Not Quite Paradise; Tourism numbers are way down, for good reason.

Byline: Kevin O'Flynn and Anna Nemtsova

You're dropped in by a military helicopter, and off you go, reveling in some of the finest untouched powder skiing in Europe. This isn't France or Switzerland but southern Russia, on the slopes of Krasnaya Polyana, 2,800 meters high in the Caucasus Mountains. President Vladimir Putin is among the aficionados who seek out this "Russian Courchevel." But few foreigners have ever heard of it.

And that's the problem. A year after Putin proclaimed the importance of tourism for the country, Russia's travel industry is sinking. The number of foreign visitors dropped by close to 10 percent this year, to under 3 million--fewer than half the 7 million who came during Soviet times. "That's a laughable figure for a country such as Russia," so rich in culture and physical beauty, says Sergei Shpilko, president of the Russian Tourism Industry Union.

By rights, you'd think tourism in Russia would be thriving. Communism is long gone; Moscow and St. Petersburg, in particular, sparkle with cosmopolitan new wealth. Yet clearly, the bloom is off the rose. Tourism officials cite red tape, poor infrastructure, poor service, security fears--and, most recently, cost. A weeklong visit to Moscow or St. Petersburg has tripled in the past four years to $1,700, many times more expensive than any of their Eastern European neighbors (who are closer to Europe and are often more scenic). "An ordinary middle-class French or German tourist now prefers Poland or Turkey, where prices are three times lower," says Lyudmilla Shirenova, a travel agent at Aerotour in Moscow.

Then there are the hotels. Even finding a place to stay in Moscow and St. Petersburg has gotten tough these days. Business visitors have flocked to the cities in recent years, driving up prices and taking up rooms that might otherwise be discounted for less financially well-padded tourists. Instead of building more to meet demand, Moscow's city government seems intent on committing hotelcide. Thousands of rooms were lost recently as some of the city's biggest hotels fell to the wrecking ball. Among them was the iconic Hotel Moskva, just steps from Red Square; its only legacy is its image on bottles of Stolichnaya. Another behemoth from the Soviet heyday, the Rossiya, is also set to go, along with its inexpensive rooms and next-door views of St. Basil's.

Moscow's real-estate boom is partly to blame. With prices rising so quickly, and demand for new condos and apartments seemingly insatiable, investors ...