USC: How did the pandemic affect river cruise shipping?
I think it will take some time to recover to the level of 2019 – perhaps two or three years. There are several reasons for the declining numbers. First, both last year and this year there were no foreigners coming, and there is no guarantee that they will come next year. There is a feeling that even then the «country» picture will not match the pre-summer situation. If we talk about the figures of «Vodohod» company, the ratio of Russian and foreign travelers was 65 to 35%. Can you imagine what happens if more than a third of the passengers didn’t show up - and in terms of revenue it was about 50% – what kind of figures may the company have as a result?
USC: But because the borders were closed, the flow of Russian tourists was supposed to grow?
It’s true, and this is the only good thing. But then, as you know, the results of any company depend on the balance of supply and demand. Demand, of course, has increased because of geographical limitations for travel of compatriots, there are more of our citizens on cruises, but at the same time the supply of the fleet has also increased. A number of companies such as «Mosturflot», «Doninturflot», which used to work mainly for foreign tourists, have entered the Russian market due to their absence.
As a result, even the increased demand from Russians did ot cover all those offers of cruises which appeared as a result of foreigners absence. Out of 26 units of large passenger capacity fleet which «Vodohod» company has, only 17 are in operation and nine are at standstill in Nizhny Novgorod. This is a clear illustration of the lack of a full, balanced demand.
USC: This year is the first full year of operation of «Mustai Karim». How satisfied «Vodokhod» is with its performance?
I guess I will put it this way: there is no limit to perfection. Passengers should be asked about their experience, as their opinion is what really matters.There will always be some people who will allow themselves a certain share of criticism, but in this case, fortunately, there are not many of them. Of course, the ship is new, and like any new passenger vessel, it has some weakness - both technical and aesthetic, which will be chosen at least until the end of this navigation. But the overall impression is, of course, positive, and to summarize - people who have been on «Mustai Karim» say that now they are unlikely to go to other steamships.
As for the disadvantages of «Mustai Karim «, it is, of course, its price. Half of the cost of the voyage is the cost of leasing. And that’s its difference from other vessels built exactly more than 30 years ago: their prices have no depreciation component or it is minimal.
And purely subjective, if you’re asking my opinion and that of the management - yes, we like it, let’s not lie. A fresh steamship is always better than an old one.
USC: How good are the chances that you will be adding this type of vessel to your fleet in the foreseeable future?
Since we are a major shipping company, it would be strange if we wouldn’t have the goal of expanding the fleet. «Vympel» company is designing a new ship at the moment. There is a detailed technical specification, in which we tried to incorporate all the shortcomings found during construction and operation of «Mustai Karim». Perhaps the main difference (I’m not sure it can be called a defect; I would call it a marketing insight): we have reduced the passenger capacity of the vessel from 300 passengers to 180. So, the steamship is being designed, we are in a state of creative search, we are adding some improvements in order to eventually get a project of a real commercial serial steamship. It is clear that the series will reduce the cost, and we hope that the vessel will become cheaper for the customer.
But the implementation of our plans depends on whether our commercial model will match the price offered by the shipbuilders, in this case, of course, by OSK. I will be honest: so far we see no one but «Krasnoye Sormovo» as the executor of such an order. Our commercial model is based on purchasing power and if we talk about mass passengers today it should not be more than 8.5 thousand rubles per person per day. Based on this model we will look at the offer, which the shipyard will make to us.
USC: «Vodokhod» has an ambitious project - a trip along the Yenisei from Krasnoyarsk to the Putorana plateau. How do you evaluate its success at the moment?
This project complies with our strategy, which among other things is aimed at expanding the geography of our presence. I would not call it ambitious, although yes, we are going far. In this case, our desire coincided with the desire of the governor of the region, because in such regions remote from Moscow, the support of the region’s leadership is important and effective. On the positive side, this was such a quick project (renovation of the ship took 7-8 months). We have invested considerable amount of money (about 600 million rubles), and now «Maksim Gorky» looks almost like a new ship to passengers. Some of the systems and interiors are completely reconstructed, it has a very high level of service, rich excursion program – as a matter of fact, it is a river expedition. If we make an analogy with sea cruises, then this format of travel is the top, perhaps, the highest level in every sense - both in complexity of its performance and in price. Therefore, it is not a mass product and we did not have an expectation that there would be a queue of people lined up. Frankly speaking about the results, we are losing money on this project for the second year. The first year, of course, is not indicative, but we had high hopes for the second year. In general, the promotion of such a product always takes time, so we are optimistic.
On the plus side, I’d say the resonance of the project is high, mostly positive, and it complements the overall positive trend of traveling on Russian rivers. So, the negative financial indicators are in this case our marketing expenses. And not only on the Yenisei, but in general on the promotion of cruises on Russian rivers.
USC: What other regions, maybe specific points would you like to include in your coverage area?
Without a doubt, Baikal. This year we will put there a large comfortable (as compared to those vessels which are already there) hovercraft with 37 seats in business class. And for the future there is a goal of building a medium-sized passenger vessel for multi-day cruises on the great lake. It will take time due to the problems on Baikal, and first of all its enclosed nature, inaccessibility by water from other basins. It is impossible to deliver a vessel made in another region, so you need to rely on the shipbuilding capabilities that are available there, and they leave much to be desired.
We are exploring the possibility of organizing cruises on the Ob River and have advanced significantly enough. If it were not for the pandemic, we would have been there for sure. But today, unfortunately, there are more urgent tasks – it is not about survival, of course, but about minimizing losses, I would say. Last year, despite some support from the government, it was a loss-making year. The plans for this year were originally more positive, but now we have to adjust them not for the better. So, we have to think more about optimization rather than new directions and new investments, unfortunately.
USC: How is the Russian river tourist changing? Is river traveling becoming popular among new groups of consumers?
Changing (decreasing) the age of an average cruise tourist is something we do every day. We see these changes, and especially if you assess the «age» trend on new steamboats or those that have undergone deep renovation, it turns out that many people had no idea what a modern river cruise ship was before. In the minds of the middle age and the older generation customers it’s a sad vessel with small cabins, with no interesting program on board. It is necessary to change this perception, and that is what the management of the company is focused on, trying to achieve it in every possible way. Today we are focused on the improvement of both onboard and on-site programs, we are making thematic cruises and it allows us to increase the age bracket. I looked at the figures today: the average age of our tourists is now 54 years old, with a noticeable trend towards a younger age. About 25% – from 30 to 50 years old, and 50% – in the 50-70 age range. If you compare with the global trend - and all cruise companies have similar objectives – we look better and more interesting in terms of age trends.
USC: What can the government do to help improve the situation in both your activity and in the Russian river passenger shipbuilding?
To answer your question correctly, we need to clarify the planning horizon. If we talk about strategic horizon, of course we need to talk about considerable fleet renewal, as a matter of fact – building of new river cruise fleet.
Here we can’t do without governmental support. Why? I’ve already said that in our work we are guided by the financial model, which is based on purchasing power of travelers, first of all Russians. These two years have shown that no matter how much we want to see more foreigners here, history has its own way. So, when it comes to long-term planning first of all we should keep in mind the purchasing power of Russians, but today it is not the highest, and river cruises are obviously not a priority. If everything will be fine in the country, if strong middle class will grow, they will definitely become our clients - new opportunities will open for us, shipowners and shipbuilders.
At the same time, we live in the climate zone where the navigation period is short: five to five and a half months, and for 10% of vessels it’s six months. Besides we have rather rough navigation conditions similar to marine ones (I mean Ladoga, Onega, Volga reservoirs). All this affects construction and as a result, cost of these vessels construction, and this cost is affects the financial model. Although there is never a «good price» for shipbuilders, and the customer will always accuse the shipbuilder of overpricing. If we want. we can mutually «dig» into each other’s costs and if we disagree on price we need to discuss with the management of OSK the possibility of moving forward with the project in the open book mode: together we’ll find out where we can cut costs, what we can give up. But, as I see it, we can’t do without the support from the government. And I mean not only «Vodokhod» but any company which is going to order a cruise ship.
USC: And what concrete measures can be taken by the government?
One of the measures of state support, which works great, is the compensation of the interest rate. Or in «Mustai Karim» case: money in the capital of the leasing company and the financing rate is equal to the commission rate of the leasing company. The measure is unprecedented, but by being so said, even that is not enough. So, the discussion of the situation with the Ministry of Industry and Trade, the Ministry of Transport, and Rosturism is on the agenda. Let’s open our minds and think what we need to do to start serious cruise vessels building programme. We promise to uncover all the cards. Our calculated profitability is 5%, but in real life – it depends on how it is, it can be different, including substantial negative figures. We are one of the biggest companies, we know what we are doing and we are interested in a dialogue characterized by mutual trust.
The situation really isn’t easy. Although, if you go back to history, I remember how many, many, many years ago we talked about the same things and discussed the same problems when we started building the cargo fleet. You see, today it turns out that nothing is impossible. So, we hope that together, if there is a good will and desire to build a new Russian cruise fleet, we will manage to do it.
USC: Moscow has announced the return of the river transport system - electric river trams, in September a tender for the purchase of the first twenty will be announced. What do you think about this project, isn’t it too revolutionary for Russian cities?
I would not call it revolutionary. We, as a company, are already deeply immersed in the subject of electric tramways, and we will almost certainly take part in the tender announced by Moscow. We are are getting ready for it.
The economic parameters speak in favor of converting intracity transport to electric power. Yes, if we compare it to high-speed ships, like ‘Meteors’, battery power does not provide such speeds yet. However, 20-21 knots are quite achievable, and it’s already a competitive speed for such purposes. As for capital costs, they are three times lower, not to mention lower voyage costs. So the economics allow us not just to think about it, but to move towards electric transport. Of course, there is a long way to go, but this is no longer ground-breaking. Just look in the direction of European cities like Copenhagen and Amsterdam, where the main sightseeing routes run on electric power. As far as I know, in Amsterdam after 2025, non-electric vessels will simply not be allowed in the city limits. In general, electric ships are no different from electric cars, although, of course, there are and will be some technical nuances, but they are definitely solvable in working order. And I am optimistic about the solution of this problem, though for now we are only talking about the inner-city fleet. We’re also working on bigger ships, but it’s still at the stage of financial and technical analysis, where the best option would be a hybrid scheme, simply because installation of charging stations on Russian rivers is unlikely to be fast and widespread. But at the next stage there will be that as well. I’m being optimistic about it.
USC: Do you expect that in the foreseeable future we will have mass production of passenger ships from composite materials?
There is nothing astonishing in using composite materials nowadays as fleet is already being built from them, especially small ships. There is some positive trend in the cargo segment, mainly the application possibilities are limited to hatch covers and trunks but there are plans to expand the possibilities. The issue is more financial than technical. I always bring aviation as an example in this case, where composite wings are already being installed on the planes. The stresses on them are much higher than on water, so the technologies are already well tested. So yes, fully or partially composite ships have a chance.
USC: And finally, a personal question: where did you go on your first river voyage?
My first... on a cruise ship... You know, I’ve never had a good one, frankly speaking, it was always a combination of the pleasant with the useful, that is with work. So, I usually traveled no more than three days. But the first, most likely, was Valaam in the early 2000s - it was very short, two days only, or rather two nights and one day. At that time, it was the North-West Shipping Company, today it is «Vodokhod». But if we are talking about the longest one, it was just recently, I spent three and a half days on «Mustai Karim». I liked it, and it’s not just advertising, I am telling you.
The implementation of our plans depends on whether our commercial model corresponds to the price offered by the shipbuilders
If we talk about the strategic horizon, of course, we need to talk about a significant renovation of the fleet, in fact, the construction of a new river cruise fleet.
At the same time, we live in the climate zone where the navigation period is rather short: five to five and a half months, for 10% of ships it is six months
Viktor Alexandrovich Olersky is the Chairman of the Board of Directors of Vodokhod LLC. From 2009 to 2018 he served as Deputy Minister of Transport of the Russian Federation, and from 2016 to 2018 he also served as the head of Rosmorrechflot.