The hospitality industry, which encompasses many different businesses and has a broad variety of services, has three key components: lodging (hotels, motels, tourist camps, etc), food and drinks (restaurants, coffee shops, fast food, etc), and travel and tourism (flights, trains, buses, international events, conferences, concerts, etc).
All businesses in the hospitality industry focus on and compete for one thing only – the customers. The success of these businesses depends on how satisfied the customers are with the services and goods they are spending their time and money on.
There have been honest discussions and dialogues about Mongolia’s hospitality industry and where the improvement opportunities are. The latest of such discussions took place at HORECA 2017 (Hotel, Restaurant, and Catering expo) and the 2017 conference for tourism businesses.
Casting a critical eye on Mongolia’s hospitality industry, giving feedback by taking the perspective of a customer, and estimating its economic values are important to the future growth of this industry and its contributions to the development of our country.
Hotel businesses and lost stars
The places that provide overnight accommodation, such as hotels and tourist camps, are an integral part of the hospitality industry. A hotel business must ensure a welcoming service that is satisfactory for the customers. The guests value simplicity and are happy when the services take everything into account. Only the people who have deemed the services satisfactory would share their experiences with others and come back again.
According to the Mongolian Association of Hotels, Mongolia currently has approximately 1,800 hotels (places that offer overnight accommodation), 67 of which have star ratings and 10 are in the countryside. Mongolia has 11 5-star hotels, 4 of which already have their certificates, 9 4-star hotels, five of which have certificates, and 1,768 hotels that have three or less stars, 58 of which have certificates. The Ministry of Environment and Tourism currently reserves the authority on star ratings.
If the Minister of Environment and Tourism had approved the recommendations from the ministry committee on star ratings submitted in August 2016, we would have had two more 5-star hotels (Blue Sky and Tuushin), one more 4-star hotel (Bishrelt), and one more 3-star hotel (Springs). Shangri-La submitted their request for a 5-star rating, but it is still pending at the ministry. The hotels cannot have the star ratings posted until the ministry provides the certificate.
The star ratings give certain expectations for the customers because they indicate the quality of their rooms and services in terms of international standard. If a hotel provides services that are worse than their star ratings suggest, it would not take long for the hotel to go bankrupt. Ulaanbaatar has hotels that are providing worse services than their star ratings, and some that are providing better services. Mongolia needs to improve its procedures on star ratings, properly rank the hotels, follow up with them after certification, and reduce the bureaucracy in the government.
According to the statistics from the Ministry of Environment and Tourism on the first three quarters of a year, Mongolian hotels received 93,000 guests in 2014, 96,000 in 2015, and 92,000 in 2016. The total number of hotel rooms was at 5,300 in 2014, 5,600 in 2015, and 6,000 in 2016. The rooms with 3 or more stars comprised 26 percent of total rooms in 2014, 27 percent in 2015, and 28 percent in 2016. If we look at the number of guests that bought these 3+ star rooms, it was 22 percent of total number of guests in 2014, 25 percent in 2015, and 31 percent in 2016. The gross revenue of the hotels stood at 21 billion MNT in 2014, 20 billion in 2015, and 19 billion in 2016, and more than 50, 48, and 56 percent respectively went to hotels with 3 or more stars. The hotels with 3 or more stars used only 50 percent of their rooms on average, which means they are barely covering their operational costs.
Although Mongolia’s hotel industry has its hard infrastructure, we are still lacking in the soft infrastructure, which includes the quality of services, booking systems, and the skill of staff. We need to improve the soft infrastructure and bring it up to international standards. However, the biggest challenge remains to be attracting the guests from abroad or in-country.
Catering businesses trying to find their way
By the end of last year, more than 10 associations of food and catering businesses came together and established a unified association, which was a good step towards resolving some urgent issues working with the government. According to this association, Mongolia had 1,195 restaurants (877 in Ulaanbaatar), 892 bars (557 in Ulaanbaatar), 625 cafes (387 in Ulaanbaatar), 1,981 diners (816 in Ulaanbaatar), and 64 buffets (10 in Ulaanbaatar) at the end of 2016. These businesses employ a total of 17,400 (9,920 in Ulaanbaatar) people, which proves the strong role of this industry in our economy. The total trade turnover of these businesses reached over 200 billion MNT in 2016.
Even though there is stronger competition in this industry, businesses are not seeing enough innovations or reforms in the goods and services they provide. One key reason is that the policy from the government is unclear, with existing difficulties understanding and interpreting the rules, standards, and legal procedures set by the government. Another weakness is in ensuring food safety. On the other hand, the information flow between the businesses is low, and there are not many professional competitions between these businesses. Furthermore, intellectual property is not always respected or protected.
As companies become more competitive, they will have no choice but to cooperate based on their shared values. When that happens, the much-needed roles of professional judges, advisors, certified technology engineers, chefs, bakers, and service managers will appear.
Tourism business dictated by flights
The Ministry of Environment and Tourism reports that Mongolia received 471,000 guests from abroad in 2016 (compared to 476,000 in 2012), and 404,000 of them were tourists. Approximately 231,000 of the tourists came from Asia and the Pacific (145,000 from China, 40,000 from South Korea, and 20,000 from Japan), 150,000 from Europe (70,000 from Russia), 20,000 from the United States, 1,000 from the Middle East, and 700 from Africa. In 2016, the gross revenue of the tourism industry reached 312 million USD, an 11-percent increase compared to the previous year. This would mean that one tourist spent approximately 772 USD, but the methodology used to calculate these revenues was not disclosed.
Mongolia has a total of over 600 registered tourism companies. In 2016, 254 tourism companies either acquired or extended their certificates. Last year these companies sent 21,000 people abroad and received 53,000 tourists. The Mongolian Tourism Association stated that these tourist businesses permanently employ 1,168 people in total, but the number would reach 3,685 if temporary roles such as drivers, translators, guides, and chefs are taken into account.
Thirteen percent of the total number of tourists used services from these companies, which means majority of the tourists travel here independently.
In the spring of 2015, Mongolia participated in the ITB Berlin tourism convention as an official partner. At the convention, our President and the Minister of Tourism promised to receive one million tourists in Mongolia that year. However, we ended up receiving 385,000 tourists – just like before.
The total number of tourists should have increased by 30 percent (just like Turkey’s experience) after spending 5.4 billion MNT from the public budget, and 2.5 billion MNT from the private sector to participate in this convention. The reason why the number of tourists remained the same was due to the unavailability of flights.
The airfare to Mongolia is the most expensive in the world. Airlines organize flights to Ulaanbaatar only after reaching an agreement with the state-owned MIAT. You pay the Ulaanbaatar-Moscow airfare agreed between MIAT and Aeroflot to fly New York-Moscow-Ulaanbaatar. Similarly, you pay the Ulaanbaatar-Seoul prices agreed between MIAT and Korean Air to fly Vancouver-Seoul-Ulaanbaatar.
Mongolia has become the most expensive country to travel to because they have established a monopoly over the flights coming from Europe and Asia and are refusing to let other airlines in.
Due to the tickets being too expensive, Mongolia’s tourism industry is still not competitive, and planning and marketing are impossible. Mongolia’s tourism industry does not have a unified marketing policy, still has not selected its target market, has not defined our strategy or brand, and has not determined what exhibits we want to showcase. Moreover, there is no budget for advertising abroad. The local flights are insufficient and hard to plan for. For these reasons, Mongolian tourism is not developing. Without opening up our flights, Mongolian hotels will soon go bankrupt. If the number of tourists remains at the current level, Shangri-La alone would be able to meet the need for 5-star hotels. The 60,000 people working in the tourism industry will soon be out of a job.
Another huge obstacle to Mongolia’s tourism industry is the amount of traffic in Ulaanbaatar. It has become extremely difficult to plan for conferences and ensure they start on time in our capital city.
Our tourism industry is capable of being a driving force of Mongolia’s economy. If the government ensures the security of tourists, including food security, sets standards on services provided by hotels and tourist camps, ensures their implementation, liberalizes our flights, and gets rid of the traffic jam in the city, our private sector and market competition would take care of the rest.