Warning on ill-effects of more hotel beds

A number of hotels could be driven out of business if the hotel applications in the pipeline all come to fruition, a position paper on tourism presented to the prime minister has warned.

Tourism arrivals will have to increase to 1.5 million a year to ensure the sustainability of the increasing bed stock, according to the paper drawn up by the Malta Hotels and Restaurants Association entitled "Key issues facing the tourism industry".

The comprehensive analysis was presented to Dr Fenech Adami during a meeting at his office last week.

There are an estimated 39,000 licensed hotel beds, excluding accommodation provided through flats and apartments, many of which remain unlicensed.

It is estimated that with the hotels already under construction or awaiting development permission, bed stock in 2005 will increase by at least 4,000 beds over 2002 levels.

And if all hotel applications are approved and implemented, Malta will have up to 45,000 licensed hotel beds within four years.

MHRA president Winston Zahra explained that hotels need to attain a 65 per cent occupancy level at reasonable rates in order to remain in business. Therefore, at an average stay of nine nights, one would need a minimum of 1.1 million tourists a year to simply keep the existing registered hotel bed stock viable.

Anything below this threshold would be a serious concern especially if the current trend of depleting rates, due to prevailing negative market conditions, continues.

Currently, Malta lures some 1.2 million tourists annually.

The effect of oversupply is devastating on the rate achieved and has a direct impact on profitability, the position paper notes.

Although the most notable aspect is the dropping levels of performance in the three and four star sectors, contrary to perception five star properties are not immune to this issue.

The current return on investment is far from satisfactory in the industry and further growth of bed stock will exacerbate the problem.

While some hotels were performing well, others, in each of the categories were just about surviving, Mr Zahra said.

With the odd exception, Maltese hotels generally offered good value for money. But the constraints of the market were "loud and clear".

Rates in the three star market have fallen to levels which are an "insult" to the investors, Mr Zahra said.

Some four star hotels are selling for as low as Lm7 a night on a half-board basis for the coming summer season. The average rate for five star hotels has remained entrenched at an average of Lm35 for the past few years.

Rates for the same sector in other European destinations are more than double that, while in some competing Mediterranean destinations, rates are similar but the cost base is much lower.

The ultimate solution would be to allow development and investment within the infrastructural and economic constraints, while increasing the number of visitors more than proportionately.

Mr Zahra explained that Malta would need "at least" 1.5 million tourists staying an average of nine nights each to sustain the increasing development.

"We need to add 300,000 visitors to our numbers to improve the viability of the bed stock that exists today, and thereafter for every 1,000 new beds we need to add at least 30,000 new visitors."

Can the infrastructure take it?

"Yes, provided the marketing is right and tourists are spread over the leaner months," Mr Zahra reasoned.

He said Malta could develop niche markets such as the conference and incentive travel, diving or golf.

Until the recent downward trend recovers and there is sufficient growth for the next round of increases, further growth should be curtailed, the paper advises.

MHRA called for an immediate policy through which no permits are issued for new hotels on virgin land.

The exception would be to allow existing properties to extend their bed stock if they can show that such an increase improves their current viability through an effective marketing strategy.

Permits for the rebuilding or refurbishment of current properties should be encouraged thereby improving the product while retaining the number of beds as it is.

It was proposed that the approved or pipeline applications currently sitting with the Malta Tourism Authority or with Malta Environment and Planning Authority be given a deadline within which to start works and open their approved product, failure of which would lead to the permit being revoked.

A further potential problem could be the service offered. Mr Zahra said it was an established fact that finding employees, especially in the lower grade service areas, was proving to be a headache for many operators.

As bed stock continued to increase, this problem would become more apparent. Such shortages could lead to lower rates and falling standards as employers engaged people without the necessary skills.