Brief summer
Bulgarian hotel owners and travel operators have always yearned for a longer summer season. This year, they will be happy if they have a season, full stop. Most hotels will not see full occupancy rates outside July and August, compared to the three-four month season they enjoyed in previous years.
The global economic downturn has hit the tourism industry hard and has been felt in Bulgaria. Seaside resorts have registered a double-digits slump in early bookings and in some cases the drop is as high as 50 per cent. Travel operators have delayed charter flights and even though planes are landing at Black Sea airports, activity is not expected to pick up until well into June. As a consequence, hotel owners have been forced to lower their rates for travel companies to amounts that would have been dismissed several years ago.
Fewer tourist numbers have put pressure not only on the hotel industry, but all businesses that depend on it – restaurants, pubs, suppliers and beach concessionaires. There is a critical minimum occupancy rate required for hotels to break even, prompting some hotels to stay closed for business until custom picks up in June. Others, provided they can afford it, are even considering not opening for business this summer at all.
Late reservations
"When at the end of last summer hotels were negotiating prices for this year, some of them asked for increases of five to seven per cent. At the time, no one could forecast the harsh impact of the global credit crunch and few people were prepared for what was in store," said Elena Ivanova, from the union of hotel owners in Slunchev Briag (Sunny Beach) resort.
At the turn of the year, the negative trends became clear – Western European and Russian tourists, who make up the bulk of the foreign influx on the Bulgarian Black Sea coast, have become more financially conscious and reluctant to spend on holidays. Worse yet, they are clearly holding out until the last moment to choose the cheapest offer in the region. Greece and Turkey have thus become direct competitors to Bulgaria, offering very attractive package deals supplemented by aggressive advertising campaigns.
Reaction in Bulgarian followed swiftly. Hotel owners offered larger discounts for early bookings – instead of the traditional 10-15 per cent range, hotels will slash as much as 20 per cent off – but also extended the deadlines for early bookings until the end of April and then until the end of May. One hotel went even further, allowing early bookings for July and August until mid-June.
"These are no longer concessions, but real reductions in prices," one travel company representative said.
Lazko Zhardanov, manager of the Luna hotel in Zlatni Pyassutsi (Golden Sands) resort said: "Usually early booking discounts are valid until end-March, but this year it is the end of May. There is a definite feeling that the season will start a lot later." The number of overnight stays in the hotel is expected to fall to 3000 for the month of May, compared to 6000-7000 in previous years, he said.
The efforts to draw foreign and Bulgarian tourists have yielded little in the way of results. Interest in all key markets is down, judging by preliminary figures concerning charter flights announced so far. Varna and Bourgas airports expect a decline of 15 per cent this year, but numbers can change in either direction at any time as travel companies are forced to adjust on the go, based on incoming bookings.
The six-day public holiday at the beginning of May was far from a big boost. In Sunny Beach, only 10 per cent of hotels opened for business and had about 30 per cent occupancy rates, Ivanova said. In previous years, one in three hotels would have been open and half-full, she said. In Golden Sands, most hotels opened for the May holidays, but they were banking mainly on Romanian tourists.
Half-open
Lower prices, fewer bookings and the prospect of a dubious season have forced hotel owners to go one step further as they try to cut spending. Some hotels will open for business in mid-June, fully a month after the official start of the summer season – a highly unorthodox trend. But only investors who own several hotels, grouping all the tourists in one or two locations and then opening the rest gradually, can afford such a strategy. It is not a new approach, but it is the first time that large hotel operators in the country have been forced to resort to it.
Albena, one of the biggest operators in the country, is even considering the option of keeping some hotels closed throughout the summer. The Albena resort has a total of 42 hotels, all owned by the hotel operator.
"Bookings are down 20 per cent, only eight hotels are operational at the moment," Albena chief executive Krassimir Stanev said. "There is the possibility that several will not be opened at all, but that will be decided in late June or early July."
"The season is exceptionally weak so far and next year could be worse. Our resorts offer good deals, but most customers never hear about them. We need more aggressive advertising," he said.
Hotels with established brand names and a good relationship with travel companies, as well as those with superior locations, are in a better position to deal with the downturn. Smaller resorts like Kranevo, Primorsko and Pomorie, who rely mainly on tourists from Central and Eastern Europe, are expected to open for business later because of the delay in the start of charter flights.
Cost-benefit analysis
The decision to postpone opening is not an easy one for any hotel owner. But there is little choice when there is no guarantee that the hotel will get enough revenue to cover minimum operational costs. Hotel owners claim that they need at least 30 per cent occupancy rate for the hotel to open for business. But to break even hotels need an average of 50 per cent occupancy for the season and that is without taking into account any interest payments on debt.
Low occupancy rates are not the only danger – the effect of discounts on revenue should not be disregarded, according to Nedyalka Sandalska from travel company Balkantourist. Any four-star hotel offering "all-inclusive" packages in the seven to nine euro range will find it hard to make ends meet.
Costs can be further cut when employing personnel – staff is no longer being hired en masse - but only as the occupancy rate goes up. Staff selection has also become a lot stricter, as employers look to ensure that available personnel are kept busy throughout their working hours.
Risks
The biggest risk is that low occupancy will result in lower revenues. Older hotels with little debt will not be affected as much, but a large share have been built using bank loans during the construction boom in recent years.
More than a few hotels could find it hard to make interest payments on time, while the cash squeeze has made finding an investor difficult. A large number of seaside hotels are for sale, but there are no interested buyers. At some point, banks could be forced to repossess properties or renegotiate maturity periods on loans.
Another risk is that once travel companies reduce the number of charter flights, they would be reluctant to re-adjust their programme for a longer season next year.
Even price reduction has its risks – even if it has no negative effect on the quality of service, hotel owners would have less money to invest in improving quality in forthcoming years. Having already cut prices for travel companies, hotels will find it increasingly difficult to increase them back again over the next two or three years, which would result in more closed hotels. Unless they use their short summer to the full this time around.
Kapital, issue 20
The global economic downturn has hit the tourism industry hard and has been felt in Bulgaria. Seaside resorts have registered a double-digits slump in early bookings and in some cases the drop is as high as 50 per cent. Travel operators have delayed charter flights and even though planes are landing at Black Sea airports, activity is not expected to pick up until well into June. As a consequence, hotel owners have been forced to lower their rates for travel companies to amounts that would have been dismissed several years ago.
Fewer tourist numbers have put pressure not only on the hotel industry, but all businesses that depend on it – restaurants, pubs, suppliers and beach concessionaires. There is a critical minimum occupancy rate required for hotels to break even, prompting some hotels to stay closed for business until custom picks up in June. Others, provided they can afford it, are even considering not opening for business this summer at all.
Late reservations
"When at the end of last summer hotels were negotiating prices for this year, some of them asked for increases of five to seven per cent. At the time, no one could forecast the harsh impact of the global credit crunch and few people were prepared for what was in store," said Elena Ivanova, from the union of hotel owners in Slunchev Briag (Sunny Beach) resort.
At the turn of the year, the negative trends became clear – Western European and Russian tourists, who make up the bulk of the foreign influx on the Bulgarian Black Sea coast, have become more financially conscious and reluctant to spend on holidays. Worse yet, they are clearly holding out until the last moment to choose the cheapest offer in the region. Greece and Turkey have thus become direct competitors to Bulgaria, offering very attractive package deals supplemented by aggressive advertising campaigns.
Reaction in Bulgarian followed swiftly. Hotel owners offered larger discounts for early bookings – instead of the traditional 10-15 per cent range, hotels will slash as much as 20 per cent off – but also extended the deadlines for early bookings until the end of April and then until the end of May. One hotel went even further, allowing early bookings for July and August until mid-June.
"These are no longer concessions, but real reductions in prices," one travel company representative said.
Lazko Zhardanov, manager of the Luna hotel in Zlatni Pyassutsi (Golden Sands) resort said: "Usually early booking discounts are valid until end-March, but this year it is the end of May. There is a definite feeling that the season will start a lot later." The number of overnight stays in the hotel is expected to fall to 3000 for the month of May, compared to 6000-7000 in previous years, he said.
The efforts to draw foreign and Bulgarian tourists have yielded little in the way of results. Interest in all key markets is down, judging by preliminary figures concerning charter flights announced so far. Varna and Bourgas airports expect a decline of 15 per cent this year, but numbers can change in either direction at any time as travel companies are forced to adjust on the go, based on incoming bookings.
The six-day public holiday at the beginning of May was far from a big boost. In Sunny Beach, only 10 per cent of hotels opened for business and had about 30 per cent occupancy rates, Ivanova said. In previous years, one in three hotels would have been open and half-full, she said. In Golden Sands, most hotels opened for the May holidays, but they were banking mainly on Romanian tourists.
Half-open
Lower prices, fewer bookings and the prospect of a dubious season have forced hotel owners to go one step further as they try to cut spending. Some hotels will open for business in mid-June, fully a month after the official start of the summer season – a highly unorthodox trend. But only investors who own several hotels, grouping all the tourists in one or two locations and then opening the rest gradually, can afford such a strategy. It is not a new approach, but it is the first time that large hotel operators in the country have been forced to resort to it.
Albena, one of the biggest operators in the country, is even considering the option of keeping some hotels closed throughout the summer. The Albena resort has a total of 42 hotels, all owned by the hotel operator.
"Bookings are down 20 per cent, only eight hotels are operational at the moment," Albena chief executive Krassimir Stanev said. "There is the possibility that several will not be opened at all, but that will be decided in late June or early July."
"The season is exceptionally weak so far and next year could be worse. Our resorts offer good deals, but most customers never hear about them. We need more aggressive advertising," he said.
Hotels with established brand names and a good relationship with travel companies, as well as those with superior locations, are in a better position to deal with the downturn. Smaller resorts like Kranevo, Primorsko and Pomorie, who rely mainly on tourists from Central and Eastern Europe, are expected to open for business later because of the delay in the start of charter flights.
Cost-benefit analysis
The decision to postpone opening is not an easy one for any hotel owner. But there is little choice when there is no guarantee that the hotel will get enough revenue to cover minimum operational costs. Hotel owners claim that they need at least 30 per cent occupancy rate for the hotel to open for business. But to break even hotels need an average of 50 per cent occupancy for the season and that is without taking into account any interest payments on debt.
Low occupancy rates are not the only danger – the effect of discounts on revenue should not be disregarded, according to Nedyalka Sandalska from travel company Balkantourist. Any four-star hotel offering "all-inclusive" packages in the seven to nine euro range will find it hard to make ends meet.
Costs can be further cut when employing personnel – staff is no longer being hired en masse - but only as the occupancy rate goes up. Staff selection has also become a lot stricter, as employers look to ensure that available personnel are kept busy throughout their working hours.
Risks
The biggest risk is that low occupancy will result in lower revenues. Older hotels with little debt will not be affected as much, but a large share have been built using bank loans during the construction boom in recent years.
More than a few hotels could find it hard to make interest payments on time, while the cash squeeze has made finding an investor difficult. A large number of seaside hotels are for sale, but there are no interested buyers. At some point, banks could be forced to repossess properties or renegotiate maturity periods on loans.
Another risk is that once travel companies reduce the number of charter flights, they would be reluctant to re-adjust their programme for a longer season next year.
Even price reduction has its risks – even if it has no negative effect on the quality of service, hotel owners would have less money to invest in improving quality in forthcoming years. Having already cut prices for travel companies, hotels will find it increasingly difficult to increase them back again over the next two or three years, which would result in more closed hotels. Unless they use their short summer to the full this time around.
Kapital, issue 20