Network News

Home News Network News An initiation to champagne and caviar tourism

Who to contact

Have a question?

Network News • 18-11-2021

An initiation to champagne and caviar tourism

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 18th November 2021

The predicament currently facing the tourism sector is a real one and unfortunately there is no crusader to represent them in their quest to improve quality and raise standards. Can we ignore the sector when it is estimated to account for around 5% of the economy in 2019? And this figure increases further to 17% due to induced contributions.

Really and truly, there exists a sclerosis in the system that so far has blinded operators not to take up arms and protest that they are under severe pressure to earn a decent return on capital invested.  In the luxury end of the hotel segment the average occupancy levels in 2019 hovered around 80% yet with lacklustre daily rates ranging from €169 to €76.

Surely, climate change is another factor which will not help us attain the status of a champagne and caviar island. Changing demographics will have a major impact on visitor demand in coming years.

In particular, trends such as the continued growth of the global middle class and ageing populations mean that the global population will generally be richer and older in the decades ahead. Are we catering for this change in Malta?

Additionally, the rise in prominence of emerging generations will further upend current considerations that fuel the tourism market. Moving on, we cannot ignore the climate factors that influence the central Mediterranean. Southern destinations such as Malta are likely to face extreme heatwaves in the summer seasons, and of course this will alert MTA to undertake a serious rethinking of how travel activities are offered and how tourism is managed over the long-term.

Quoting Raphael Aloisio, a Financial Advisory Leader at Deloitte, he said that “the writing was on the wall” for the tourism industry, and that increasing supply of accommodation property was starting to have an impact on profit, with a ten-year growth trend having started to stall in 2019. He highlighted that it was important to stop and reflect after the “tsunami of difficulty” the industry has been through during the Covid era.

An apologetic attitude was taken by MTA CEO Johann Buttigieg who welcomed the positive September 2021 figures. He is quoted to remark that “This is great news for Malta, especially given the circumstances we all have had to live with in the past months, and naturally, it fills us, as an authority, with a strong sense of positivity, coupled with the right amount of energy, to look forward to ending 2021 and starting 2022 with further positive results. He said he believed that MTA’s marketing efforts, together with the €20m-strong tourism recovery plan which laid out together with the Ministry for Tourism, as well as, the excellent way in which the health authorities handled, the pandemic, all played a crucial role in the results.” unquote.

A less sanguine attitude was taken by The Chamber of Commerce which conducted scientific research and posted a number of valid recommendations (supported by the Seed study). The writer has followed with interest a seminal study prepared by Chamber of Commerce on this important sector prepared in tandem with Seed Consultancy.

A number of salient proposals have been reproduced in this article.

The Chamber’s report shows inter alia that a substantial number of 55,597 licensed tourist beds were available in 2019, and that licensed bed stock could go up to 100,000 by 2030 - if all tourist accommodation projects currently in the pipeline materialise.

This is certainly unhealthy, even if as predicted, over 3.2 million visitors do arrive by 203  0. This would result to roughly 36.5 million available bed nights. The Chamber’s report warns that “This will result in an unprofitable hotel occupancy of 61.3 per cent. Adjusting for those who would stay in private non-rented accommodation, currently, 16 per cent of all guest nights, this would result in the excess capacity of available bed nights to increase to 17.7 million.

It stands to reason that increasing unlicensed bed-stock would dilute occupancy even further, which then stands at close to 50 per cent” the report says. Realistically, one cannot underestimate the effect of lockdowns during 2020/21 as tourist expenditure plummeted from €2.2 billion in 2019 to a mere €455 million in 2020.  Again, the sector’s gross value added (GVA) contracted by more than 64%.

The phenomenon of visitors seeking non-collective accommodation cannot be overlooked - given that those choosing hotels spent an average of 6 days in Malta, which is less than the 9-day average spent by those opting for private accommodation (with host families). As can be expected, the share of guest nights spent in private rented accommodation, increased by 8 percentage points, from 30% in 2016 to 38% in 2019.

The Chamber recommends an educational campaign to increase the number of host families; mainly targeting young families and pensioners who could benefit from extra income at their particular stage in life.

Another urgent reform is to lower VAT on all tourist services, including restaurants, to 7%. The anticipated increase in business and extra revenue will improve conditions of work and upgrade the sector to pave the way towards reaching a champagne and caviar status.

Meanwhile, the present scarcity of workers can be explained as most of the new jobs created in the tourism sector between 2010 and September 2020 were taken up by EU and non-EU nationals (increasing by 7200). Concurrently, the number of Maltese employed within the sector fell by around 3,100 employees during this period.

Certainly, one cannot discuss tourism without studying the present connectivity and how it evolved over the years. With the advent of low-cost carriers, which started flying to Malta in 2006, Air Malta and other legacy carriers inevitably started to lose market share. By 2020, only 34% of seat capacity was supplied by the national airline and this resulted in heavy losses albeit there has been a number of attempts to refinance the airline.

Many concur, we that as a national airline, it is too important to fail and follow the sad demise of Alitalia. On the other hand, the hotel industry needs the collective drive of all stakeholders to stop the mad race to build more structures - when logic dictates that it starts pulling down ageing units as these are lowering standards.

Many tourism evangelists have been reassuring us that Malta can succeed to remodel its tourism product, redefine branding and bolden our conviction to quality and authenticity.

Only thus, can we fulfil the dream to join the club of champagne and caviar tourism; omitted we linger in the sun, sand and cheap beer category.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 18th November 2021
Get in touch:

See more Network News items