Paving the way

Tomorrow afternoon, the Prime Minister will hold an important meeting with the council of the Malta Hotels and Restaurants Association to discuss various issues relating to tourism. The meeting was requested by the council well before the recent furore on whether or not we need the presence of low-cost airlines in our country.

The Prime Minister will be announcing a number of measures that are meant to facilitate tourism growth. The past two Budgets have already shown that Government is giving tourism its utmost priority. This is one of the most important building blocks for the national economy and it is only correct that tourism is being seen in that perspective. The inter-ministerial committee meetings on tourism, which are chaired by the Prime Minister, are ensuring that there is co-ordination between different ministries whose input has a clear bearing on our tourism product.

Ultimately, to achieve tourism growth, we need to make sure that we are working together and doing so in one direction. There will always be a limit to whatever Government or the Malta Tourism Authority can do on their own. Much depends on what we are capable of offering tourists once they are among us. What is the Malta experience and what does each and every one of us contribute to that experience?

We need to charge fair prices, guaranteeing value for money spent here. We must be courteous, as well as see to offering service with a smile, providing the amenities required, and going out of our way to see to it that our visitors enjoy their stay so much that they would gladly recommend Malta to their family and friends.

No amount of marketing could ever make up for such basics. The best form of success in any service industry is to have repeat clients. A satisfied tourist will probably encourage three more to come over apart from returning himself. A disgruntled one is on average likely to share his laments with around 20 people. In that situation, you end up each year trying to persuade new clients to come over to make up for those who decide, for whatever reason, not to return. That is utter misuse of our energies and resources.

A couple of fundamentals need to be put right before considering what measures Government may need to introduce to go for further growth in tourism. Our country's carrying capacity has been set at 1.5 million visitors per year. At the moment we receive close to 1.2 million. That means that there is scope for growth.

It is also accepted that the carrying capacity has been set on the basis that visitors who come to Malta spend on average nine to ten nights in hotels or other accommodation. That means that if they start spending fewer bed nights - because the new trend to have shorter stays, or the concept of 'city breaks' becomes applicable to Malta - then the total number of visitors we can carry increases.

Put simply, if you have one room to let out, in the space of one week you can either have one guest spend the entire week, or you can have seven guests who spend one night each! The end result of both equations is seven bed nights!

Much as I go along with that argument, I am not at all convinced that we must also equate our present volume of tourists (or any eventual growth) with the level of tourists' expenditure last year, or any year before that. According to this simplistic assertion, you divide total expenditure by number of arrivals to have expenditure per capita, and then calculate on a pro rata basis how much expenditure is supposed to go up, if you increase the number of tourists visiting the country.

This assertion is based on a popular fallacy - that expenditure by tourists and earnings for the country or directly for the hotel industry are equivalent.

Nothing could be further from the truth. Expenditure by tourists includes the price of their airfare and other expenses such as taxes incurred in connection with travel. According to this theory, if our main source markets had to impose an additional Lm10 tax on air tickets, one million tourists coming to Malta would automatically spend an extra Lm10 million and we would then be blissfully triumphant and victorious over such an increase in expenditure by tourists coming to Malta!

Moreover, I am surprised that the assertion keeps being made by persons who are arguing for the introduction of large low-cost carriers to our country. The moment tourists coming to Malta start spending less on their airfares, their expenditure level - individually as well as cumulatively - goes down and Government would be accused of not delivering!

All this explains why total expenditure by tourists last year was down but at the same time expenditure on accommodation went up by over 23 per cent. Whenever I state that, I am told that gross operating profit, however, went down. Profit can go down if either revenues decline or if operating costs go up. In this case revenues did not go down since all categories of hotels last year achieved a higher average room rate, and occupancy levels went up at higher levels than in many countries that are competing with us.

A close look at what has happened in the first two months of this year makes the point even more clear. Total tourism expenditure in January and February was down by Lm164,432, but if one looks at expenditure on non-package accommodation, one realises that tourists spent over Lm900,000 more than they did last year.

If one looks at figures for February on its own, one finds out that on average tourists were spending Lm30 less on their airfares. Is that bad? On the contrary, I think it is positive that tourists are managing to fly to Malta at lower rates than they used to in the past, not least because even national carriers are discounting their fares. Moreover this is the direction in which we must keep moving if we want to see more tourists flying to Malta as opposed to other destinations.

That's fine by me - as long as we don't try to have the cake and eat it. If tourists spend less to travel to Malta, total and average expenditure will go down, but the earnings made by the country as a whole, and by the accommodation sector in particular, will go up.

That leads me to what is clearly required if we want further growth. In summer our hotels are normally full and the last thing we need is to go for a spiral effect through which hoteliers apply to expand their properties in order to cope with increased demand for a few weeks and then complain in winter because there are more unoccupied rooms. I believe that every hotelier should consider expanding only when he is convinced that there is enough business to justify that investment on a yearly rather than seasonal basis.

Last year for two weeks, we had hoteliers shifting some of the 'extra' tourists to resorts in Sicily. In winter the situation is totally different and the worst hit are the owners of three-star properties in Bugibba and Qawra.

What therefore needs to be done is to create incentives that cater for growth in our lean months. In other words, we need to seriously address the seasonality issue. Although there are some excellent tourist resorts in other countries that make loads of money but do so only in summer, since they literally shut down for winter, Malta should not and cannot move in that direction for the very simple reason that our national economy as a whole and our employment depend on tourism to a far higher degree than other countries.

Another way to handle the seasonality issue is to look at under-served markets to see how we can begin to tap into their potential, particularly in the winter months.

The approaches that we will adopt must lead to Malta being more visible in all those markets where we need to shout out louder and in marketing terms more aggressively.

Ultimately, we need to be clever enough to make those choices that are best for our country. It does not befit any one of us to champion the role of players who know very well how to take care of their own interests. If we had to go down that route, we would certainly make short term gains, but in a few years' time (yes, ironically after a general election!) those same players would simply start behaving like Audrey II in The Little Shop of Horrors - regularly crying out for more until they totally engulf us.

It takes a responsible government to make responsible decisions - paving the way for growth in tourism, promoting a healthier mix of sources, tackling in particular the seasonality issue and equally safeguarding those who have helped us build our tourism industry over the past 40 years.

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