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New Season on Riga’s Tourism Market

By Janis Vilcins, . 14.05.2010

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After the long winter the flow of incoming tourists will return in adequate numbers,

The active tourism season is just approaching for Latvia and it is my pleasure to congratulate everyone related to the Latvian tourism industry, especially in this season in 2010. After the long winter the flow of incoming tourists will return in adequate numbers, helping all tourism-related businesses to improve their financial performance.
There have been tourists, and there will be tourists. And whether they want it or not, we are all profiting thanks to them. Many companies will regain their ability to improve their products and the chance to hire more staff – at least for the duration of the season – and we will all be able to do what we do best – to provide a quality service to our guests.
The predictions are that the biggest winners this season should be the hoteliers. Eventually, after great efforts, an agreement between industry participants and the government was made to lower VAT  on accommodation services to 10 percent (at the beginning of 2009, VAT for hotel services was raised steeply from 5 to 21 percent).
Hoteliers spent a great effort on verifying the world-recognized practice that hotels have to work with reduced VAT, as well as prove that their service should be considered as an export product.
The question now is different – what will the hotel do with this "extra" 11 percent tax rebate? Will the difference be invested into development, will it cover losses resulting from the reduction of tourist traffic and the VAT increase, or will it be used to simply make extra money?
This will be up to each hotel on its own, but the majority of both local and foreign tour operators certainly expect a room rate reduction. The second question: is it necessary or even possible to reduce the prices? Is it fair that a 4-star hotel room in Riga costs approximately EUR 45 per day, while in other Western European cities, for much poorer products, we have to pay at least twice as much? How can we avoid this?
And is what is currently being offered in hotels in Riga a normal price? If the price is already too low and the hotels are making losses, are new firms willing to invest millions in building new hotels and expanding their business?
The answer is – rather not. New hotels are still being built. Some will join international hotel chains, and this certainly is welcome. But would any of their plans have been implemented if it was already known that VAT would be increased and they would have to deal with a loss?
Consequently, the current low hotel prices are normal and provide hotels with at least a window to survive and take advantage of development, however slow.
At the moment we are waiting with great interest to see what will happen with the hotel prices. Maybe it’s time to remember various marketing techniques that will increase occupancy.
I really hope that many hotels will also begin to think about staff training, since at the moment the chief marketing tool for increasing the workload is the reduction of prices. Unquestionably, the market leaders are creating the price levels and dictating the average price to other hotels in the city. But perhaps other hotels should not follow those paths and finally begin to recognize their own place in a market where price should be guided by their own values.
Some hotels have practiced this well and it has helped them to keep a higher average price in the city, to preserve the workload. Reduced VAT will help them to invest in their development and get back the staff they laid off during the bad times. Also, due to their experience they will put their energies into attracting new customers and possibly return to the guest numbers they have always tried to achieve.
What I suggest is, let’s give the customers everything they expect, but let’s not give it for free, thus paying the difference ourselves. As a tour operator, I can say that local and foreign tour operators highly evaluate, and are willing to cooperate with, hoteliers who know both their partners’ and their clients’ needs, who have developed their own pricing policy, and who are prepared to build over the long-term.
They could earn more in increasing the flow of tourists, not by selling rooms at a price that satisfies no one other than the ordinary consumer who always looks for the cheapest and most advantageous offer. Every service has its own price, and everyone should be able to judge it.


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