclists. This summer, I saw only a few bookings, as all seven rooms stayed unoccupied for most of the time. Before the summer, when reading reports on the hotel industry’s possible recovery, I was hoping the better times are around the corner. However, at the end of the summer, I see it was not the case,” Dumbliauskas complained to The Baltic Times.

Vaidila, a three star hotel in the south, sees director Romualdas Zukauskas so desperate about the abysmal situation that he was exuding with sarcasm speaking to The Baltic Times. “Oh, are you asking about occupancy? It is much better than in a Vilnius hotel, as we have three occupied rooms, out of 27, in Vaidila and no guests in 38 rooms of Ode, our other hotel. All this is thanks to our government and the crisis,” Zukauskas quipped. He acknowledged a staggering 75 percent slump in the business. Asked how the ventures manage to keep running, the director kept cracking jokes, “We do not. The staff has been sent on forced leave, as only one room cleaner is on duty.” Before, Zukauskas maintained, many transient tourists would stay at the hotels, however, with the hefty VAT, many tourism agencies tend to accommodate travelers in the near-by countries, Latvia or Estonia.

“Undoubtedly, Lithuanian has become a transient country since the high VAT introduction. With a 10 percent VAT in Latvia and a 9 percent VAT in Estonia, travel agencies cash in considerably more from the deals in these countries,” the LHRA president claims. According to her, the initial review of the summer’s hotel clientele has shown that foreign tourists make up 80 percent of the whole tourist flow this season. “However, out of the total, a bulk of 50 percent is business clients, who redeem the VAT. When the tax was 5 percent no one bothered to redeem it, meanwhile, now everyone does. Thus, Lithuania credits foreigners’ stay in our hotels. Therefore, we demand our government to consider the hotel business as an export of services. That way, the VAT would go down, as is thought, to 9 or 11 percent,” Siskauskiene explained. She claims that the LHRA proposal has received welcoming support from the Ministry of Economy, as the Ministry of Finance still deliberates the proposal.

The LHRA president claims that Lithuania and Denmark have the highest VAT in the European Union, at 21 and 25 percent, respectively.
“While it may work, tourism-wise, for well-established Denmark, the VAT and Lithuania’s modest popularity as a tourism destination may kill us,” Siskauskiene is convinced. The state has pocketed only an extra 2-3 million litas from the increased VAT, says the organization’s president. However, it remains unclear what part of it has been redeemed already.

She has not yet noticed tourism recovery signs. Convinced that the business holds big potential in Lithuania, Siskauskiene though does not see a swift turnabout in the short term. “Unfortunately, our government has not prioritized the tourism sector. It took us more than two years to prove the high-ranking officials were wrong with the VAT increase. The policy’s aftermath has killed many hotels. Every third hotel in Vilnius is for sale. Klaipeda’s hotel revenues have been surpassed by taxes a long time ago, putting them on the brink of survival, while hotels in the provinces are dead a long time ago,” the LHRA president said, blasting the government.

Kazlauskas echoes this, claiming “Lithuania’s hotel business is a reflection of the state’s policies. Lithuania has not yet become a tourism destination, and blame for that mostly falls on the government.” He remains pessimistic over the rest of the year, asserting “The reservation level is quite low so far, even compared with the previous year. During the crisis, a sheer majority of travelers make their travel arrangements at the last minute. It may pick up a bit, as always, particularly before Christmas; however, that is it for now.”