Malta is cheering its best-ever tourism year. So why are the tourism authorities on tenterhooks?

Despite hefty airline fuel surcharges and the odd public transport strike, Malta's tourism sector struck gold in 2008. An increase in seat capacity, especially through low-cost airlines, coupled with better marketing, brought an overall increase of 3.8 per cent from the preceding year.

But the tourism authorities are keeping their feet well grounded in the wake of the international financial crisis and figures released by the National Statistics Office during the past week, which show poor performance in the final quarter of last year.

The UN World Tourism Organisation has warned that worldwide tourism figures will fall this year for the first time since 2003 and Europe will be the worst affected region.

According to veteran economist Karm Farrugia, the dramatic reduction in tourism figures during the final quarter of last year is indicative of a "recession" in the Maltese tourism industry.

Tourist numbers were down by 2.9 per cent in September, 9.3 per cent in October, 10.8 per cent in November and 12.4 per cent in December compared with the corresponding months in 2007.

Tourist expenditure was down 1.6 per cent and per capita expenditure down 5.8 per cent in 2008, although this can be attributed in part to a shift from package holidays to independent travel, which increased to 54 per cent last year from 45 per cent in 2007.

Mr Farrugia is very concerned: "The figures clearly show that if our tourist industry were to be ring-fenced, it could be officially in a recession. Worse so, on monthly considerations, the contraction rate has been in an acceleration mode," he said.

He believes that increasing the total number of tourists is 2009 is "nigh impossible to achieve," but increasing tourists' length of stay is possible if hotels - especially non-five star establishments - offer customers additional nights on top of their initial booking for free or at reduced cost.

"In doing so, total expenditure would possibly increase and this is what matters most to Malta's economy," he said.

Winston Zahra, director of operations, sales and marketing at the Island Hotels Group, is more optimistic about the capacity of the tourism industry to weather the financial storm.

"I believe that if all the stakeholders work hard together, we can contain the damage. In situations like this, small is beautiful and we are lucky to only need around 10 and a half million room nights a year to keep the industry sustainable... As tough as it may be in the current economic climate, I still firmly believe we should aim high and fight hard to make our year on year performance grow," he said.

There was a 5.8 per cent decrease in the number of British tourists visiting Malta last year compared to 2007, although British tourists still constituted 35.2 per cent of all tourists. However, the plummeting value of the pound sterling against the euro, coupled with the severe effects of recession on the public, means that British visitors to Malta are likely to decrease further this year.

The MTA is wary about a dramatic decrease in arrivals from its largest market. An MTA television advertising campaign has been running in the UK since December 26, aiming to demonstrate Malta's historical heritage and suitability as a luxury destination. The MTA's marketing budget has increased by €3.5 million this year, but the marketing budget for the UK will be retained at the 2008 level.

Mr Farrugia agrees with this approach: "The MTA ought not to relax its focus on the UK market, considering that a number of 'specialists' wisely sold sterling forward. But it should not spend any additional advertising funds there - the eurozone area looks to be the future expansion for Malta and perhaps also emerging countries like Russia."

Tourism Parliamentary Secretary Mario de Marco is putting on a brave face and he told reporters last Tuesday that in face of the challenges, the Malta Tourism Authority will be tailoring a number of marketing campaigns and working towards securing more seat capacity.

On a positive note, the numbers of tourists from the eurozone increased considerably in 2008. The amount of tourists from Germany and Italy - the next two biggest markets for the Maltese tourism industry - increased by 16 per cent and 27.1 per cent respectively from 2007. The amount of tourists from France increased by eight per cent and the amount of tourists from Spain increased by a staggering 32.2 per cent.

The MTA has responded to this by increasing its marketing budgets for key eurozone countries by an average of 50 per cent. This year, the MTA will broadcast adverts on primetime national TV in Germany and on Mediaset and Sky Italia in Italy, as well as sponsoring the weather on French TV channel France 2. This will be first time the MTA has broadcast TV advertisements in Germany, Italy and France.

Although the MTA has stepped up its marketing efforts, Mr Zahra believes more must be done.

"We have to increase our marketing exposure - both individual companies as well as the MTA need to increase their marketing budgets. The MTA was given more money in the last budget but things have gone significantly south since then and I believe they need even more money to work with to help maintain last year's figures," he said.

Mr Zahra, a former president of Malta's Hotels and Restaurants' Association, calculates that a drop of 100,000 visitors staying an average of 8.2 nights each would result in a loss of around €50 million to the GDP.

"An added €4 million invested in marketing over the next four months could help avoid this type of loss," he said.

Mr Farrugia thinks that further promotion of Malta as a destination to learn English could boost tourist numbers and revenue, "but only provided there is more control and regulation on the 'players' to ensure that our overall reputation improves, not deteriorates."

The number of tourists aged 24 and under has increased steadily over the past two years, probably indicating the increasing popularity of Malta among students and young people as a destination to learn English. Tourists in this age group constituted 17 per cent of all tourists last year, up from 15.2 per cent in 2007 and 13.5 per cent in 2006.

The MTA can take some comfort in the knowledge that Malta was the best performing eurozone region of the Mediterranean last year in tourism. The only Mediterranean region to perform better than Malta was Turkey, which benefits from the relatively weak value of its currency against the pound and the euro.

Mr Farrugia thinks that Malta can stay ahead of its competitors by appealing to tourists who are attracted by historical heritage but do not want to travel extensively while on holiday. "Malta's 'smallness' should be exploited seriously, emphasising so much heritage to see without wasting time and spending money travelling," he suggested.

The government can help Malta stay ahead of its competitors by granting interest-free three-year loans, repayable over the following five years, to smaller hotels to encourage them to improve their product, Mr Farrugia added.