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Network News • 17-07-2022

Watch the blossoming of a tourism flower

Author: George Mangion - Senior Partner PKF Malta
Published on The Malta independent: 17th July 2022

Brace yourselves; tourist season is in full swing! With summer festas and fireworks every weekend, we welcome waves of tourists.

This officially marks the reopening of the tourist season in the Mediterranean. Malta has one of the longest summers in Europe with almost six months of the year experiencing long balmy days so visiting period is naturally long and usually stretches from mid-May to mid-October - a true blessing for the local hospitality sector.

Over the last decade, Malta has become one of the top holiday destinations in Europe. The number of tourists has doubled in the last decade from 1.83 million in 2008 to over 2.8 million in 2019 (excluding cruise liner visitors). Putting these numbers in relation to the population of Malta, the result will create a striking image: up to 6.5 tourists per resident in 2019, Malta qualifies as one of the most popular and undoubtedly one of the most crowded holiday destinations in the world.

All the more tragic, in 2020, when international travel stopped almost completely between March and May and four-fifths of the countries closed their borders, Malta saw a dismal drop to only 718,000 visitors. This severe cut was harsh for the Maltese hospitality industry after the all-time peak of tourists attracted in 2019.

A precipitous drop in revenue for tourist and associated businesses has been the subject of many debates and holiday resorts dug deep into their pockets to support workers and save businesses from going bankrupt. It can be concluded that the pandemic set the tourism sector back two decades in terms of passenger numbers and prosperity.

Malta's economy, but particularly the hospitality sector, has suffered a lot during the pandemic since all hotels were closed or had low occupancy. A perfect example of how lockdowns have hurt the Maltese economy is that Malta International Airport registered a mere €7m net profit last year, up from a loss of over €4.3m in 2020. Despite the increase in profits, this is still significantly lower than 2019's profit after tax which amounted to €33.9m.

As the Maltese debt to GDP ratio gradually approaches the 60% mark, party apologists wax and wane how the island will once again work its charm and spark a miracle watershed of income from tourism. Many hope that the travel bug will outlast the virus and generate much-needed revenue to the island's state coffers. The trend is for Castille to placate the hotel owners that this season we shall rake in about 70% of the best arrival rates reached in 2019.

Undoubtedly connectivity is key for the success of the 2022 season. Considering the low traffic and spiralling fuel costs one can anticipate the economic pain inflicted at AirMalta as a national airline. As a quick guide, during the pandemic, AirMalta lost about €30m in ticket refunds, while another €100m in direct losses from extra Covid-19 costs.

This was a massive financial burden to an airline flying only three of its 10 leased aircraft during the closed Covid season. In these trying times all airlines are in the same boat but with the difference that AirMalta does not sit on millions in cash as do some of its competitors.  Many argue that if the cost reductions needed cannot be agreed to with airline unions, then it is an unavoidable cure to downsize the airline to whatever size necessary.

Last year, the Economy Minister took the unprecedented step to declare redundant 108 pilots from its staff of 134, after the Airline Pilots Association (ALPA) refused to take a radical pay cut. ALPA demands a level playing field - management salaries must also be cut proportionately to ensure fairness across the board and insist that top management should lead by example. In another stance, ALPA argued that an early retirement scheme would be a high cost reaching an average payout of €700,000 to every pilot.

Pilots then refused to accede to the pay cuts, claiming their salaries had already been cut by 30% due to reduced flying hours trimming performance-based pay. During the peak of the pandemic, pilots' average gross salaries are €140,000 for captains and €80,000 for first officers. In practice, one finds that the real salaries paid are lower as per the collective agreement.

In fact, newly appointed junior first officers are paid €24,000 while first officers start at €34,000 and captains' take-home pay starts at €66,000 and can reach €109,000. These scales exclude performance-based payments for hours spent flying, layover allowances and denied days of duty. Certainly a brain drain is in progress as trained pilots are pushed to migrate to other European or Asian airlines. This year the tourism industry is betting its hopes on "Europe's summer of revenge travel" as many want to get away after two years of lockdowns, curfews and quarantines. But in this context of an epiphany, one must keep in mind that it was a mix of visitors flying low-cost airlines and competitive Airbnb accommodation that made Malta reach its peak in 2019.

It looks crystal clear that the national strategy so far is quantity over quality and it will be cheap tourism that is drawing the teeming crowds of visitors to the sun-kissed island with an attractive calendar of open air youth concerts. Regrettably, during the pandemic season, only cosmetic touches in the quality of the resorts were carried out by the state and hotel owners.

Castille's main policy was to maintain the status quo and supplement wages for all workers on a furlough scheme with no spare cash for serious upgrades. Only marginal upgrades were delivered, mainly flyovers and widening of arterial roads - a no brainer to impress voters prior to a general election. This year it truly looks like a repeat of the cheap tourist's policy welcoming hordes of visitors from the sun, cheap beer and bucket and spade variety.

No lesson was learnt that quality tourists pay more and are less harmful to the ecology, environment and traffic congestion. A controversial law extends opening hours till past midnight for bars and night clubs when music can be blared in seven main streets in the medieval city of Valletta.

Ignored were the protests of dwellers saying this abhorrent rule reduces the city, built for gentlemen, to an Ibiza-style all night revelry. This is a retrograde step. Just consider the shameful overcrowding in Comino with stacks of deck chairs for hire lining very inch of the rocky/sandy beach and the garbage littering the enclave. No effort is made to limit day visitors ferried by big passenger boats.

It remains that what may look like one's nightmare might as well be what many are dreading. One may go as far as to ask has Malta lost its ambition to qualify as a quality resort in the Med. Well, the answer really depends on who you are asking: Castille, the hotel lobby groups, the hoi polloi or academics?

Author: George Mangion - Senior Partner PKF Malta
Published on The Malta Independent: 17th July 2022
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