New Approach to Tourism

One of the ways to strengthen Azerbaijan's macro economy after the oil price shock of 2014 was to develop the tourism sector and attract more tourists to the region This decision led to the development of a new strategy that included the establishment of better tourism infrastructure and a new and efficient visa regime 8

A set of significant steps have been taken to achieve rapid development of the nonoil sector and build efficient, competitive, and innovation-based growth in the economy

Approved by the Decree of the President of the Republic of Azerbaijan, on December 6, 2016, the strategic roadmap for tourism was published. This roadmap included nearly 350 million AZN investment in implementing priorities such as the Baku promotion campaign, developing Baku's tourism infrastructure, including low-cost accommodations and vital tourist areas, simplifying and expediting visa and border control processes, improving air connectivity to major source markets, revitalizing demand for wellness tourism, supporting the development of winter tourism, creating cultural tourism circuits and investing in tourism industry education programs 8

After these prioritizations and the impact of devaluation, Azerbaijan saw nearly 30% annual growth in the number of guests arriving only in Baku during 2016-2018. Moreover, on average, 20 new hotels or hotel-type enterprises were opened annually during these years in Baku.9 One of the implementations of this roadmap is introducing efficient e-visa and Visa on arrival infrastructure. Released in January 2017, the "Asan Visa" e-visa system was introduced for tourists coming for a short stay in Azerbaijan As of June 2022, this infrastructure provides e-visa for 100 country citizens This implementation has increased the efficiency of the tourist attraction as it eliminates a significant bureaucracy challenge

Moreover, in December 2016, a low-cost airline carrier, Buta Airways, was created, and it started its operation in September 2017 10 Flying from Ganja city and Baku, the airline has direct flights to and from Russia, Turkey, Ukraine, Georgia, Iran, and Bulgaria. This airline significantly impacted the citizens of Azerbaijan who traveled to the destinations mentioned above and tourists who wanted to travel to Azerbaijan. Additionally, there were cooperations with international low-cost airlines such as Wizz Air (2013) and Anadolu Jet (2020) to attract more tourists to Baku 11 https://monitoring.az/assets/upload/files/d53a6f3606f2ec987a4084ee6664380e.pdf https://www.stat.gov.az/source/system_nat_accounts/en/010en.xls

1. ”Strategic Roadmap for the Development of Specialized Tourism Industry in the Republic of Azerbaijan,” December, 2016.

2. State Statistical Committee Of The Republic Of Azerbaijan, ” Number of rooms in hotels and similar establishments by economic regions,” 2020.

3. Buta Airways, "About Buta Airways”, Accessed on: 14 April 2022. https://www.butaairways.az/en/company/about

4. .Wizzair, “WIZZ AIR ENTERS AZERBAIJAN” April 11 2013. https://wizzair.com/en-gb/informationand-services/about-us/news/2013/04/11/wizz-air-enters-azerbaijan-

Azerbaijan Grand Prix and other global events

Baku has been host to major global festivals. Eurovision 2012 was one of the initial, significant global events promoting Baku. Following this event, it hosted famous events such as the first European Games in 2015, the 2017 Islamic Games, the 2019 UEFA Europa League Final, and UEFA 2020 Euro Quarter Finals All these events helped Baku become known worldwide and, thus, helped establish the tourism foundation However, they were one-time events that would have a limited effect on the tourism demand.

On the other hand, since 2017, Baku has been hosting the annual "Azerbaijan Grand Prix" a Formula 1 racing event While being A sport watched by 100 million viewers worldwide, this event helped Azerbaijan brand its name worldwide.

Additionally, Baku hosts annual events such as International Baku Jazz Festival and Uzeyir Hajibeyov International Music Festival, attracting jazz and classical music enthusiasts.

ROI Approximation of Fantasy Boutique hotel

The proposal is that "Fantasy Bathhouse" to be transformed into an active boutique hotel, where visitors may experience a unique accommodation experience in one of the oldest buildings of Baku https://www.stat.gov.az/source/tourism/en/005_3en.xls https://www.stat.gov.az/source/system_nat_accounts/en/010en.xls https://www.stat.gov.az/source/tourism/en/005_9en.xls

Below is the case study on the Return Of Investment of the initial hypothetical investment The initial hypothetical investment is considered to be 1,000,000 AZN for restoration and facility building purposes.

In order to avoid COVID-19 impact, data gathered for this calculation represent the year 2019.

In 2019 there were 1,931,624 overnight stays in Baku city, according to the State Statistical Committee of the Republic of Azerbaijan (SSCRA), and the one-time bed capacity number was 20,740 12 Multiplying the one-time bed capacity by 365 and dividing this number by the overnight stays would give us the daily average capacity of the hotels For 2019 this number has been calculated as 26% On the other hand, the revenue of hotels and hotel-type enterprises was 3.34 billion14 AZN, and the number of rooms of the hotel and hotel-type enterprises was 11329; dividing these numbers would give us the expected revenue per room By a similar approach, the yearly operation cost per room was calculated as well. Expenses of hotels and hotel-type enterprises were 19 4 billion AZN, and dividing this number by the number of rooms would leave us with the yearly operation cost per room.

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Given that Fantasy Boutique hotel's capacity to be 20, multiplying this number by the yearly occupancy rate and yearly room revenue would give us 154,113 AZN, which is the expected revenue of this hotel in the average scenario

On the other hand, considering the location and uniqueness of this hotel, we can prepare a baseline scenario with more relevant expectations. The average prices calculated in this case study are represented in clusters that vary from 1 or 2-star hotels located far from the main attraction points of the city and 5-star luxurious hotels priced around 400 AZN a night (Hilton 400 AZN, Fairmont 420 AZN), which an average traveler cannot afford

However, in the market research report survey provided by Real Estate Capital Investment company, the data suggests that the most significant portion of the visitors (33 3%) are willing to stay at 4-star hotels, which is the target audience for Fantasy Boutique Hotel

Moreover, this boutique hotel would attract visitors for a different experience of the oriental ambiance of the 19th century combined with the wholehearted care and hospitality of a boutique hotel in one of the most touristic destinations of the city Assuming this scenario, we can increase the occupancy rate by 10 percent in order to see how the Return Of Investment (ROI) would vary. Given a 10 percent increase in the occupancy rate expected yearly revenue would be 231,388 AZN

Assuming the restoration and renovation of the building would finish in 2025, the first profitable year will be 2039 in the average scenario On the other hand, in the baseline scenario, the first profitable year would be 2035

The forecasted revenue stream for the next 15 years from 2025 results in the ROI for the average scenario is 3% and in the baseline scenario is 11%.

Source: Own Study using the State Statistical Committee

1. Real Estate Capital Investment. “Market Research on Hotel Investment,” Accessed on: 5 June 2022. https://recapital.az/wp-content/uploads/2020/06/Hospitality-Report_REC-LLC.pdf