Analysing the recovery in tourism

The recent tourism arrival statistics for the first quarter, released by the National Statistics Office, show notable increases over last year's figures and there are also indications that this positive pattern will continue over the coming months, with the possibility of further improvements between the second part of June, right through October.

It is indeed a pity that April's performance was marred with the crisis of the volcanic eruption that caught all of us unawares. Although it only lasted a few days, it caused huge financial losses to the tourism industry and it slowed down the rate of bookings for the immediate term. We also saw a number of cancellations during the days of the crisis, which may not necessarily be regained. This was certainly a blow for the tourism industry not only in terms of having to cope with the losses incurred but also because of the effects of the disruption on the momentum of growth we were experiencing at the time.

The recent re-eruption is certainly worrying, although this time it is on a much smaller scale.

The results achieved for Q1 are indeed encouraging as we saw increases on all fronts when compared to 2009. Tourist arrivals grew by seven per cent while guest nights went up by six per cent. Total tourist expenditure was also up by a notable 18 per cent. These figures confirm that Malta has managed to register a growth rate that is better than the European average and in line with the global growth rate.

These much-awaited and improved results in the tourism sector for the quarter have indeed been welcome and underline that the industry is on the rebound. Nevertheless, we need to analyse the figures carefully. Without playing down the significance of these positive developments, one must not get carried away and underestimate the extent of the ground lost in 2009, which was one of the worst years on record for the tourism industry. If one were to compare arrivals in this year's Q1 with that of 2008, a drop of 12 per cent is immediately evident and the same applies to the number of total nights spent here. Total expenditure also declined from €147.6 million to €136 million, a drop of eight per cent despite the fact that tourist expenditure in Q1 this year was up by 18 per cent over the same period last year!

What is also of particular concern is that, while we are set to continue seeing increases in arrivals, we will also be experiencing a drop in the average length of stay. This is a trend across Europe, though, in our case, this will probably be more prevalent because of a higher propensity of the independent/non package tourist arrivals. This trend is set to rise and will lead to fewer bed nights, particularly in hotels.

Another concern is that hotels remain hugely dependent on tour operator business, where pressure on prices is most intense. As a result, the hotel sector may not necessarily register an increase in the room rates and revenue in line with the average per capita growth in tourist expenditure. This pattern is already evident in the Q1 figures just published by the NSO, where the per capita package (tour operator) expenditure stood at €501, down from that registered in 2008, despite the fact that the overall per capita tourist expenditure rose to a significant €742 from €685 in 2008. The latter increase is however influenced by a shorter average stay.

Although package travel represents 45 per cent of tourist arrivals to Malta, it equates to over 70 per cent of hotel occupied bed nights; definitely not very good news for Maltese hotels! One can easily envisage the impact tour operators have on the hotels' average rates and revenue. The situation can only improve this year if occupancy rates get better as this will help hotels resist tour operators' pressure for further price cutting while room rates to non-package business improve.

The hotels' overall revenue may also be adversely affected as fewer and fewer tourists book on half board basis, opting for bed and breakfast or bed only. This is taking place even with tour operator packages. This will affect the average per capita spent in hotels, which will continue to fall. This trend may however suggest that tourists will be more inclined to eat out and restaurants may well benefit from this change in pattern. What is certain, however, is that the tourism industry and, in particular, the hotels sector will be experiencing significant changes in the booking trends and tourists profile, which will change traditional revenue patterns.

Nevertheless, we must acknowledge that tourism is making a comeback but we have to be cautious because the market is still very volatile while hotels and restaurants are struggling to come to terms with rising operating costs and, particularly, with the recent hefty increases in the utility rates.

As already announced, as a result of the lost ground in 2009, the changing patterns in average length of stay and the increased propensity for tourists to opt for non-hotel accommodation, the MHRA estimates that Malta needs to target a minimum growth in arrivals of 250,000 over that registered in 2009 in order to regain the levels of business registered in 2008 and 2007. This is by no means an easy task but should be a target we must all be aiming for!

The author is president of the Malta Hotels and Restaurants Association.