Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 20th July 2023

It seems that hotel owners are finding tough competition from private accommodation -this is the new bully that is challenging the status quo. This season could feature about 84% tourists preferring rented accommodation. This was not the norm when tourism started quietly in the mid sixties. For many years, a nascent tourist sector was welcomed by politicians as a means to help balance the annual budgets (mostly in deficit) create part-time jobs while bigger hotels invested in training of quality staff (particularly those run under a foreign franchise).

Each year, as the sector grows, it gives a healthy boost to ancillary trade & commerce. It has a good multiplier effect particularly with import agents, transportation, travel agents, agriculture and fisheries. All politicians pay surrenptious respect to the milk cow even though tourism had its ups and downs, being a rather volatile industry.

Having spent millions trying to attract more tourists, the Malta Tourist Agency is compensating low-cost airlines in their drive to develop new markets and niches. This has paid good dividends as arrivals kept increasing and post Covid may reach three million visitors. To help improve beaches and other public amenities, a nominal day tax per tourist is levied on all arrivals.

On a global scale, it comes as no surprise that quoting the World Travel and Tourism Council - tourism directly accounts for nearly three per cent of the world's GDP. McKinsey, a consultancy, reckons that one in five new jobs is generated by tourism. Whereas manufacturing employs relatively fewer people due to increased automation, tourism employs legions (including a high ratio of TCN’s). There are side benefits, since local policies, such as quality health & safety inspections on hotels and restaurants, improve standards and also lure investors to invest in Michelin star hotels.  As the global middle class grows, and annual foreign holidays become routine, the world's most popular destinations expect heavy increases in the number of visitors.

To elaborate on this topic, one notes how the Mediterranean remains a relaxing resort for history, sea and sun lovers.  For Malta, this means overcrowding due to baggage clearance delays, but on a positive side transportation improved with Uber and App hailing cabs - these are mushrooming.  Airbnb facilities are popular. The bigger the low-budget crowds, the less attractive the island becomes for high spenders.  Such overcrowding means more consumption taxes collected yet it also brings hidden social, health and environmental costs.

This yoke is borne by local residents who find pavements, public areas, sandy beaches, residential roads and cycle lanes are clogged. Armchair critics warn us that we should upgrade the sector to attract more rich tourists and stop subsidizing low-cost arrivals which mostly book Airbnb for fun accommodation.

The NSO reported that arrivals for the whole of 2019 reached nearly 2.6 million as restaurants saw an average spend per tourist of a mere €104 prior to Covid (our 18% VAT rate on food and drink is almost double that charged by neighbouring countries eg Zurich charges 7.7% vat in restaurants). The daily spend so far, this year reached approx. €120 per head, while statistics show a drop in the share of nights spent in hotels and a strong rise in those spent in facilities as advertised on Airbnb.  The rise in numbers staying in private accommodation is substantial - in 2018, 614,480 tourists stayed in Airbnb or other similar accommodation types, and this rose to 714,157 in 2019.

In an interview carried in Business Today, Malta Hotels and Restaurants Association chief Tony Zahra warned of this very same trend and said that services such as Airbnb were of concern to the industry. This has been the MHRA's battle cry for tightening the tax regime so that Airbnb arrivals are fully accountable. Tony Zahra, an ex-owner of hotels, strongly protests that private accommodation is unregulated and presents unfair competition. He also spoke about the inconvenience Airbnb units caused to other residents in the apartment block.

Nonetheless, private accommodation is being sought after because it is more competitive and fun. The contribution to tourism by private accommodation goes beyond expectations and the writing is on the wall, rented accommodation nights may soon outnumber the hotel sector.

Is this a bad sign? Operators have said that the advent of low-cost airlines and private accommodation was inevitable, with Ryanair welcoming 2,439,915 passengers to the island in 2017.  All this hits the national airline with extreme competition - it is haemorrhaging cash losses and its chairman surreptitiously announced it will close down by year-end.  Some argue that Airbnb facility is a democratic way how to share the returns from tourism and this means that there is a trickle-down effect to household owners who in their hundreds are actively participating in the profits of such a proverbial milking cow.

It is almost akin to a social service. It helps to pay the mortgage, cool down inflation pressures on landlords, and balance living expenses.  Really and truly, the private accommodation model fits more in the profile of the sun and sea visitor who seek a short, three- to four-day break.  Private accommodation introduces visitors to a more authentic feel of the Maltese Islands and society in general.  Moreover, it argued that house accommodation adds a new dimension to a traveller’s experience rich in local traditions.

Ex-prime minister Muscat was enthusiastic about future prospects of the sector, projecting that soon we should start attracting tourists who spend €5,000 a night in super luxury hotels which government wants oligarchs to build.  The trend of cheaper holidays certainly defeats arguments for promoting six-star hotels (some hotel owners were granted prime sites by the Illuminati in Castille at fire-sale prices to support such extravagance).  But wait a minute - there is a fly in the ointment.

There is growing concern about the unbridled growth of hotel towers and the dire consequences on the quality of life. This silent protest has coincided with extraordinary growth in visitor numbers, traffic congestion in our narrow streets and the consequent deterioration in air quality persisting through the balmy summer months. Increasing the visitor numbers to three million generates much needed cash, yet it also means more carcinogenic fumes, a shameful cacophony in Comino isle with loud music and overcrowding, loaded public buses and aircraft pollution.

Take a dip in our crystal-clear water where thousands of sea urchins previously thrived but now they face their death knell - officially declared extinct.

Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 20th July 2023
Get in touch: info@pkfmalta.com