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Far East chooses brands

Alexis Delaroff on which hotels the region needs.

The hotel business in the Far East of Russia will develop, I am convinced Alexis Delaroff, regional director of AccorHotels in Russia, Georgia and the CIS countries. On the fields of the Fourth Eastern Economic Forum, a representative of one of the world's largest hotel operators shared with EastRussia the company's long-term plans in Russia.

Far East chooses brands
- Alexis, you represent AccorHotels - one of the world's largest hotel operators. Under your management are world-famous brands, covering both "economy" and "luxury" segments. How will accommodation facilities develop in the Far East? What will be the direction, what price segments, what brands?

- We work in Russia 26-th year. 47 operating hotels are represented in our portfolio, and we are not standing still. Many interesting projects are being implemented, we open 5 – 8 hotels a year. Actively interested in the Far East, we started 2 – 3 a year ago. I traveled a lot of cities to get acquainted with the region and understand it. So, I was in Yakutsk, in Petropavlovsk-Kamchatsky, in Magadan, Vladivostok, Komsomolsk-on-Amur, Blagoveshchensk, Khabarovsk.
The opening of the Mercure hotel in Blagoveshchensk will be a serious step. It will probably happen next year. And on this Forum we will sign a letter of intent to build the Mercure hotel in Yakutsk too.

- Why exactly Blagoveshchensk will become for you an entry point to the Far East and what is the reason for choosing a brand, why Mercury?

- It is important to consider the city itself, competition, potential. Blagoveshchensk is located on the border, near, across the Amur River, is located the large Chinese city of Heihe. A cable car was built between the shores, a bridge is being built. There is a simplified border mode. Why Mercure? The choice is dictated by objective reasons: the owner was tasked with creating a hotel in 4 stars in an existing building. In addition, Mercure is a brand - aimed not only at business, but also at holidaymakers.

- You have been practicing the Far East closely since 2016. Tell us what are the prospects, which cities other than Blagoveshchensk and Yakutsk are most interesting to you?

- In recent years, work has been done on Vladivostok, we have several projects under development at once. However, at this stage, nothing has been formally signed, so we cannot make any specific statements. In Khabarovsk, we are negotiating two sites right in the city center. But here, too, we have not yet come to a final decision. Also among the promising areas is the opening of a hotel in Petropavlovsk-Kamchatsky; previously, it will be a Novotel or Pullman - 4 or 5 stars; and also in Yuzhno-Sakhalinsk. There we are negotiating with the owners of several existing hotels in order to update them and re-brand.

- Are the projects you mentioned talking about private investment? Tell us more about the format of relationships with owners, investors.

- Our projects are always only private investments. We have no financial relationship with the state. The state should invest in infrastructure, and not in any individual projects, in my opinion.

Regarding the format of the relationship, as a rule, we have signed franchise agreements and management agreements. With a franchise, the investor gets a brand, a booking system and certain marketing services. When it comes to management, in addition to the items listed, the owner receives management services, which include the appointment of a manager, regular monitoring of hotel performance, analysis of operating results, and so on.

However, we do not invest in the construction of hotels. We need an investor who believes in us, wants to build a hotel and signs a long-term contract with us, and we usually sign contracts for 20 years, a franchise is transferred for this period.

- The situation with hotels in the Far East remains difficult. For example, in Vladivostok there are two unfinished Hayatt. What are the main obstacles you see?

- For a long time to the Far Eastern cities was very long and difficult to reach. Friendship with China, which entails large tourist flows, lasts just 4 – 5 years. Earlier, Chinese tourists in Vladivostok were not considered as very desirable. But everything changes. Tourist flows from China, Korea, Japan are increasing. This must be taken into account. Today we can fill hotels not only with Muscovites and local businesses, but also to attract tourists and businessmen from neighboring countries. Therefore, it became interesting to foreign networks. Why Hayatt is not completed is not my question. I have my answer, but this is not my question.

- Choosing locations for hotels, you are more likely to rely on existing demand or are you trying to predict the possible dynamics in the future?

- When a hotel is built, it is built on 30 – 50 years. When you are guided by the World Championships or some economic forums that fill in the accommodation facilities on the 3 – 4 of the day, you are fooling yourself and fooling the investor. Therefore, we must look at the existing demand. As the facts show, demand is always growing. If you take any city of Russia 10 years ago and today, then 90% of cities demonstrate a certain economic growth, which entails the need for the hotel business.

- Continuing the conversation about investors, if the hotel has 4 stars and is built from scratch, what is the average payback period today?

- Here you need to think about how you set yourself a goal as an investor. If 5 star hotels are capitalized and bring money in the event of resale, the creation of a 4 star hotel can provide a steady flow of money from daily work. On average, such a hotel will pay off for about 15 years.

At the same time, 3-star hotel, if you find the right location, hotel size, building materials, and so on, you can pay for 8 – 10 years. But it depends a lot on local taxation, local tax specifics. Now the cost of taxes is calculated from the cadastral value of the hotel, which is practically at the market level, and this is very much, it kills to some extent the project. In this matter, the state must decide whether it wants to develop industry or tourism. Tourism in Russia is 3% of GDP, and, for example, in Europe - 10-12% of GDP. If you want to develop tourism, you must create conditions for the development of tourism. Conditions that are now barely created.

Infrastructure is very important. For example, this is the question: what should appear earlier, a hotel or a good airport? I know that in the regions of the Far East there are serious investments in infrastructure development, and this is good news. The number of tourists should be increased, and if there are many tourists, hotels should be built. But it is difficult to build hotels first and wait for the tourists to come. Then the hotel is idle and you are bankrupt.
Despite the objective difficulties, we continue to work in the Far East, and I think that in the medium term, large cities will definitely develop with the help of international networks. Our plans for network development in the region are serious, we are very actively considering all existing opportunities for development, and I am confident that in the coming years, the representation of AccorHotels in the Far East will increase.
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