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Network News • 14-07-2022

Reflections on factors hitting tourism

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 14th July 2022

Thanks to a unique combination of a mild climate, exceptional natural resources including small sandy beaches, a rich history, culture and heritage, and its proximity to major tourist markets, the Maltese islands located in the middle of the Mediterranean Sea hope to join the list of leading tourism destinations in terms of both international and domestic tourism.

The Mediterranean has a long tradition of trade, travel and cultural exchange. Over time, Mediterranean destinations have developed a unique tourism offer, with the traditional sun and sea being complemented by conference business, diving and culture as well as cruise and meetings tourism. Supported by a well-developed infrastructure with excellent connectivity by air and surface transport, Malta offers a rich and diverse set of tourism products, services and experiences.

A high tourist density was recorded in the smaller countries with Andorra, Monaco, Malta, Cyprus, Croatia, San Marino, Montenegro; all reporting over 220 arrivals per 100 of population. Visitor expenditure in destinations on accommodation, food and drink, local transport, entertainment and shopping is an important pillar of the economies of nearly all Mediterranean destinations, creating much-needed employment and opportunities for development.

According to the UNWTO Tourism Towards 2030 long-term outlook, global international tourist arrivals (overnight visitors) are set to continue experiencing sustained growth, and are expected to hit 1.8 billion in 2030. International tourist arrivals in the Mediterranean are expected to increase from 300 million in 2010 to over 500 million in 2030.

Surreptitiously, the Covid pandemic hitting the globe in March 2020, has temporary put a stop on all predictions of growth for the industry. Following two years of lockdowns, curfews and social distancing many Europeans now feel that they have been living in a gilded cage. As soon as easing of travel restrictions was announced, many packed their bags and booked a holiday to their favourite Mediterranean destination.

Such travellers were warmly welcomed in Malta, with the country hoping to catch up to the numbers reached in 2019. Hot on the heels of the revival of the market, was a smart initiative by tourism minister Clayton Bartolo who launched a sustainable future strategy for the tourist market. As can be expected, the strategy is based on three pillars: helping the industry continue to recover from the COVID-19 pandemic, rethinking previous growth models and revitalising the sector by cornering new niches.

Naturally, the quest to attract a more affluent type of visitor is closely linked with the island’s ability to further develop its product. An effective fiscal measure to attract visitors from untapped destinations is the policy by MTA to continue to sponsor landing fees of low-cost airlines. Another drive is to discover new ways how to maintain tourism’s share of the GDP and ensure it remains a stable economic pillar. Figures show how during 2019, the sector yielded a gross return of €2.2 billion.

The new strategy also highlights that imbalances in the accommodation sector must be addressed through more selective development policy. This year, the authorities are hoping that with a lull in Covid infections the best we can achieve is 1.9 million visitors. This is encouraging, as most predict that it takes two years to recapture the numbers achieved in the stellar year of 2019. Sadly, there has been a recent rise in COVID-19 cases and the Omicron variants are set to disrupt the recovery and affect consumer confidence.   

Some countries reintroduced travel bans and restrictions for travellers originating from risky markets. At the same time, the vaccination roll-out remains uneven and because of this, many destinations still have their borders completely closed, mostly in Asia and the Pacific.

A challenging economic environment could put additional pressure on the effective recovery of international tourism, alongside with the surge in oil prices, increase in inflation, potential rise in interest rates, and the continued disruption in supply chains. However, the ongoing tourism recovery in many markets, mostly in Europe coupled with the widespread vaccination rollout and a major coordinated lifting of travel restrictions, could help to restore consumer confidence and accelerate the recovery of international tourism.

What are the economic factors that have a bearing on the spending power of those seeking a vacation outside their country? Obviously, a healthy labour market in most European states helps, together with the high pent-up feeling to travel. After all, money was saved during the two years of pandemic when overseas holidays were given a miss.

Deprived of holidays for years, vacationers are “revenge travelling”, depleting what remains of their pandemic-era stimulus cheques. The relative weakness of the euro currency has made travel cheaper for visitors from Asia and USA. One of the causes for the drop in value for Euro is weakness in confidence level index.

Another chronic problem is the shortage of workers across the entire hospitality sector. One may question - where did all the workers go? In Malta, we were continuously reminded by Malta Enterprise that the generous furlough scheme saved over 100,000 jobs (almost 50% of non-state workers).

The situation is an enigma. Prior to the onset of the pandemic, low-earning jobs were easily filled but with the onset of Covid-19 this forced workers to leave in droves - starting March 2020. Not only hotels and restaurants are grumbling even other sectors in manufacturing, construction, legal and audit are frantically interviewing foreigners.

Another headache this season is cancelled flights at airports.  Reaching your favourite destination is also marred by strikes at most busy airports with delays and non-arrival of luggage. Going on a relaxing holiday has never seemed so stressful.  Staff shortages at airports and airlines have prompted a surge in flight cancellations.  Critics argue that such stress should have been avoided in most European airports stating they should have been prepared. Still aviation bosses have complained for months about the difficulty of hiring staff.

In Malta, Castille boasts of a buoyant economy with low unemployment at 3.6%, which is at its lowest for a decade. Still, as stated earlier, most places have run out of staff. Whatever caution we might have felt to let in more non-eu migrants, this has now been set aside.  Malta is now employing nearly everyone within its borders who is willing and able to work.

Obviously the scarcity of workers is putting pressure on wages to rise. This pressure is also felt in the hospitality sector where hourly rates paid for casual staff is rising not only due to supply and demand but because of the effect of inflation.

These challenges are tough for the tourism minister but one hopes no effort is spared to continue to upgrade resort facilities and plan for better quality visitors.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 14th July 2022
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