Latest Market Insight

28 October 2020

Economic Update

According to the Russian Committee for Statistics, there has been a broad slowdown in the Russian economy during September, just as the numbers of new infections started to increase again. The new data show Russia started the second wave with its economy significantly weakened and households facing increasing financial stress.

The decline in Russia's GDP in the third quarter slowed to 3.8% after falling by 8% in the second quarter, according to the report prepared by the Ministry of Economic Development.

Russian real disposable income fell by 4.8% in the third quarter after a record drop of 8.4% in the second quarter. The third quarter drop amounted to 455 USD per person. From January-September 2020, real disposable income fell by 4.3%. A 3% decrease forecasted for the whole year may now need to be revised.

The Russian Rouble fell to its lowest level over the last four years in late September but started to strengthen in October, gaining 1.6% of its value to USD and 0.71% to Euro, in weekly average terms.  On October 27th, the Russian currency was worth 76.44 Rub against the USD and 90.45 Rub against the Euro, a growth of 2.6% and 1.5% based on the September average. Despite measures taken by the Central Bank to support the currency, the ruble is down by 25% against the U.S. dollar since the start of the year and has lost more than 31% of its value against the euro. Lower oil prices as a result of the pandemic combined with geopolitical risks have weighed on the currency value, resulting in spells of sharp volatility this year.

Other economic indicators are also disappointing. Both consumer spending and industrial production came in below expectations in September, down by almost 3% and 5% respectively against last year’s levels. According to a study by SberIndex, Russian consumers gradually started "hibernating", as was the case during the spring quarantine due to the recent spread of COVID-19. According to analysts, Russians' consumer spending dropped significantly again, by 2.8% compared to last year (from October 12 to 18). Russians started to spend more on food and medicine and less on services, as was the case in April-May. For the first time since summer, the drop in service sector spend exceeded 20% year on year.

The demand for airline tickets fell by 54.1%, while the demand for hotels fell by 66.4%. Cafes and restaurant services fell by 27% and beauty salons services by 26%. Russians eat out less and order more food online. Restaurants and cafes customers fell by 22% only in Moscow compared to the last week of September. The average bill fell by 3% which contributed to a drop in turnover of almost a quarter.

COVID-19 update

The number of new daily cases reported in Russia has doubled since the end of September from an average of 7,720 to 16,550 by October 27th. 30% of new cases have been registered in Moscow and Moscow region and 4% in St. Petersburg.  The total number of active cases is 362 245, of which 34% are in Moscow and 5% in St. Petersburg. In response to the spike, the Moscow authorities require companies to have at least 30% of their employees working from home as well as those who are over-65s are required to stay at home and there is partially closure of the city’s schools.

Strict control have been introduced for the passengers returning from abroad with fines equivalent to 150-450 euro if the rules are not followed and a fine of up to 3500 euro for failure to provide Covid-test results within 3 days of arrival.  In August, over 2% of Muscovites returned from international travel, 995 people received fines and 73 were sentenced to a total of over 1M roubles fine (12 000 euro).

The Russian Agency for Health and Consumer Rights officially recommends that all Russians wear masks in public places, in transport, elevators and parking lots. There are also new restrictions on closure times of cafes and restaurants and entertainment events which are now to be closed from 23:00 till 6:00.

Russia opens flights to Serbia, Cuba, and Japan

Russia will restart regular flights to Serbia, Cuba and Japan. Flights will be operated twice a week from Moscow to Belgrade, Cayo Coco and Santa Clara (Cuba). From November 1st, flights to Japan will restart with flights from Moscow to Tokyo (twice a week) and from Vladivostok to Tokyo (once a week). However, the flights to Japan are not open for leisure tourists, only for people with residential permit or business travellers.  A negative Covid-19 test is required within 72-hours prior to arrival and 14-days quarantine.

Russia increases the number of flights to the UAE, the Maldives, Switzerland, and Belarus

Russia increased the number of flights to the UAE, the Maldives, Switzerland, and Belarus. Regular flights to the UAE will be expanded on a reciprocal basis, with twice weekly flights from Moscow to Abu Dhabi. While flights to the Maldives will now operate four times a week.

According to tour operators, the demand for travel to the UAE is stable this season. According to TEZ Tour most bookings are for 5* and 5* Deluxe hotels. However, the cost of air travel has increased significantly, while hotels provide attractive discounts on accommodation.

The demand for business trips increased, but still twice as low as last year

In the third quarter, business travellers began to travel more actively in Russia. The demand for accommodation in Russian hotels increased by 290% compared to the second quarter of this year. However, the recovery of business events and business trips is proceeding slowly, the number of nights is only half of last year's volume, and in foreign hotels only 5%. Russian business travellers mainly stay at 3* hotels. Demand for 3 * accommodation suffered the least, but it decreased by 50% compared to the same period last year. According to Aeroclub, the share of foreign bookings among business travellers was only 1% of the total number of nights, which is 13% less than the previous year.

Aeroflot Group keeps passenger traffic at the pre-crisis level for the second month in a row

Aeroflot Group announced its operating results for September 2020. All airlines in the holding (Aeroflot, Pobeda, Russia Airlines and Aurora Airlines) carried 3.4 million passengers with an average seat occupancy rate of 83.5%. At the same time, 3.063 million passengers were served on domestic routes, which is comparable to September 2019 (3.106 million).

One of the key drivers of the Group's recovery was the low-cost carrier Pobeda, which in September almost reached the same number of seats as Aeroflot. There were 1.1 million passengers on Aeroflot and 1 million on Pobeda. Pobeda Airlines was one of the few companies in the world, which has a 12% increase in traffic in the third quarter of 2020. In September, Pobeda Airlines showed a total increase in the number of passengers of almost 18%, with an increase in its domestic traffic by 41.4%.

Air Astana launches charter flights to the Maldives and Egypt

The national air carrier of Kazakhstan Air Astana will continue to operate international flights but with some changes to the winter schedule. From October 21, 2020, the airline will reduce flight capacity to Turkey, the United Arab Emirates, Ukraine and Germany. The weekly frequency of flights to Istanbul will decrease from 16 to 12 flights, to Dubai from 12 to 8 flights, to Kiev from 3 to 1 flight, to Frankfurt from 6 to 4 flights. However, the airline intends to operate charter flights to Sharm El Sheikh and the Maldives.

A third of Russian tourists plan a New Year vacation

33% of Russian travellers plan to go on vacation during the New Year holidays, while 48% do not intend to travel and another 19% has not made a final decision, according to a survey conducted by the booking platform Biletix in October with the participation of 1,132 people.

Due to the covid situation, 56% of tourists have already changed their travel plans: 33% decided to not to travel, and 22% decided to change the travel format. However, 21% noted that they would not change their travel plans.

37% of respondents plan to celebrate New Year's holidays at home, 11% - at the dacha and 11% - plan to travel within Russia. 12% will travel abroad and 4% plan to spend the whole winter outside of their main residence.

Of those still planning a vacation around the New Year holidays, only 4% have already booked tickets and hotels in advance, and 4% are going to do this by the end of October.

The most popular outbound destinations for the New Year 2021 are Antalya, Minsk and Istanbul. Overseas flights account for only 8% of bookings. This figure is usually much higher, as Russians plan more expensive trips abroad in advance, due to their relatively higher cost.

Booking.com found out how travel patterns will change

According to Booking.com the main trends in tourism development in the coming year are the following: firstly, travel demand will recover quickly. During the period of isolation, 76% of Russians said that they were positive about the idea of ​​new trips, and 40% noted that they began to highly value the opportunity to travel and would not take it for granted in the future.

Striving to save money. 61% of Russian respondents will pay more attention to prices when planning a future trip and 64% are going to search for special offers and promotions.

Interest in domestic travel will remain. Over the next 7-12 months, 34% of respondents plan to travel inside Russia, and in the longer term (from one year onward) - 28%. At the same time, 45% of respondents want to visit a new destination in their country or region, and 46% want to see local natural attractions.

Safety is key. 77% of travelers from Russia will take more precautions and rely on help from the tourism industry to adapt to the new reality. 51% will avoid traveling to certain destinations if it is unsafe and 60% expect that tourist visits will be regulated in order to comply with social distancing measures. At the same time, 71% of respondents will only book accommodation if they are provided with detailed information on health and safety measures.

Private cars will become more popular. 42% of Russian travelers will try to avoid public transport in order to minimize the risk of infection.

Travel and ecology. More than half (60%) of the Russians surveyed want to spend their holidays without impacting the environment. 71% of respondents expect the tourism industry to start offering travel options that are less harmful to the environment.

Travel and work. Almost half of the respondents (43%) from Russia have already considered booking accommodation for remote work, while 36% are ready for quarantine upon arrival at their destination, provided they can work remotely.

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