The latest Malta Hotels and Restaurants Association Hotel Survey carried out by Deloitte & Touche, which analyses hotels’ performance for last year’s fourth quarter, served to confirmed MHRA’s predictions of a poor end to the year.
October and November were found to have been particularly weak months for hotels with sharp falls in occupancy and strong downward pressure on room rates, with the result of very weak operating results for the October-December 2003 period.
Commenting on the industry’s somewhat paltry performance in Q4 and indeed throughout the whole of 2003, Deloitte Partner Nick Captur comments, “The tourism industry had a lot to contend with in 2003. Geopolitical tensions, struggling economies, exchange rate fluctuations, good summer weather in northern Europe, SARS and the distraction of our own referendum and elections.
“A recent Hotel Benchmark Survey by Deloitte overseas found that hotels located in resort destinations around the world reported better than expected results for 2003 and that resort hotels generally performed better than their city centre counterparts. Although a number of resorts suffered from declining demand levels, resorts in the Caribbean, Middle East and the Pacific managed some impressive growth. Across Europe the results were more mixed. Hotels in Cyprus, the Balearics and the Canary Islands appear to have had a better year than their counterparts in Malta, whilst hotels in the Costa del Sol, the Algarve and Madeira reported worse results. However it is obvious that the sector in Malta is passing through a difficult period.”
He adds, “As financial advisers we can see that some hotel owners are starting to question the reasonability of the returns they are getting on their investment. Several properties have closed their doors already and more closures seem to be in the pipeline. If this trend escalates it could be unhealthy for our national economic growth and employment in the sector.”
According to the survey, which was released to the public on Monday, Malta’s five-star sector saw a Q4 Gross Operating Profit margin of just five per cent, similar to that witnessed immediately following the 9/11 New York attacks in 2001.
In fact, over last year’s fourth quarter, five-star occupancy rates, at just 48 per cent, were 12 percentage points lower than last year, while room rates were five per cent lower at an average of Lm31.73 per night.
The fall in occupancy was lower in the four-star sector but, on the other hand, saw a greater fall in room rates. Four-star occupancy was two percentage points lower than last year at 55 per cent, while room rates were 15 per cent lower at an average of Lm11.74.
Malta’s three-star hotel sector, meanwhile, also saw a decline in both occupancy and room rates, with occupancy rates in the sector weighing in percentage points lower at 52 per cent and room rates were yielding seven per cent less at an average of Lm6.95.
A further issue highlighted in the report was the decline in the UK market to Malta, which, until now, had remained a key source of growth, while earlier this year the survey had noted that most of the other key source markets for tourism to Malta had followed in Germany’s footsteps and fell into decline, as far as Malta is concerned at least.
The survey describes 2003 as seeming to be “a year that hotel owners would probably prefer to forget”. Five-star occupancy was six per cent down on last year and rates were four per cent down, leading to a 12 per cent fall in revenue per available room. Four-star occupancy was up one per cent on last year but rates were 11 per cent down, leading to a four per cent fall in revenue per available room. Similarly three-star sector revenue fell by over six per cent.
The survey also reports that across most of the industry the proportion of total revenue taken up by payroll costs increased, but in the four-star sector the number of staff to each hotel room fell from 0.57 to 0.52, suggesting that manning levels are falling. Operating profitability therefore fell sharply in the five and three star industries, while a slight improvement was registered in the four-star sector.
Commenting on the state of affairs, MHRA President Winston J. Zahra was adamant that it had become evident that Q4 would be particularly poor for the hotel industry as far back as June 2003, but the Association’s warnings had remained unheeded.
Mr Zahra explains, “It’s not a case of another survey, another moan. These are the facts as they are. There are some opportunities on the horizon. EU funding is one, additional flight capacity to Malta this summer is another, although we must never be tempted to undermine the importance of our National Airline which needs to remain the cornerstone of seat capacity into Malta. We must improve our product, build on our product differentiation by aggressively marketing our unique selling points and tap new markets while nurturing our existing core markets. We must also get round to prioritising and tackling at least part of the familiar and endless list of what needs to be done to improve our tourism performance.
“However, nothing is going to fall into our laps. Action is needed now more than ever before. It is disconcerting to note that hotel profitability has decreased to such an extent during 2003 that if this trend continues there could be a significant amount of downsizing of our tourism sector as a whole. I fail to see where the replacement jobs will come from – the redevelopment of hotels into apartments does not create ongoing job opportunities beyond the construction period. The sector average return on investment figures for 2003 have fallen to between three per cent and six per cent. These kinds of rates of return will not attract investment into the industry and do not augur well for the quality of our overall product in future. We need to stop talking, admit that we have a serious problem with our industry, cut out the political bickering about the subject and get on with implementing solid solutions. We cannot afford to waste any more time.”