Malta needs a contingency plan for tourism in case Europe is hard hit by a recession in 2012, George Micallef, president of the Malta Hotels and Restaurants Association tells The Times Business in an interview.
We certainly do not want to downplay the government’s achievements in tourism. We need to be careful, however, and focus well on the eurozone crisis and Air Malta
“We need a plan that spells out where we would like to be. How many tourists are we aiming for? Where are they coming from? When one considers that 100,000 less tourists in 2009 had an adverse effect on the economy, this can happen again next year, depending on how Europe’s economy fares. The consequences would in fact be worse as since then costs have increased tremendously. We are in October, January is around the corner and we need to know what we are aiming for,” he says.
Mr Micallef points out that tourist arrivals from 2002 to 2010 are the increase, but the average length of stay is declining and the average per capita spent by tourists in Malta remains lower than competing EU member states.
“The decline in the average length of stay is due to a large part to the introduction of low cost airlines, particularly over the last five years. This is an international trend and there is nothing we can do about it except try to increase the arrival figures.
“The low average spend per capita is probably due to two reasons. There could be low spenders in the market who influence the average, for example students, but also, and this is probably more of a factor, we don’t have enough products and opportunities for people to spend more money. We need to offer tourists more and we hope the forthcoming Budget will look into this issue.”
He says the MHRA wants more funds for the Malta Tourism Authority particularly to support the introduction of new routes.
“If the current amount spent by the MTA has managed to generate 1.3 million arrivals, including those travelling on Air Malta, the implication is that if you want more arrivals this would probably entail extra funding. There isn’t a simple equation and before you have a strategy in place it is very difficult to say how much funds are needed. However, we need to increase seat capacity and that means new routes which would imply additional funding.”
Mr Micallef says new air routes don’t only have to be introduced by low cost airlines but also by other legacy airlines, and says he knows that the MTA is having discussions with some of these airlines.
“It could also mean existing airlines extending or increasing frequency to a particular destination. The solution is not always the introduction of low cost carriers,” he points out.
He stresses that the MHRA would like the government not to burden the tourism sector with any more additional taxes or expenses in this Budget, and says he is worried about Malta’s competitiveness.
“We have to make a distinction on those expenses which the government has control over and those over which it doesn’t. Even if the government says that there will be no tax increases on tourism we will still have to put up with other increases such as COLA.
“Also, for example, the cost of food over the past 12 months has increased by an average of 6.3 per cent, and this is a major raw material for us. The government has very little say over such matters, but there are a number of government induced costs which we have experienced over the years such as VAT and compliance costs. We would like the government to renew its efforts at curbing inflation and not to introduce any new fees or taxes because there is no way we can pass on these increases to our customers.”
Mr Micallef says the expected COLA increase of €4.66 per week in the Budget has been formulated according to an established mechanism “so we can hardly argue about that”. However, he says, the COLA formula, which has contributed to industrial stability over the years “definitely needs to be revised”.
“The €4.66 increase will be very difficult to absorb in certain areas of the economy. We certainly cannot pass on the cost to consumers so we will have to absorb it. We are discussing with the social partners ways to change the COLA mechanism and one area where there seems to be an agreement is that there must be an element of productivity included.
“One might have to measure the effect of COLA on the country’s different economic sectors. There may be scope to consider a different COLA rate for certain economic sectors which are doing particularly badly, for whatever reasons, because the alternative to this is layoffs. Of course it is not easy to find a formula which is perfect for everyone, but we have had a healthy discussion among the social partners which augurs well. Also, COLA should really be applied to low income employees.”
Mr Micallef says the MHRA would like to discuss with the government ways of helping the hotel industry in the winter months so that certain hotels need not close during this period.
“We do not favour the closure of hotels as this make no sense at all. The problem of seasonality has always been there and will remain there for a number of years, even though perhaps the situation has improved a bit. One way of helping would be to increase arrival numbers which is what happened this year – we registered a 21 per cent increase in arrivals in the winter months, mainly because of the Ryanair base and the extra Easyjet flights. So that would help reduce our losses as winter is a loss making period for hotels.
“Some countries have introduced special energy rates in winter for hotels that operate in this period. Other ways could be helping with national insurance contributions instead of laying off employees. Cash flow relief will also be helpful during this period. What we are saying is: Let’s put our heads together to ensure that no more hotels close in the winter months because these create problems both for the industry and for the locality where they are based.”
He says the government has done a lot to upgrade the country’s infrastructure and the tourism industry appreciates this, however the MHRA is still a bit concerned about the basics such as cleanliness and the management of tourism zones where more needs to be done there.
“We require high standards and there seems to be no aesthetic control in the country. Let’s prioritise the tourism zones – we need proper management structures to oversee the upkeep of these areas. Bugibba in winter, for example, is in pitch darkness.”
Mr Micallef highlights the importance of being able to measure the contribution of Malta’s different economic sectors and points out that nobody really knows how much tourism as a sector contributes to the country’s GDP.
“The MHRA is calling for a Tourism Satellite Account, a model which has been adopted by about 17 countries in Europe which measures the impact of tourism on the economy. When a sector like tourism contributes so significantly to the economy, you need to have a clear picture of the situation. Tourism is more than just hotels and restaurants,” he stresses.
Asked what the government was telling the MHRA about the restructuring of Air Malta, he simply replies: “Nothing”.
“All the stakeholders are in the dark about Air Malta including the MTA. There must be good reasons for this silence, but we don’t know what these reasons are. We are confident that a solution will be found and believe Air Malta is there to stay because if it doesn’t we will all go down the drain with it. What is needed, while the restructuring talks are going on, is the strengthening of the commercial decision-making process of Air Malta.”
Regarding last Budget’s surprise increase in the VAT rate on hotel accommodation from five to seven per cent he says the vast majority of businesses had to absorb this increase.
“Although the rates improved this year we did not manage to reach the rates of 2008, up to the second quarter. So the impact is there.
“Of course we were given £1.5 million in rebates for signed contracts at five per cent, but the two per cent increase amounted to about €6 million which was being paid by about 100 hotels.”
So the MHRA is not expecting any more surprises in next month’s Budget?
“Certainly not! We acknowledge that it’s been at tough year and we did relatively well, but the fact is that profits have been declining, and the same applies to restaurants. We certainly do not want to downplay the government’s achievements in tourism. We need to be careful, however, and focus well on the eurozone crisis and Air Malta,” he says.