One week after a Turkish fighter jet shot down a Russian bomber aircraft near the Syria–Turkey border, Russia has severed economic ties with its neighbor and has scrapped major investment projects.
On Saturday, Russian President Vladimir Putin signed a decree imposing economic sanctions against Turkey that banned charter flights from Russia to Turkey and prohibited Russian tour operators from selling travel to Turkey. Visa-free travel for Turkish citizens going to Russia will be suspended as of January 1, and Reuters notes that Turkish firms and nationals will also have their economic activities halted or curbed. These restrictions are poised to hurt both countries. According to the Associated Press, Russia's economy is likely to shrink about 3.8 percent this year, while the value of the Turkish lira has plummeted throughout 2015.
The Value of Russian Visitors
The restrictions may also be significant for hotel investors and owners in Turkey, where the beach resorts are popular with vacationing Russians. Nearly 4.5 million Russians visited Turkey last year, according to the AP, and the country is second only to Germany in inbound tourism to Turkey. Moscow-based analyst Tom Adshead of Macro Advisory said Russians may be the largest contributors to Turkish tourism as many Germans who travel to Turkey are ethnic Turks visiting relatives. Adshead estimates that an end to travel sales or restrictions on flights to Turkey could cost Turkey “a couple billion dollars or more” per year.
CNN estimates that the sanctions could cut 0.5 percent from Turkey’s annual growth, which has already been stymied. (The Turkish lira has lost nearly 20 percent of its value against the dollar this year.) "To take an extreme example, were no Russian tourists whatsoever to visit Turkey over the whole of 2016, the loss to Turkish tourism revenues might amount to $3 billion, or around 0.4 percent of GDP," William Jackson, senior emerging market economist at Capital Economics, told the news site.
For the first ten months of 2015, the number of Russian travelers visiting Turkey dropped by an estimated 19 percent to 3.54 million, which the Turkish Tourism Ministry blames on "a steep decrease" in Russia’s purchasing power. “We cannot lose the Russian market,” the head of the Turkish Hoteliers Federation, Osman Ayık, told Hürriyet the day after the airplane was shot down. “We have already lost over 800,000 Russian tourists over this year due to economic woes in [Russia], and had to make significant cuts in hotel prices to overcome our losses in addition to other concessions. Despite this, we still cannot close the gap.”
Other industry insiders agreed. "If Russian tourism to Turkey stops, many tourism corporations in Russia may go bankrupt, and many hotels in Antalya could find themselves in a big problem," an Israeli travel agent told YNetNews.
Turkey's Hotel Numbers
And the country’s hospitality numbers are already on a downward slope: According to the Turkish Hotels Association (citing October 2015 data compiled by STR Global), the nation’s overall occupancy rate has continued to drop, falling 6.4 percent in October alone to 60.5 percent. (It was 64.6 percent in October 2014.) STR Global expects more drops as tensions rise between Turkey and Russia.
Istanbul hotels recorded a 6.7-percent drop in occupancy to 64.3 percent in October, which STR blames on the lack of business and conference travel. ADR and RevPAR also declined. Antalya and the surrounding area saw a 4-percent drop in occupancy to 57.7 percent, although ADR rose 14.1 percent to €93.49. RevPAR also increased 9.4 percent to €53.9.
The capital city of Ankara reported 3.8 percent increase in hotel occupancy to 63.6 percent in October, with ADR increasing to €83.3 from €81.6 in October 2014. RevPAR also increased by 5.9 percent to €52.9.
On the whole, Turkey has reported a 0.5 percent increase in occupancy to 63.5 percent during the January – October 2015 period. This is still well below the average for the rest of Europe, however, which recorded 71.6 percent occupancy for the first 10 months of 2015.
The fragile state of the country’s hotels is also reflected in the investment and development pipeline: For the first five months of 2015, hotel investments fell 42 percent year-on-year, according to a report by the Turkish Hoteliers' Association. While investment incentives for 148 projects totaled TL 2.6 billion between January and May of 2014, the figure fell to TL 1.5 billion for 114 projects as of this past summer.
But as of late October, Turkey's hospitality sector was at an all-time high, with 75 new projects (covering 12,968 rooms) in the pipeline. Istanbul currently has more than 800 properties and 50,000 rooms, but Bodrum, Cesme and Izmir are also seeing development.