Moody’s bleak forecast for Malta’s tourism

While Moody’s is best known as a rating agency that rates sovereign and corporate debt, it also issues reports on specific economic aspects that have an impact on a country’s credit rating. One such report focuses on Malta’s tourism industry. In the latest update Moody’s states that “fewer flights and tourists are credit negative for Malta”.

Government-induced costs should be kept at reasonable levels- John Cassar White

Local tourism operators are used to dealing with challenges that threaten their profitability as this industry has become increasingly sensitive to economic and geo-political developments. The sluggish economic performance of most European states is affecting demand for holiday destinations. Not only are hard-pressed EU citizens cutting on their holiday budget, but most are opting to spend their holidays in their own country rather than travel abroad.

The political and economic problems that have hit some of our competitors like Tunisia and Greece may have diverted some tourists to Malta in the past few months, but this phenomenon in unlikely to last. With European tourists becoming more cost-conscious, most holiday bookings are made online following a thorough cost analysis by those planning to take the plunge and travel for their holidays.

Local operators have adapted well to the changing dynamics of the holiday travel industry. Prices have been kept at a reasonable level and standards have improved, even if a lot more needs to be done to ensure that local tourist services are among the best in the Mediterranean. However, the infrastructure that supports the tourism industry is beyond the control of operators.

It is a sobering reality that while up to some years ago the connectivity of Malta to various European towns and cities from where our tourists came was almost totally dependent on Air Malta’s routes, availability and frequency of connections, as well as seat capacity on these routes, is now determined by various airlines, especially the low-cost ones. So when a major contributor to tourist arrivals announces a retrenchment, the consequences on the industry must not be underestimated.

Moody’s report confirms that Ryanair “operated flights from a total of 28 destinations as of the first half of 2012, carrying just under 790,000 passengers in 2011. The decreased number of flights from Spain will reduce capacity at a time when tourist arrivals could see further drops from countries with struggling economies”.

It is not just Ryanair that is cancelling routes. Even if locally it was given little publicity, Alitalia has “been restructuring its routes and cut three weekly flights from Rome to Malta. Other low-cost airlines like EasyJet were forced to reduce routes during the winter months as a result of high oil prices, cancelling all the airline’s flights from Rome and Milan to Malta”.

While the industry is basking in the peak season when practically all hotels and holiday apartments are full, it is good to come up with plans to counter the fall in seat capacity in the coming winter months and beyond. As the Moody’s report rightly says “low-cost airlines are an important source of passenger traffic to Malta because they generally operate direct flights from smaller cities that would otherwise not be serviced by larger carriers, thereby expanding access and the base of potential tourists.” When routes are cut, it is unlikely that they will be reactivated any time soon. So operators have to once again concentrate on the more permanent traditional routes.

One positive element that can help the local tourism industry is the strength of the pound against the euro. This is putting more purchasing power in the pockets of British tourists, even if the UK economy is in recession with many fearing for their jobs and therefore not inclined to travel for their holidays.

The weakness of the euro is also likely to have downside effects on local operators as it becomes more expensive to pay for our oil bills that are denominated in US dollars. Most airlines are predicting that fares are bound to increase this winter if the euro remains weak even if oil prices continue to hover around the US$100 level.

The government and business leaders need to put their heads together to come up with strategies that will help our tourism operators improve their competitiveness.

Government-induced costs should be kept at reasonable levels especially for services that are provided by monopolistic entities like Enemalta. Standards should also continue to be raised to lure those who are spoilt for choice on where to spend their hard-earned cash.

johncassarwhite@yahoo.com