Travel federation warns against protectionist policies

The Federation of Associations of Travel and Tourism Agents yesterday said it was in full agreement with the Malta Hotels and Restaurants Association that the current rate of hotel development was unsustainable but warned against the adoption of protectionist policies.

The federation agreed that a number of hotels may be driven out of business due to excess supply.

However, it said the phenomenon of supply exceeding demand was very common in Malta and was certainly not limited to the hotel industry.

The fundamental principles of a free market economy were based on the assumption that demand and supply would eventually find the optimum equilibrium to the mutual benefit of all players.

As would be expected in any free market economy, the current excess of supply of hotel beds over demand was having a negative effect on the rate achieved. This was happening right across the board but was obviously being felt most in the lower categories.

The federation said that while it was true that Maltese hotels generally offered good value for money, there were more than the "odd exception" that did not.

However, instead of justifying their rates with the value they offered, many hotels resorted to price-cutting tactics to poach business from their competitors. In reality, it was this factor that was driving rates down at a time when supply exceeded demand, the federation argued.

This approach, it said, was not limited to the lower categories and very often manifested itself at the pinnacle of the industry, therefore cascading downwards.

It said a time limit should be imposed for the materialisation of projects already approved or in the pipeline. This would reduce the incidence of speculation with hotel permits.

However, a moratorium on new hotel applications across the board would serve to fuel speculation and give an artificial boost to the value of existing properties to the detriment of potential investors.

Limiting development applications to extensions of existing properties would also create an uneven playing field for new genuine potential investors.

The recycling, refurbishing and upgrading of existing hotels should continue to be encouraged.

High yield tourism, an increase in bed nights and repeat tourism were all desirable and achievable objectives. However, the most obvious objective was to achieve more business in the winter and shoulder seasons, and these objectives, the federation argued, were not necessarily reached by limiting supply of beds.

The introduction of a policy to refuse applications for new hotel development could be tantamount to protectionism and against the free market policies harboured by the European Union.

Protectionist policies would raise the risk of complacency in the delivery of quality and might also serve to reduce the competitiveness of product Malta.

The fact that entrepreneurs continued to invest in the supply of bed stock suggested a confidence that the current situation was a transitional one.

Otherwise, the only other inference would be that such investment could be of a speculative nature. Therefore, any intervention should be cautiously aimed at eliminating speculation and not genuine development of the tourism industry, the federation said.