Part of EyeforTravel’s

Emerging Online Travel Markets Series

TRAVEL DISTRIBUTION

RUSSIA
REPORT
including an over view of the CEE region
Edition 1
 EyeforTravel Research
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EyeforTravel Ltd, February 2008

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 Table of Contents
Travel Distribution Russia & CEE Report Edition 1

Table of Contents

Section 1: Russia 9

Executive Summary & key trends 9

1. Country overview 11

Introduction 11
1.1 Macroeconomic setting 12
1.2 Key demographics 19
1.3 Government policy 26

2. Tourism overview 31

2.1 Traveller segmentation analysis 36

2.2 Airline capacity 41
2.3 The current investment scene in the travel and tourism industry in Russia 42
2.4 Scale of the budget for development 43

3. Travel distribution trends in Russia 45

3.1 The size of the Russian travel market: online vs. offline 45
3.2 Airline sector analysis 46
3.3 Hotel sector analysis 50
3.4 Car rental sector analysis 56
3.5 Package tour sector analysis 56
3.6 Online intermediaries 59
3.7 Traditional intermediaries 63
3.8 Costs and Key Performance Indicators 66
3.9 Technological advances in Russia 66

4. The Russian traveller – search and buying behaviour 65

4.1 Internet users 67

4.2 Mobile phones in use 67
4.3 Technology in the future 67
4.4 Payment solutions 68
4.5 The use of online facilities 68

5. Marketing, PR and Sales 73

Marketing to the Russian traveller 73

6. A ‘how to’ guide for international businesses in the Russian travel industry 75

Useful Contacts in Russia 78

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 List of Figures

Section 2: CEE Overview 79

This section of the report is intended to
provide summary information on the
ten countries in Central and Eastern
Europe who have joined the EU since
2004: Bulgaria, Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Poland,
Romania, Slovakia and Slovenia. Ukraine
has also been included in this resume for
reasons explained below.
In recent years all these countries have
experienced considerable change in
consumer spending patterns during the
transition to free market economies, and
with an overall population of around 148
million, the market is of a similar size to
Russia, although over a much smaller
area.
We present overviews of each of the
countries in the region in terms of
basic macroeconomic information,
and data on Internet access and usage
and e-commerce developments. This is
followed by information and statistics
on travel and tourism activity, both
domestic and outbound, including some
regional information.

Executive Summary 79

1. CEE countries overview 81

1.1 Macroeconomic Overview 81

1.2 Overview of Internet usage in CEE EU members 81

2. Macroeconomic setting, key demographics, Internet use and

e-commerce trends - by country 83

2.1 Bulgaria 83
2.2 Czech Republic 85
2.3 Estonia 87
2.4 Hungary 88
2.5 Latvia 90
2.6 Lithuania 91
2.7 Poland 92
2.8 Romania 95
2.9 Slovakia 96
2.10 Slovenia 97
2.11 Ukraine 99

3. Travel and Tourism overview 101

3.1 Key Trends 101

3.2 Bulgaria 107
3.3 Czech Republic 111
3.4 Estonia 113
3.5 Hungary 115
3.6 Latvia 117

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 Table of Contents
Travel Distribution Russia & CEE Report Edition 1

3.7 Lithuania 120

3.8 Poland 121
3.9 Romania 123
3.10 Slovakia 124
3.11 Slovenia 126
3.12 Ukraine 127

Conclusion 128

Methodology 129

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 List of Figures

List of Figures

Section 1: Russia

Figure 1 Resident population: urban vs. rural, 2002-2007 13

Figure 2 Breakdown of the Russian population by age & gender
(2001; 2005; 2006) 13
Figure 3 Nominal GDP, 2002-2008 14
Figure 4 Gender breakdown of the economically active population of the
Russian Federation, 1992-2006 15
Figure 5 Forecast of the number of employed men and women in the
economy of the Russian Federation, 1995-2016 16
Figure 6 Rouble exchange rate dynamics, 2002-2007 16
Figure 7 Forecast 2007-2012 exchange rate against the dolla 17
Figure 8 Volume of foreign investments in the economy of the Russian
Federation in 2006, by country 17
Figure 9 Volume of foreign investment by types 18
Figure 10 Distribution of population by per capita average income
(percentage of the total) 20
Figure 11 Average monthly nominal accrued wages of employees by kinds of
economic activities, 2002-2006 21
Figure 12 Dynamics in the development of Internet users amongst the
population over 18 years from, 2002-2006 23
Figure 13 Internet access location, 2001-2007 23
Figure 14 Forecasts of increase in debit and credit card usage to 2009 26
Figure 15 Domestic travel volume and value, 2003-2007 32
Figure 16 Number of journeys abroad made by Russian citizens including
purpose of travel, overview, 2002-2007 33
Figure 17 Number of journeys abroad made by Russian citizens including
purpose of travel, details, 2002-2007 33
Figure 18 Outbound value of the Russian tourist market, 2003-2007F 34
Figure 19 Top outbound destinations of Russian citizens, 2006 (number of trips) 34
Figure 20 Outbound destinations, volume and reason of travel of Russian citizens,
2006 35
Figure 21 Number of trips abroad undertaken by Russian citizens for tourism
purposes, 2002-2007 37
Figure 22 Prices for one week tours from Russia to the most popular
destinations, June 2005 39
Figure 23 Airline capacity: domestic and international, 2005-2007 41
Figure 24 Domestic travel market volume and value, 2003-2012F 45
Figure 25 Outbound travel market volume and value, 2003-2012F 45
Figure 26 Russian travel distribution - offline vs. online bookings, 2005-2012F 46
Figure 27 Value and volume of the Russian airline sector, 2002-2012F 47
Figure 28 Russian airline sector – online vs. offline bookings, 2005-2012F 47
Figure 29 Airline sector: Growth in indirect sales, 2002-2012F 48
Figure 30 Airline sector - Direct vs. indirect sales, 2002-2012F 48
Figure 31 Value of the hotel sector, 2002-2012F 52
Figure 32 Airline sector - Online vs. offline sales, 2005-2012F 52

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 Travel Distribution Russia & CEE Report Edition 1

List of Figures
Figure 33 Hotel sector - Growth in direct sales, 2007-2012F 53
Figure 34 Hotel sector - Direct vs. indirect sales, 2005-2012F 53
Figure 35 Value of the Russian car rental market & car rental fleet size,
2006-2008F 56
Figure 36 Value of the domestic package tour sector, 2002-2012F 57
Figure 37 Domestic tour package sector - Online vs. offline sales, 2005-2012F 57
Figure 38 Value of the outbound package tour sector, 2002-2012F 57
Figure 39 Outbound tour package sector - Online vs. offline sales, 2005-2012F 58
Figure 40 Package tours - direct vs. indirect sales, 2002-2012F 58
Figure 41 Breakdown of online visits to Russian OTAs, July 2007 60
Figure 42 Online visits to Russian OTAs by country, August 2007 60
Figure 43 OTA sector leaders in terms of site visitors, July 2007 61
Figure 44 Value of the OTA market in Russia, 2002-2012F 61
Figure 45 Breakdown of OTA sales by sector 62
Figure 46 Breakdown of Yandex and Aport OTA sales by sector, 2007 62
Figure 47 Value of sales by traditional intermediaries, 2005-2012F 63
Figure 48 The 65 key players in the Russian tourist industry, 2006 64
Figure 49 Russian Internet penetration, 2004-2007 68
Figure 50 Regional analysis of Internet users by frequency of use, 69
January – June 2007
Figure 51 Volume of Internet users by city, 2006 69
Figure 52 Internet access location of Russian consumers 70
Figure 53 Influential sources of information for Russian travel consumers, 2005 70
70
Section 2: CEE Overview

Figure 54 Internet Usage in CEE European Union Members

Figure 55 Bulgaria - Internet users by age, 2006 82
Figure 56 Bulgaria - Internet connections, 2006 84
Figure 57 Czech Republic - Internet users by type of activity, 2006 84
Figure 58 Czech Republic - Internet purchases by product, 2005 86
Figure 59 Estonia - Internet penetration, 2000-2007 86
Figure 60 Poland - Breakdown of Internet users by frequency of use for travel 88
purposes, 2006
Figure 61 Poland - Consumers preferred method for obtaining travel 94
information, 2005
Figure 62 Slovakia - Breakdown of Internet users by frequency of use for travel 94
purposes, 2006
Figure 63 Gender differences in Internet use in Ukraine, 2006 97
Figure 64 Air passengers travelling between Estonia, Latvia, Lithuania and the 100
UK, 2000-2004
Figure 65 Value of total travel market, 2002-2010F 101
Figure 66 Forecasted travel market growth rate: CEE vs. other European 102
regions, 2006-2010F
Figure 67 New EU-12 travel market distribution - online vs. offline, 2002-2010F 102
Figure 68 New EU 12 - Size of the total travel market & breakdown by sector,
2006 103
Figure 69 Total travel market split by sector: 12 new EU vs. total Europe, 2006 104
Figure 70 Airline sector - gross market value in Eatern EU, 2002-2010F 104

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 List of Figures

Figure 71 Low cost airlines – gross market value, 2002-2008F 105

Figure 72 Eastern European LCC sector - online vs. offline sales, 2002-2010F 105
Figure 73 Volume of air passengers – geographical split by CEE country,
2002-2005 106
Figure 74 Volume and value of package tour market, 2002-2006 106
Figure 75 Trips of Bulgarian residents abroad by purpose of visit and by
destination, 2002-2007 107
Figure 76 Czech Republic - Numbers of guests at accommodation
establishments, residents vs. non-residents, 2004-2007 111
Figure 77 Domestic and outbound tourism of Czech residents: by type of trip
and average expenditure, 2003-2006 112
Figure 78 Outgoing visitors served by Estonian travel agencies and tour
operators by destination, 2006-2007Q2 114
Figure 79 Hungary - Domestic guest nights by type of accommodation,
2005-2006 115
Figure 80 Hungary - Domestic guest nights by tourist region, 2005-2006 115
Figure 81 Hungary - Top 10 most popular destinations for main leisure trips
abroad (%), 2005 117
Figure 82 Mode of transport used for domestic trips around Latvia, by
purpose of trip (%), Q2 2007 118
Figure 83 Latvia - Percentage of the population taking trips inland and
abroad, by purpose of trip, Q2 2007 118
Figure 84 Volume of Latvian travellers crossing the state border for outbound
travel, 2005-2006 119
Figure 85 Lithuania - Outbound tourist trips by country of destination,
Q1 2007 120
Figure 86 Lithuania - Expenditure of outbound tourists – breakdown by type
of product spend, Q1 2007 121
Figure 87 Poland - Domestic holidays (at least 5 days) by purpose of trip (%),
2003-2006 122
Figure 88 Poland - Outbound tourist trips by country, 2002-2006 122
Figure 89 Average expenditures of Polish tourists travelling abroad pre-trip
and during the trip, 2002-2006 123
Figure 90 Trips made by Polish residents - Forecasts of short breaks, long
trips and outbound tourism, 2001-2013F 123
Figure 91 Slovakia outbound and domestic tourism data: volume of tourists;
average length of stay; volume of tourism establishments, 2005-2006 125
Figure 92 Ukraine - Volume of domestic, inbound and outbound tourists,
2000-2006 127

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 Executive Summary
Travel Distribution Russia & CEE • Section 1 Russia

Section 1: Russia

Executive Summary & Key Trends

This report examines the travel distribution trends in Russia. It aims to fill a gap in travel
industry knowledge, as information on this region in terms of travel distribution is fairly
limited. The report identifies and analyses individual markets in terms of their stages of
development regarding travel distribution and the population’s propensity to travel.

The report is intended for various travel industry sectors such as airlines, hotels, travel
agents, online intermediaries and tourism boards. It provides information necessary to
back up distribution and marketing strategies and ultimately reach the consumer in a
more informed way. It will be of interest to both foreign companies looking to invest in
the market and capitalise on the travel spend of the residents (domestic and international
travel) as well as local companies looking to understand the market in which they
operate.

The report examines the role of the Internet in terms of travel distribution in Russia,
combined with a study into traditional channels of distribution, which at this stage still
play a dominant role in Russia.

The report covers the following key areas:

• Country overview - macroeconomics, demographics, government policy, internet

penetration, broadband penetration, credit card / e-payment card penetration
• Domestic and outbound tourism information and statistics – volume and value
• Outbound tourism trends e.g. destinations, volumes and trends
• Travel distribution trends: total market values, transportation, accommodation,
intermediaries, online and offline / direct vs.. indirect bookings. This includes an in-
depth look at the airline, hotel and package tour market
• Russian consumer travel research and buying habits
• Marketing activity, including how travel companies are successfully marketing to the
Russian consumer
• Going about doing business in the Russian Federation

The report focuses exclusively on the market for domestic and outbound travel and
tourism. It does not count the inbound contribution to the Russian tourist economy, so as
to avoid any global double counting.

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 Executive Summary

Key Trends/Highlights

• All the current predictions for the Russian economy are positive, based on a healthy
macroeconomic environment and expectations of large scale government investments
in the economy. Russia is seeing a steady growth in infrastructure investment and
earnings are rising steadily.

• All the trends in domestic and outbound travel predict significant increases in all
sectors, with airline travel benefitting particularly from the growth.

• Russian government investment into the tourism infrastructure is developing, with the
designation of a number of Special Economic Zones dedicated to tourism. These zones
offer highly favourable tax conditions and are attracting interest from Russian and
international players in the travel market. The programme reflects the commitment to
exploiting the huge potential resources for tourism in the largest country in the world.

• The decision to hold the 2014 Winter Olympics at Sochi has stimulated further
investment pledges from both the government and private sector. Sochi is at the heart
of the Krasnodar region, where around 50% of Russian tourists go every year.

• The hotel market is ripe for expansion and investment; one of the key factors holding
back domestic tourism in Russia is the lack of mid-range hotels in both the major
cities and tourist destinations in the regions. In 2004, the US Department of Commerce
highlighted this sector as particularly favourable for international investors.

• In 2006, the World Travel and Tourism Council presented a report for the Russian
Government and the Federal Tourism Agency forecasting Russia to regain the role of a
leading tourist attraction before 2015. The Russian tourism industry will be developing
twice as fast as in the European Union, according to the Council’s prognosis. According
to Russian travel industry experts, this level of growth will be hard to achieve, but the
forecast is a powerful indicator of Russia’s potential as a tourist destination.

• Russia is currently seeing unprecedented growth in ICT development, particularly

mobile technology. Internet access and broadband facilities are being steadily
expanded, with significant government and private investment. Online bookings in all
sectors of the travel industry are now beginning to take off, with forecasts of growth up
to 15% by 2012.

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