Author: George Mangion - Senior Partner PKF Malta
Published on The Malta Independent: 4th September 2022

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

Malta has one of the longest summers in Europe with almost six months of the year experiencing long balmy days so the 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 (including 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, the pandemic caused 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 the State dug deep into its pockets to support workers and save businesses from going bankrupt. €100 vouchers were distributed by Malta Enterprise to ease the pain. 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 in particular the hospitality sector, has suffered a lot during the pandemic since all hotels /restaurants were closed or had low occupancy. A perfect example of how lockdowns 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.

The executive chairman David Curmi is having a tough time convincing the European Commission to allow it to subsidise Air Malta for the next five years. The question is can Castille afford more millions to bail out the airline when debt to GDP ratio gradually approaches the 60% mark? Undoubtedly connectivity is key for the success of the 2022 tourist season. Consider for an aside how with lower traffic and the spiralling fuel costs, one can anticipate more losses inflicted at Air Malta.

As a quick guide, during the pandemic, Air Malta lost about €30m in ticket refunds, while another €100m in direct losses from extra Covid-19 costs. More bad news - previous year's results show a loss for Covid year of €39.7m.

In these trying times all airlines are in the same boat but with the difference that Air Malta does not sit on millions in cash as do some of its competitors. Another issue is Air Malta's oversized workforce; making its commercial department bigger than that of much larger Easyjet. 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, while Castille is prepared to pay astronomical severance pay reaching €50m.

Two years ago, Silvio Schembri, the Minister for the Economy 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. Certainly, a brain drain is in progress as trained pilots are pushed to migrate to other European or Asian airlines. But in this context of an epiphany of arrivals, 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 Isle of MTV youth and state-subsidized Joseph Calleja classical concerts.

Regrettably, during the long pandemic season, only cosmetic touches in the quality of the resort were carried out by the state and hotel owners while tower cranes and construction mania lorded over the landscape. Castille's main policy was to maintain the status quo and supplement wages for selected workers on a furlough scheme with no spare millions for serious upgrades. Only marginal upgrades were delivered, mainly building of flyovers and widening of arterial roads.

No lesson was learnt that quality tourists pay more and are less harmful to the ecology, environment and traffic congestion. To add acid to the wound, the latest unpopular law was passed which extends playing of outside music beyond midnight in the medieval city of Valletta. Ignored were the protests of city dwellers saying this abhorrent rule reduces the city built for gentlemen to an Ibiza-style all night revelry. This is a retrograde step. While criticising the revelry in Valletta, just consider the shameful overcrowding in Comino lagoon with stacks of deck chairs for hire lining very inch of the rocky/sandy beach and mountains of uncollected garbage littering the enclave.

No effort is made to limit day visitors ferried by magnates running loaded passenger boats. One may go as far as ask, has Malta lost its ambition to qualify as a quality resort in the Med blessed with its own airline? Well, the answer really depends on who you are asking: Castille, the hotel lobby group, the hoi polloi or academics?

Author: George Mangion - Senior Partner PKF Malta
Published on The Malta Independent: 4th September 2022
Get in touch: info@pkfmalta.com