Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Thursday 17th November 2015

As Slovenian capital is getting more tourist recognition it needs a luxurious hotel, especially during high season

From construction pit on Bavarski dvor, one of many abandoned construction sights in Ljubljana, is supposed to grow luxurious hotel. Serbian holding Delta and group Intercontinental Hotels have signed management agreement in middle of October. Delta’s investment is supposed to amount more than 40M€, construction works would start sometime this year.

Proposed plans are for 20-floor and over 80 meters high building which will accommodate 165 rooms. This raises lots of questions, especially if this kind of investment in Ljubljana makes any sense at all.

High risks, Ljubljana needs luxury too

Hoteliers are apparently not afraid of the new luxurious competitor. Director of Hotel Slon Gregor Jamnik says Ljubljana gets more and more tourist recognition and therefore needs a luxurious hotel, especially during high season when there’s a lot of enquiries for hotel services. ‘’Demand from wealthy guests in Ljubljana will increase. These tourists are not visiting Ljubljana yet because they can’t find luxurious accommodation.’’ says Jamnik and also reminds us of risks. The market will be the one to show us how profitable will be the five star Intercontinental hotel providing high standard quality services in Ljubljana. In his opinion the price of luxurious accommodation will depend on hotel offer, location, occupancy rate and Ljubljana’s image an its whole touristic offer. A recognized hotel chain such as Intercontinental will put Ljubljana on world map. ‘’Other hoteliers are excited about this as well’’. Says Gregor Jamnik.

Occupancy could be higher

New offer is being welcomed also by director of real estate company Slovenia Invest Jacqueline Stuart, but at the sam time reminds us on low room occupancy in Ljubljana’s hotels. While hotels in London have 83% occupancy rate, in Barcelona 78%, in Prague 71%, are rooms in large Ljubljana hotels on average half occupied, and highest occupancy is only little over 70% on her information. There’s also not a lot of business guests, and domestic businessmen usually return to their home environment the very same day.

This year, Gregor Jamnik expects 76% or 77% occupancy of Hotel Slon, which is being refurbished at the moment. Smaller hotels have similar occupancy, and larger hotels have lower on his information. ‘’Ljubljana’s hotels have successful performance’’ claims Gregor Jamnik. In some balance sheets are certain corrections, but current operations of majority of hotels is very good in his opinion. Some smaller niche hotels with small economy of scale and high operating costs have financial difficulties or are burdened by their investments. These type of hotels will be able to survive only as small family businesses with low operating costs.

Ljubljana has enough hotels

‘’Hotel offer in Ljubljana will become more segmented, market demand will dictate this’’ Gregor Jamnik, director of Hotel Slon says. He reminds us that adapting to specific target group will be necessary. He does not expect significant hotel closing in Ljubljana as number of tourists is increasing y-o-y. As hotel offer, especially four star, is too large, Jacqueline Stuart does not see new investment opportunities, and there’s a possibility that some hotels will close their doors. ‘’Financial logic will not encourage new developments as building costs in Slovenia are too high right now, but some individuals and other investors are very much in favor to these investments’’ says Stuart. For example, some Russian company, which doesn’t deal in hotelier business, has entered the Serbian market, so they bought a hotel in Belgrade and therefore pointed out their arrival.

Waiting for new owners

Company Slovenia Invest expects that owner structure Ljubljana’s and Slovenia’s hotels will change in the future. A lot of owners do not consider hotelier’s business as their main field and will therefore sell their hotels. Another reason are very large debts of some owners, a lot of this assets are already on the bad bank.

Regarding the owner’s presence in Ljubljana Gregor Jamnik does not expect major changes: ‘’Ownership is diffused enough, SCH Holding stands out a little bit but this fact does not represent a disadvantage.’’ Owner’s stories in this group will get interesting in the future.

Booking and Airbnb are taking hotelier’s revenue

How does smaller online accommodation offer, such as Booking and Airbnb influence classic hotels’s businesses?

 Jacqueline Stuart, Slovenia Invest: After seven years in business, Airbnb is worth little more than 23 million euro and therefore represents serious competition to classical hoteliers. Whole field grew alongside with this provider as it encourages to travel also the people who would not travel otherwise. However we have to point out that this is eating away classical hoteliers’s revenue. At this time it seems that most of hoteliers’s did not take any regulations to stand up to devision economy. Fact is that this model will not affect business overnights as much as tourist’s. However the hoteliers are the one who are formatting niche offers. These are special offers for longer stays, certain services and similar. It is clear that this kind of offer should be regulated. In particular safety standards have to be clear and taxes have to be sorted out. On the other hand booking.com and similar online providers charge very high commissions which is harmful to hoteliers’s marketing budgets. Ljubljana’s smaller hotels and private providers make very different revenues with renting out tourist rooms. In most cases this are family businesses and success correlates to management and marketing moves.

Gregor Jamnik, Hotel Slon: ‘’Private rooms and private apartments on portals, as mentioned above, definitely cause a decrease in our achievable room rate. However it is hard to tell how much effect they have on our occupancy as our guest segment doesn’t look for hotel service but for privacy and some kind of home in another city. Airbnb most definitely is unfair competition as the apartment owners don’t charge tourist tax, don’t pay taxes, guests don’t have insurance while staying there, fire safety and other safety regulations are not taken care of. This phenomena amazes me as the legal part of it is completely uncontrolled. I don’t support this kind of competition, and I am asking the government to put suitable controls in place as soon as possible, with the objective of entirely  regulating this field. When in future taxes for such accommodation will be deducted in fair way, this kind of competition will be welcomed.”