Drastic cuts in tuition fees by English Language Training (ELT) schools over the past two years could have been a major factor behind the Spanish government’s decision to slash the amount it awarded scholarship students to study English in Malta this year, according the Tourism Authority head.
Josef Formosa Gauci recently voiced his suspicions to language school delegates at the presentation of the Federation of English Language Teaching Organisations Malta (Feltom) 2010 benchmarking survey, warning them it would be difficult to restore prices to previous levels.
Schools have reported a marked drop in Spanish students this year, which they attribute mostly to this cut in scholarship funding by the Spanish government from €1,700 per student to €1,200.
Spanish scholarships studying equivalent courses in the UK and Ireland – Malta’s biggest ELT competitors – still receive €1,700.
Spanish students have been vital to the local ELT industry in recent years – 11,158 visited in 2010, representing 15 per cent of all student arrivals, the third highest after Italy and Germany.
More importantly, Spanish students stayed for an average of 21.1 days, much longer than students from Italy (11.2 days) and Germany (13.8 days).
The survey, carried out by Deloitte, is being hailed by Feltom as a big leap forward for the industry, as it will help schools to compare their performance against the industry as a whole and take corrective action.
Figures show the number of student arrivals plummeted in 2009 following the onset of the global financial crisis, and although arrivals increased in 2010 to 72,695 students, this figure is 15.4 per cent below the 83,288 students who came in 2008.
Despite student numbers increasing 6.5 per cent from 2009 to 2010, total school revenue fell 1.6 per cent from €49.2 million to €48.4 million in the same period, mainly as a result of cuts in tuition fees and accommodation and activities costs.
Total revenue from tuition fees per student week was €130,000 in 2010, down from €137,000 in 2009.
When contacted, Deloitte financial advisory leader Raphael Aloisio reiterated concerns he had also raised at the presentation about price cutting, describing it as “a very dangerous practice”.
“In a small market like Malta, news about reduced prices offered to operators travels very fast and gives rise to compensating price reductions by competitors.
“Experience has shown that price cutting results in all operators reducing their prices without actually gaining the desired market share.
“Once prices have been reduced, operators are very reluctant to accept price increases in subsequent years and operators end up taking a number of years to regain their previous income levels,” he said.
Asked to suggest alternatives to cutting tuition fees which would enable schools to increase revenue and profit back towards 2008 levels, Mr Aloisio said: “The long term strategic approach should be to stimulate demand through effective individual/collective marketing and by ensuring all stakeholders work together to ensure we deliver a consistent value for money product offering.”
The survey shows that schools cut their marketing expenditure from €1.49 million in 2008 to €990,000 in 2009, but then increased expenditure to €1.29 million in 2010 after realising the necessity of effective marketing campaigns to attract students.
Mr Aloisio added that he believed improved value for money service offering is more important than price discounting.
He also noted marked variations in the performances of schools. This was not directly correlated to size – some of the smaller schools managed to register gross operating profits per student week that exceeded those of larger operators.
Deloitte also noted that some of the larger schools were more susceptible to fluctuating income and costs per student week.
In his closing remarks, Mr Formosa Gauci stressed the Tourism Authority’s support for the ELT industry, describing it as a vital niche market (it accounts for 10 per cent of all tourist guest nights in Malta and generates an estimated €80 to €100 million in annual turnover).
He encouraged schools to do more to attract long-stay students in the shoulder months to boost the tourism industry outside of peak season.
However, Mr Formosa Gauci also cautioned schools to be vigilant about rowdy behaviour by their students outside of school – though he acknowledged that there seems to have been fewer complaints about students in 2011 compared with previous years.