Hotels' profitability down by half

Things are certainly not looking rosy for the hotel industry with profitability down by half when compared to two years ago, a survey compiled by the Malta Hotels and Restaurants Association has shown.

Advance bookings for the winter are worryingly low and without the necessary marketing support the tourism sector risked facing the most "disastrous winter" in years, the MHRA said.

The emergency in the hotel sector was even more serious than post-September 11 and unless the government gave a helping hand, several hotels were going to be driven out of business, the association added.

The second quarter Deloitte & Touche results, commissioned by the MHRA, show that after a weak start to the year, hotel results for the second quarter improved slightly over last year but remained below levels seen in 1999, 2000 and 2001.

Presenting the results at the Hilton Hotel, Deloitte & Touche advisory partner Nick Captur said the data showed there was still a lot of work to be done before the hotel industry returned to the results achieved two to three years ago.

Hotel occupancy in the second quarter of this year was, on average, just one percentage point higher than the same period last year, although an analysis by category showed that the five-star and four-star sectors were up by two per cent and four per cent respectively while the three-star sector was down seven per cent.

When compared to the same period in 2001, overall occupancy results were seven percentage points lower. By category, the five-star market was four points down, the four-star market was seven points down and the three-star market was 10 points down.

As predicted, in both the four- and five-star categories, average room rates in the second quarter weakened relative to last year and were generally at their lowest level for four years. This was not the case in the three-star category where some hotels targeted higher rates at the expense of occupancy.

The average room rate for the three-, four- and five-star sector are Lm9, Lm15, and Lm36 respectively.

The improvement in occupancy led to growth in four-star revenues but these declined in the rest of the industry.

In the three-star category any improvement in rates was offset by the fall in occupancy, while in the five-star hotels the increase in capacity depressed turnover as there are two additional five-star hotels compared to last year.

While operating profit margins in percentage terms improved slightly, in absolute terms the operating profit per room was still much lower than it was two years ago, as turnover is down.

MHRA president Winston Zahra stressed that one should not make comparisons to 2002, which was not a good year.

Tourist arrivals in the second quarter this year grew by 6.7 per cent with nearly half the increase coming from the UK market alone. The UK market is now three times bigger than the German market, which is the second biggest and remains in decline.

Mr Zahra pointed out that this factor demonstrated that strong ongoing marketing in the UK in the early months of the year have paid off.

He said a telephone survey conducted by the MHRA among its members for the third quarter showed an eight per cent reduction in occupancy.

Urging the government to take immediate action, Mr Zahra said it was pointless trying to give the impression that everything was moving in the right direction. Contrary to the run-up to the EU referendum, the government was ignoring the MHRA. The problem was at Cabinet level and not with Tourism Minister Francis Zammit Dimech, he added.

"The fact is that this year has been a very tough one to date for the industry and advance bookings in the winter months ahead of us are worryingly low," Mr Zahra explained.

Commenting on the figures, Mr Zahra said that when profits fell to such low levels, hotels became unsustainable. This could lead to aggressive cost cutting measures that would ultimately affect the product and service delivered.

He said that with the exception of the late 1980s and early 1990s, next to nothing has been done to improve the tourism sector.

He lambasted Resources and Infrastructure Minister Ninu Zammit for holding an "embarrassing" press conference to announce that 200 government workers would be working to fix rubble walls. "This is a mockery," he said.