Russian tourist industry is facing extreme challenges: geopolitical instability, weak ruble, restricted air travel, foreign currency transactions and bank card use abroad, as well as lack of access to Europe are aggravating the destructive effects of the two-year pandemic. The government is making attempts to stabilize the situation, by developing a Russian service similar to Booking.com, extending the tourist cashback until April 15 and supporting the IT industry that is also closely linked to tourism. Preserving jobs in the industry and ensuring decent quality of life requires supporting measures and new approaches that will not only save but rather completely overhaul tourism. What should be done to take advantage of this window of opportunity, avoid a new crisis and make up for decades of lagging behind?
Echo of the 20th century
While businesses and free market were thriving in Western Europe, modern Russian tourist industry is rooted in the Soviet experience and centralized development, bureaucracy and lack of competition. After the end of WWII, Western European countries created a high-yielding tourist industry generating billions in revenue and significant contribution to GDP. Governments actively supported development of tourist businesses by regulating them without dictating them what to do. After the dissolution of the Soviet Union, these approaches quickly filled the vacuum in Russia.
Thousands of new players flocked to the 1990s Russia with offers of cheap vacations that would help Russians forget the notoriously bad Soviet customer service. Turkish travel agencies were most prolific. They also managed to stay on people’s minds with tours for as little as $300. While Russians explored new destinations, domestic tourism fell into decline. The government focused on the industrial sector and completely ignored tourism, both in terms of regulation and investment. Tourism only enjoyed sporadic and insufficient attention from the state up until the end of the 2010s.
The pandemic produced mixed effects on the economy: while COVID-19 prompted a boost in e-commerce, the state of the travel industry was deplorable. Experts estimate that over the first two years of the pandemic, tourism lost $4 trillion. The Russian segment was hit extremely hard, with inbound tourism shrinking 17.5 times. Outbound tourism was not much better: as of September 2021, Russians spent only 17.4% of their pre-pandemic travel expenses. After the events of February 24, the tourist market is at its historic low. However, the crisis prompted people to take a different angle at their own country.
New opportunities
People who are used to spending weekends and vacations away from home are not ready to completely give up on travel and, due to difficulties with visiting foreign countries, started discovering destinations in Russia. Both geopolitical and economic situation are favoring domestic tourism. In 2021, popular destinations such as the Krasnodar Territory, Crimea, the Moscow Region and St. Petersburg showed significant growth as tourist traffic restored to 90% of the 2019 level. Russia entered the top five for tourist traffic recovery.
However, recovery does not solve systemic problems. According to the World Travel and Tourism Council, general public investment in the tourist sector is tens of billions lower than before the pandemic. The amount of investment is still not as important as its effectiveness. Statistics says that in the United States – the global leader of the tourist industry – the GDP return on every dollar spent by the government on the tourist industry was over $20,000 in 2019. The overall nationwide figure was 80 times higher than investment into promoting the industry. Russia has no such level of state support, Russian travel industry being the 22nd biggest in the world for revenue.
At the same time, Russia is in the most favorable position right now, with underexplored growth potential and high readiness for digitalization of the economy able ensure unprecedented growth rates.
Qualitative reset
Russia approached 2022 and prospective rebound of the tourist sector in a new capacity. In 2019, the government approved the Tourism Development Strategy until 2035. The Federal Agency for Tourism now directly reports to the government. Tourism.RF State Corporation was established. The Tourism and Hospitality Industry National Project was established in 2021. These steps aim to make services more accessible, improve management, provide quality staff training, develop infrastructure and build tourist clusters. This targeted approach does not focus on the need for radical transformation and will not revamp the entire business landscape.
The Tourism Development Strategy, which contains an essential clause on digital transformation, in particular, notes the importance of achieving digital maturity and expanding the scope of services available online. But it is not enough: users have to use dozens of various services to book tickets, hotels, restaurants and tours. This practice disconnects tourist experience and turns it into a journey from one app or website to another. The problem can be solved by creating an integrated digital environment shared by tourists and all participants in the tourism industry at the same time.
It should be a decentralized platform that integrates all elements of tourism business, Big Data, trip planning and managements in one app: from picking a package tour to creating a personal itinerary in any part of the world. Booking various services through one application will allow travelers to save both time and money. VR solutions and elements of tourist infrastructure in metaverses will play a special role in the ecosystem. Creating new user experiences, easing access to cultural landmarks and reducing risks for extreme tourists will become the major growth points in this area.
The creation of an integrated ecosystem will increase margins for the sector players and provide an opportunity to save time and personnel resources. If the integration reaches government services, there will be opportunities for automated submission of benefits and subsidies, as well as the development of targeted, customized offers. Regardless of their social role at the moment of travel, users are offered the same tourist product while the loyalty program will provide for accessible and comfortable use of tourist infrastructure.
In addition, the ecosystem serves to bring out grey market players. It will not restrict businesses, but offer them convenient mechanisms and understandable, common standards of activity when the questionable pros of tax evasion will be outweighed by advantages of using a new system. The common standardization will deal with substandard service, while the huge data pool will allow for receiving prompt and accurate statistics.
The focus on information technology can attract new users to the industry by creating and promoting new types of tourism: eco-tourism, industrial and medical tourism, food tours and even backpacking are currently in an embryonic stage. These areas can attract a huge new audience, and the ecosystem would become a perfect tool for creating trends in the sector.
Russia now has a great historical opportunity to lay a foundation for our country’s wellbeing. But the time for targeted measures is past: there can be no transformation without introducing advanced technological solutions and building a transparent ecosystem. Understanding the long-term benefits of these innovations, their introduction and support at the state level is the only thing that will allow the business to work while providing quality tourism services both to Russian nationals and tourists.
By Oksana Golovina, founder, Warp tourist platform