The drastic increase in hotels and restaurants on the island was posing a risk to the sectors’ profitability, the author of a nationwide study warned on Friday.
Conducted by ‘big four’ accounting firm Deloitte, the study found that while tourist arrival trends were still positive, the increases were less pronounced than in previous years and the sector was now facing “a number of challenges”.
“Results aren't what we got used to. We had a number of years when the graphs kept going up,” Raphael Aloisio, from Deloitte, said.
Why was the sector facing a tougher reality today? While the study gives a variety of reasons, Mr Aloisio gave a blunt explanation of his own: if supply (of hotels and restaurants) continued to increase at a faster rate than the demand for rooms and tables, then the results would keep going down.
The number of permits for hotels being issued had shot up from 15 in 2012 to 119 in 2017, he said, describing this as “alarming”.
His warning prompted grunts from the hoteliers and restauranteurs gathered for the presentation and was quickly followed by a slight change of tone on Mr Aloisio’s part for industry players not to take any drastic decisions in reaction to these findings.
Tourism Minister Konrad Mizzi took the opportunity to announced that an agreement with alternative accommodation giant Booking.com had just been reached which would ensure that private accommodation providers in Malta would have to register with the Malta Tourism Authority before putting their property on the international website.
The authorities, Dr Mizzi said, were also holding talks with Trip Advisor, he said.
Dr Mizzi said new forms of accommodation were a reality that the country could not ignore. In this spirit, the government was developing a 2025 strategy document to help identify ways to help the sector.
MHRA president Tony Zahra said that “for every up there is a down”.
The island was not going to get any bigger, and perhaps it was time to start directing investors to consider alternative ways of making money than building new hotels.
He urged future planning to ensure there were more ups than downs going forward, and said that while land reclamation could double the island's landmass, the sector had to keep its feet on the ground.
What did the Deloitte study find? Mr Aloisio said tourist spending across the board had gone up in the first quarter this year, but only “marginally”, by 0.3%.
During the first quarter this year, the number of tourists staying in hotels remained at par with the previous year, although the number of guest nights spent in hotels had dropped by 5.5% - with more tourists opting for accommodation alternatives.
This shift in accommodation patterns was having a negative effect on the hotel industry, the survey found, with bottom-line profitability now at stake.
Both four-star and five-star hotels in Malta were reporting dips in gross operating profits.
Tourists opting for non-traditional accommodation stayed in Malta on average for 9.31 days, up 8.% and almost four days longer than those staying in hotels.
The dip in tourists opting for hotels naturally impacted occupancy rates, with the average occupancy dropping from 56.9% to 53.6%.
Average room rates were also down, by around 1%, resulting in an overall drop in revenue per room of some 6.3%.
On average, hotels registered a significant drop in gross operating profit per available room.
In this quarter that profitability figure had hit €918, that was €528 lower than in the same period last year, and €986 lower than in 2017.
Alternative accommodation, the report says, was hitting the four-star hotel sector the hardest. Room rates for this sector dropped by 2%.
Restaurants also experience tougher winter
The MHRA conducted a survey among 64 Maltese and Gozitan restaurant owners in collaboration with Deloitte to evaluate their performance during the last winter season, which they said was a “mixed bag”.
Mr Aloisio again gave a warning saying that 52 permits for new restaurants had been issued in 2012, but by 2017 this had shot up to 343.
According to the MHRA, participants reported varying results, with nearly half saying they had declining revenues when compared to the previous winter.
Despite this drop, some areas in Malta managed to register a positive performance. Restaurants in the north central part of Malta and Gozo managed a 3% increase in revenue overall.
On the other hand, coastal areas, Valletta, and southern areas registered a negative trend of 4%, 2%, and 6% respectively.
The MHRA estimates a slight growth in operating costs of 2.3%.
Payroll costs climbed by 5.7%, which the association believes could be linked to the recruitment challenges faced by operators in the sector.
Around 60% of employees in the catering sector are foreigners, the MHRA estimated.
Overall, some 56% claimed to have had an unsatisfactory winter performance. However, almost all participating restaurants remained “upbeat” and were expecting good business for the upcoming summer season.