So Is Now the Time to Book a Trip to Russia? Tourism Update

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Russia’s ruble continues to roil. Having almost halved in value against the dollar in the last six months, the currency has zigzagged between a high of 60 and a low of 80 rubles to the dollar in trading just today. A glimpse at past currency crises, such as those of Iceland or the Republic of Ireland, suggests how wide-reaching the political and economic implications might be. The ruble’s tumble, though, will impact a market left relatively undisturbed by those past implosions: luxury.

Look at Russia’s contemporary reputation as a five-star mecca for global luxury brands: it suggests potentially rich pickings for any travelers ready to hop on a plane to Putin’s fiefdom. Certainly, it won’t cost much to get there. “Airfares are very cheap to Russia right now, even the business class fares, especially on Aeroflot. It has a bad reputation still from the days of the Aleutian crashes, but now they’re using Boeing 777s” says Airfarewatchdog’s George Hobica on the telephone from a trip to Abu Dhabi. Those industry fares, he explains, are at least 20% lower than competitors on the same route – sometimes even less. The only obstacle: Russia’s restrictive visa system, a complex process whose liberalization was reversed in the wake of the crisis in Ukraine.

Hotel Savings

There are significant savings on high-end hotels, too. Accommodation in Russia at every tier has always been expensive: according to the most recent Hotels.com Hotel Price Index, average rates were eighth highest in the world, above those in Singapore. Five-star brands have made Moscow and St Petersburg a priority in recent years, keen to establish a profile domestically so that roving Russians will likely book rooms at their properties overseas – see the recent Four Seasons Moscow, which opened on October 30, or Park Hyatt Ararat.

Economic sanctions, combined with the months-long slowdown, are significantly impacting that industry. “Luxury brands operating there are nervous,” explains Jason Clampet of Skift by phone from New York City, “As a traveler, you can always get a deal when things go wrong; with low occupancy, hotels cut rates to survive. The dollar is worth quite a lot more than it has been in years, but you have to ask yourself: is this a deal you want to take?” Clampet himself is reluctant, but for prosaic rather than political reasons. “I’m not sure if saving 25% off a room can really lure me there – it’s the darkest of winter right now.”

Iceland’s Example

When Iceland experienced its economic crash and currency devaluation starting in 2008, tourism took an initial hit, but then grew substantially – suddenly, a country that was once expensive to visit became more accessible. Ironically, the volcanic eruption of 2010, which snarled up European airspace also acted as a promotional tool for the country, according to Clampet. “It was a huge boom to their tourism industry – Iceland was on the news every day,” he explains, “When the problem stopped, people started traveling there because they finally knew where it was.” Indeed, in 2012, tourism was up more than 50% from pre-crisis 2005. In 2013 it accounted for 5.9% of GDP.

Amid Russia’s chill, premium airfares and accommodation costs have certainly softened, pointing to a similar potential bump in tourism down the road. But while visitors are in Moscow or St. Petersburg, shopping spree in rubles might not prove such a bargain. Some international brands are already adjusting prices in the wake of the currency crisis: Apple’s Russian website was shuttered for around 24 hours in November after which it reopened with prices 20-25% higher. This week, the Cupertino-based company has suspended it again. Retailer Zara closed its store in Moscow earlier this month.

No Dollar Splurge

On the phone from Europe, New York-based consultant and president of the Luxury Education Foundation Ketty Pucci-Sisti Maisonrouge underscored that message, pointing out the central reason that the ruble’s meltdown won’t enable a dollar splurge. “Nothing in the luxury field is produced in Russia,” she said. “So they’re just feeling the negative impact of the ruble economically.”

International marques Chanel or Louis Vuitton are simply importing goods for sale – and will likely make appropriate Apple-style adjustments to the prices if the currency continues to crater. More surprisingly, homegrown luxury staples have now been outsourced too so that can of caviar in GUM department store won’t be a bargain buy, either.

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