Russian resorts need reopening the markets and easing of regulations
Dmitry Bogdanov
Director general of the ‘Znanie’ Health Centre

Russian resorts need reopening the markets and easing of regulations

The Sochi’s health centres are taking in their first guests again. From June 1, the health centres and resorts having medical licenses began to reopen. Out of the total 79 centres, only 20 reopened. Over the first three summer days, about 1,000 vacationers arrived in the city. As noted at the AMOS Association of Hoteliers, many hotels in Sochi will not be able to reopen in the near future due to the high requirements of the Rospotrebnadzor (Russian Agency for Health and Consumer Rights), the observation of which is extremely costly for the hotel business. Dmitry Bogdanov, director general of the ‘Znanie’ (Knowledge) Health Centre speaks on how the health centres and resorts in Sochi emerge from the Covid-19 quarantine. Despite all the difficulties, this Health Centre was one of the first to reopen.

- The ‘Znanie’ Health Centre began to take in its guests on June 1. How many visitors do you have now?

- At the moment, 60 out of 400 rooms are occupied, just 15 percent. This is largely due to a rather ambiguous information on opening the beaches. After the embankments were reopened, people started booking hotel rooms to enjoy the vacations in Sochi. And we understand that the decision to get started even at very low room occupancy was the right one. The people saw that everything was ready to host them and that they could have a good vacation and improve their health.

- What are the main reasons that many people want to come, but do not arrive?

- A number of factors. First of all, the Rospotrebnadzor’s requirement to provide certificates - the Covid-19 clearance. First, this results in unnecessary expenses, and second, in small towns, there are no labs to check blood for this virus. Also, the transportation is a problem. Earlier in June, about 4,000 flights a month arrived in the Sochi airport, now just above 600.

- Did you manage to create comfortable conditions for your guests in the current situation?

- In principle, many restrictions are not critical for guests. We set the tables at the restaurant at a proper distance and we do not offer a buffet service now. All functions that were indoors, such as sports, are outdoors now and the social distancing is observed. We added time to undergo medical procedures, so that to have enough time to sanitize the rooms. Full services are provided, except the swimming pools, but our guests have access to the beach.

- What is the attitude of your guests to these forced measures? Do you have a lot of cancellations?

- Nobody is angry, everyone is very disciplined. In our case, the vast majority of those who had booked their holiday packages earlier postponed them to a later date if they wanted to. As for the market, 50 percent of bookings were shifted. The remaining 50 percent require refunding. And how to return money as the health centres stood unoccupied for several months? At present, even a law on deferring a refund is under discussion, because right now, according to the law, health centres are obliged to return money within 10 days. Otherwise, the accounts can be blocked and it is not possible to cancel or make money. This doesn’t help anyone, neither a tourist who is waiting for his money, nor a health centre that cannot earn money. Therefore, adjustments to the law are necessary. Otherwise, it turns out that in the current situation, the spa businesses are criminals.

- Many health resorts in Sochi decided not to reopen at all because of the stringent Rospotrebnadzor’s requirements. Is this the right way to act?

- Most of the requirements regarding opening health centres are redundant. The main thing is a weekly coronavirus test for all employees of a health resort. For example, 270 people work in our Health Centre and another 70 work in the kitchen and the dining hall. Moreover, the ‘Znanie’ Health Centre is one of the most effective in terms of personnel. Usually, about 700 people work in health centres for 700 guests. Considering that each test for coronavirus costs 1,800 roubles, the Covid-19 testing would cost a health centre on average about 2 mn roubles per month. With a low average room occupancy and the losses of the last two months, it is not clear where we can get this money, to say nothing of the necessary sanitizers, disinfectors, additional cleaning. In preparation for this season, we spent several million roubles just to purchase all this.

- All these measures are taken to help control the spread of the coronavirus ...

- The main thing is to take adequate measures. During the last two months, I have studied the historical experience of epidemics. And the current situation, when in the countries with quarantine and in the countries without it, the number of cases is approximately the same, says that the main thing is human awareness. The main thing is the educational work when people who are unwell or those who constantly communicate with sick persons are more considerate towards the others. And we see that many people even do not wash their hands. Now our state is trying to shift the responsibility onto the businesses that can just die faster from such a burden. Moreover, the country’s legislation spells out “Expenditures for the prevention of an epidemic are an expenditure side of the Russian Federation”. That is, the State is obliged to do what the health centres are doing now. Otherwise, why do we pay taxes? Last year, for example, the ‘Znanie’ Health Centre alone paid 100 mn roubles in taxes. And it received no help from the State in the current situation. Health centres cannot even get payments of 12,300 roubles per employee. Health resorts and centres are not considered to be ‘small businesses’ in terms of the number of employees, while the majority have a turnover of less than 800 mn roubles a year. As for this indicator, it turns out that almost all health resorts and centres are small businesses.

- In your opinion, what actions should the State take to help the health centres and resorts?

- There should be a state-run programme at the federal level because resorts were closed not only in Sochi, but also in Altai, in the Crimea, in the Caucasian Spas area. The experience of other countries can be used. For example, in Switzerland, you can get an interest-free loan for five years provided that you paid taxes the previous year. Great solution. One needs no subsidies.

It is necessary to review the attitude towards the personnel. Now it is very difficult to dismiss employees, it is necessary to warn about these two months in advance and the company has to pay a salary to the employees. The State is trying to provide social security this way, but again - at the expense of the business. Look at the situation in the USA. If a person is dismissed, he or she signs on the labor registry office, receives an unemployment benefit paid by the State and can live on it. At the same time, the production cost at the enterprise is reduced, people work better because they understand that they can be easily fired, and the business is not afraid to hire workers. Even in Turkey, room attendants are laid off when the tourist season is over, they receive payments from the State, but they know that in a few months, they will return to their work. For example, I would like to increase the personnel, provide additional jobs, but I understand that later, it will be difficult to lay them off due to downsizing. Now, I have a human resources department, working tirelessly. For example, earlier, we had 8-9 people at the reception, now 3-4 only. I have to pay their salaries to the rest. I want to transfer an employee, for example, to work in the park, where they are required, but you need to make so many documents that it’s easier to do nothing.

- Is there a need for tax mitigation?

- The share of the resort industry in the state budget is not that important, but the health of the nation really matters. If people in the country are sick, the State spends huge amounts of money on their medical treatment. The resort-cities themselves get practically nothing from the health centres, this is the money of the regions. Let's count. For example, a health centre’s revenue was 100 roubles, it paid the salaries to the employees, taxes, and the rest of the money went to other regions. The health centre bought food in the Kuban, the medical equipment in Moscow, the furniture in Voronezh or Rostov. Nothing is left to the Health Centre itself. Therefore, many countries remove taxes from health centres and hotels. In the UAE, for the past 20 years, resorts have paid no taxes at all, now they pay 5% VAT only. It turns out that the less taxes the resorts pay, the more funds go to the regions.

- The tourism industry has repeatedly appealed for support in the current situation. Are there any results and what needs to be done first?

- Unfortunately, the state system is very slow. In early May only, the AMOS hoteliers association received a response to a letter sent to the government in early April. First of all, in the current situation, it is necessary to open markets and soften the requirements for both customers and the tourism industry.

- Aren’t you afraid of competition? Now people have to buy holiday packages to health centres, and when the market reopens, many will prefer to rent an apartment and stay in the private sector ...

- Sochi is my hometown. How can I be against the people coming here, it doesn’t matter whether they come to the health centres or not. It’s enough to walk along the sea, breathe in the fresh sea air and you get healthier. In addition, as practice shows, a health centre or a resort does not have to sell vouchers or holiday packages. You can make good money providing additional services. For example, we have an outdoor pool. Outside guests visiting it pay 300 roubles a day. And there are many who are eager to enjoy swimming. People are willing to pay reasonable money for a quality service. In past years, we rented nearby hotels to accommodate the guests who come to our Health Centre for treatments. The room occupancy was 114 percent.

- What are your plans and expectations for this summer season?

- If in June, after easing the Rospotrebnadzor’s requirements, our room occupancy increases up to 40 percent, it would be good. If up to 50 percent - we would be very happy. Later on, we expect it to reach 70 percent and higher, since we did not rise the prices. But even with such figures, we will be in the red at the end of the year. As of May 31, we recorded 167 mn roubles losses at our Health Centre. This sum includes the payment of cancellations and postponing the holiday packages, the payment of two-thirds of the salaries taking into account downtime, taxes. It will take the resort industry the next couple of years to recover.