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Monday, 15 February 2016

Russian stealth boycott is undoubtedly ‘throwing it all away’ for the Turkish All-Inclusive beach hotels and many, many other hotels in this country. Would these hotels have survived and flourished without the current Russian boycott? Or were they just shaky investments to start with?!

Throwing it all away
Is there nothing that I can say
To make you change your mind

Almost every European from the north-western region, as well as a lot of Russians, knows them: the Turkish five-star, all-in mega hotels at the Mediterranean coast near Alanya, Antalya and elsewhere.

These hotels are so big that they are akin to small cities with their thousands of guests, their private beaches and sunny piers and their vast indoor and outdoor swimming pools sizing to hundreds of meters in length. Not even to mention their mini shopping mall, or their (at least) four different a la carte restaurants with different tastes and flavours and their enormous dining-hall where hundreds of guests can have breakfast, lunch or dinner together at the same time without anybody bothering.

These Turkish mega hotels became the proverbial figureheads for what seemed to be the unbeatable success formula of the Turkish tourist industry and they placed severe attacks against especially Greece and Spain as former tourist magnets, taking them by storm.

Especially in the earlier years of this century, these hotels tried to conquer new ground by welcoming guests against accomodation prices that were seemingly below the cost price (my presumption – EL). The hotels wanted to gain market share at any price, hoping to make up for the initial losses they suffered, by slowly increasing their prices to more profitable levels, once their guests were ‘hooked’ to their hospitality and service levels.

By doing this, the owners hoped that the sky would be the limit for these hotels with their spotless white walls and endless swimming pools, their charisma of affordable-luxury-for-the-masses and their hundreds and hundreds of hosts and hostesses, ready to meet every wish and demand of all guests who visited their micro-cosmos.

Having been a ‘one off’ guest of one of these hotels, together with my family, I always wondered how these hotels could cope with the gargantuous spillage and waste of food and drinks and the enormous expenses that their service level required.

You can reckon: all day, every day these hotels served thousands and thousands of meals and snacks to their guests. Every day the vast buffets were 3 times per day filled to the brim with fresh fish, fresh meat, fresh vegetables and salads and fresh pastries and bakery products.

Very often customers, who had left all good manners at home and were attracted by the free food and free drinks, filled their plates with king size portions, only to leave them nearly untouched after a few bites. On their way to the next king size portion, but than with different dishes. Their earlier filled plate could only be tossed away in the food waste container.

Spoilt children grabbed four or five cakes and a massive amount of ice cream from the buffet, only to decide that they were not hungry after all. The food waste container would become the bitter end for this delicious pastry and lovely ice deserts, as nobody bothered to eat it anymore.

Different snack parlors all over the hotel gardens served fresh-made pizza’s, kebabs, hamburgers, french fries and other snacks from the early morning until late in the evening to their guests, who thought that three abundant regular meals per day were still not enough to satisfy their immediate needs. Yet so many pizzas and other snacks ended untimely in the waste containers, as their ‘buyers’ decided that they were full of food after all.

Food waste like this was not an incident, but a structural and integral part of the ‘all in’ formula of these hotels. This was for the simple reason that this formula pushed people to eat more than they wanted and needed and order even more food than they would eat. There were no penalties at all for undesirable behaviour and waste of precious food.

Personnel accepted the repulsive spillage – sometimes toothgrindingly and with their ‘professional smile’ carved out in their faces – as the customer was king and one dissatisfied customer could theoretically make or break a hotel, through bad reviews on social media and the internet.

The free drinks for all guests of the resort did the rest, as they invited to binge drinking and bad behaviour, “because it’s free... and hey, we’re having a holiday, aren’t we?!”

On top of that, these hotels were often in an regional competition for the best entertainment, as they were often laying in ‘no man’s land’ with very little natural sources of entertainment and sightseeing possibilities in the neighbourhood. Good entertainment shows would attract new customers, while poor entertainment would be shared through the ubiquitous social media and internet: also that could mean the untimely end for such a hotel.

Still, like with everything else, the best entertainment shows and the best entertainers were of course much more expensive than poor, but cheap entertainment.

All these circumstances put together, it meant that operating such a five star all-in hotel profitably would be extremely hard and only possible for ‘the creme de la creme’ in the hotel business. And for every successful all-in hotel, there would probably be at least nine unsuccessful hotels, that could either hardly keep their heads above water or would even default in the process.

To make things even harder, these hotels were probably all built at the expense of nearly infinite amounts of debt and borrowed money from Turkish banks and investors.

I estimate the average investment in such a large scale holiday hotel to be around €500 million euro for ground, buildings and swimming pools, but I would not be surprised when these investments would even be much higher. And on top of the vast initial investments, there are the gargantuous costs of operation, caused by the tremendous amounts of necessary personnel, food and energy.

The involved investors all want to make a decent profit on their multi million euro investments of course and in order for such cash flow payments to be structurally sound, the operation of such hotels must be an indisputed success. Personally, I really doubt whether one of these debt-laden hotels was already able to diminish its indebtedness. Probably not, as far as I’m concerned.

Summarized, I do hardly see a way to operate such hotels in a structurally profitable fashion, unless all the prices would go up dramatically and the amount of spillage and waste would be strongly reduced. And then these hotels probably need to have an average occupation degree close to 90% throughout the year, in order to afford the interest payments on the outstanding debt. However, higher prices and reduction of spillage would scare away the spoilt charter travellers, coming in from the North-European countries and Russia, who wanted to have much bang for only a few bucks.

And that was only the situation before the Turkish president Recep Erdoğan decided to ‘keelhaul’ a Russian fighter plane, which allegedly crossed the Turkish border during a bombing raid on Syria. With this action President Erdoğan provoked the wrath of his Russian partner in crime, President and ‘Capo di tutti Capi’ Vladimir Putin, who immediately declared a stealth boycott of Turkey.

Russian people were free to go to Turkey after the boycott had been declared, but there were unfortunately no charter flights to the Turkish tourist hotspots anymore: these flights just vanished into thin air. And the Russians themselves were bombarded with the habitual vitriol and cheap propaganda about Turkey, administered by the daily news and current affairs programs on Russian state television.

“Who talks about ‘room for nuancing and balanced reporting on the Turkish situation’ anyway?! We’re not! We Russians are all very angry and hurt by this Turkish act of war and we want Erdoğan and his countrymen to suffer for our pain and harmed national pride!” Or something like that...

What the results of these counterproductive actions between Turkey and Russia were, became clear a few weeks ago, when the Dutch newspaper Algemeen Dagblad printed the following story:

At this moment there are 1300 beach hotels for sale in Turkey, as the Russians are currently boycotting Turkey as a holiday resort. This boycott has been established after Turkey downed a Russian fighter jet, that would have violated the Turkish airspace during a bombing raid. Moscow and Ankara publicly quarreled about this event and mutually declared economic sanctions against each other.

One of those Russian measures now hits the Turkish tourist industry, according to Turkish newspaper Today’s Zaman. Last year more than 3 million Russian tourist visited the Turkish cities and beaches, or 15% of the total numbers of visitors.

Today’s Zaman states that many hotels at the Black Sea are nearly bankrupted. The total book value of the hotels currently for sale is about €12 billion.

Of course these 1300 hotels now for sale are not all belonging to the famous five star, all-in hotels. In that case the damage would be much, much higher than the average €10 million per hotel mentioned in the article. Probably a lot of these hotels for sale are small ‘mom and pop’ family hotels around the Black Sea and the Mediterranean Sea with room for about 50 – 100 guests and not the giant white palaces in Alanya and Antalya, for which Turkey is now so renowned.

Nevertheless, it can be expected that also these five star, all-in hotels are not doing very good currently. Also these hotels were very dependent on the wealthy Russian guests, in order to reach their occupation rates of roughly 90%. Those 3 million visitors per year will be dearly missed at this moment.

Yet, I don’t think that the stalling influx of Russian hotel guests is the main responsible for the dire situation of many Turkish hotels. This Russian influx falling through is perhaps a strong catalyst for the demise of such Turkish hotels, but it will definitely not be the only reason.

No, as I said in the first parts of this article, the main reason for the possible future demise of these large five star, all-in palaces will prove to be that they were never profitable to begin with.

These hotels have been established with a lot of ambitions and dreams about major profits for the investors. I am simply afraid that these ambitions will prove to be a mirage in the end, as the expenses of running such hotels are simply too high and the revenues will be too low to make a structurally profitable operation possible. 

In the end, when these hotels will indeed go down, it will seem like a bad dream for the hard-working owners: success was so close and yet so far away.

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