Ljubljana’s luxurious Intercontinental will not keep guests from other hotels

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

From a construction pit on Bavarski dvor, one of many abandoned construction sites in Ljubljana, a luxurious hotel is planned. Serbian holding Delta has signed a management agreement with Intercontinental Hotels. Delta’s investment is believed to amount to more than 40M€, and construction works are planned to start sometime this year.

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

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 the high season. ‘’Demand from wealthy guests in Ljubljana will increase. These tourists are not visiting Ljubljana yet because they can’t find luxurious accommodation’’ says Jamnik. He also reminds us of risks. The market will show us how profitable the five star Intercontinental hotel will be, providing high standard quality services in Ljubljana. In his opinion the price of luxurious accommodation will depend on the hotel offer, location, occupancy rate and Ljubljana’s image and its whole touristic offer. A recognized hotel chain such as Intercontinental will put Ljubljana on the world map. ‘’Other hoteliers are excited about this as well’’. Says Gregor Jamnik.

Occupancy could be higher
This new offer is being welcomed also by director of real estate company Slovenia Invest, Jacqueline Stuart – but she expresses concern about the low occupancy in Ljubljana’s hotels. While hotels in London have 83% occupancy rate, in Barcelona 78%, in Prague 71%, most rooms large Ljubljana hotels have occupancy of only around 50%, and highest occupancy is only little over 70% according to publicly available information. There’s a lack of business guests in Ljubljana, as 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, according to his information. ‘’Ljubljana’s hotels have successful performance’’ claims Gregor Jamnik. In some balance sheets there are certain corrections, but current operations of the 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 groups will be necessary. He does not expect significant hotels closing in Ljubljana as the number of tourists is increasing y-o-y. As the hotel offer, especially four-star, is oversupplied, 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 like such investments regardless’’ says Stuart. For example, some Russian company, with no experience in hotels, has entered the Serbian market; they bought a hotel in Belgrade as a way of announcing 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 the hotel business as their main field and will therefore sell their hotels. Another reason are very large debts of some owners, a lot of these assets are already in the custody of the bad bank.

Regarding ownership of hotels 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 a 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 billion euro, and therefore represents serious competition to classical hoteliers. This provider is expanding the entire travel business, as it encourages people to travel who would not otherwise. However this is eating away at classical hoteliers’s revenue to an extent. At this time it seems that most hoteliers have not taken any steps to combat the sharing economy. The fact is that this model will not affect business overnights as much as leisure. 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 Airbnb should be regulated. In particular safety standards have to be clear and taxes have to be paid. On the other hand booking.com and similar online providers charge very high commissions, which is harmful to hoteliers bottom line. Ljubljana’s smaller hotels and private providers results vary enormously. In most cases these are family businesses and success correlates to management and marketing effort.

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.”