Business • December 14 2003

MHRA expects ‘worrying winter ahead’

The Q3 MHRA Hotel Survey by Deloitte released this week reveals that even during peak season, good results in the hotel industry cannot be taken for granted in the current international climate. Over July, August and September both hotel occupancy levels and average achieved room rates were lower than last year.
MHRA President Winston J. Zahra expressed his concern that international research suggests that our trends are worse than those for Europe generally and that our lack of competitiveness is an issue which needs to be tackled with some urgency. Mr Zahra stated "It is imperative that we make the most of our product differentiation to avoid selling on price and availability".
Mr Zahra welcomed the support given by Government through the retention of the five per cent VAT rate and a Lm10m fund for product improvement and described these measures as a "definite step in the right direction and a clear signal of Government’s commitment to the tourism industry following an effective consultation process." However, he added, "We all have to work hard together as a nation in order to ensure that we deliver what we promise to our visitors. We are highly dependant on Tourism as a nation and therefore private enterprise has to work closely with Government and all constituted bodies in order to ensure that whatever we need to do in the coming months and years to improve our competitive position in the international market is done. Additionally there has to be a renewed drive on a national scale to ensure that each individual living in Malta understands the importance of his own contribution through offering the best possible hospitality and service delivery to our visitors at all times."
Commenting on the overall performance of the tourism industry Mr Zahra stated that the recent results published for October are disheartening but not unexpected. He emphasised that the MHRA had issued warnings as far back as June that winter was looking like a tough period. He further stated that if the warnings of the Association had been listened to and action was taken by way of additional marketing funds allocated towards the MTA, the October figures and winter figures in general would be much better. On the positive side Mr Zahra stated that it was the Association’s belief that the situation could very well turn around by the second quarter of next year unless anything else unexpected crops up on the international market. He further emphasised that the more urgency we give to the efforts to improve the quality of our product the speed of recovery and the chance of the tourism industry doing well will be greatly enhanced.
The results for Q3 were explained at a presentation at the Westin Dragonara Resort to the hotels participating in the survey by Nick Captur, a Partner at Deloitte. The key results of the Deloitte survey show that hotel room occupancy during Q3 fell by eight per cent in the 5-star sector notwithstanding an increase in the number of room-nights sold. Occupancy fell by one to two per cent across the rest of the hotel industry. This broadly reflects the underlying one per cent fall in tourist arrivals during this period and increases in hotel supply.
During Q3 the decline in occupancy was most evident during September, followed by July.
Average achieved room rates also fell, with the biggest fall taking place in the 4-star sector which is where the majority of the room-stock lies. As a result, 4-star room rates this summer were at their lowest level in 5 years.
As a result, operating profit (before interest & depreciation) in the hotel industry has fallen sharply. Operating profit per room for the first 9 months of 2003 is substantially less than levels seen 2 years ago.
Commenting on these results Nick Captur, Partner at Deloitte, said, "Two things emerge from a review of Q3 performance which are of particular concern. The first is that over the period July to September all major tourism markets to Malta apart from the UK market fell into decline. This means that France, Italy and Benelux are added to Germany to make up the list of declining major markets. Reversing this is a tough challenge for MTA and the tourism industry as a whole." "Secondly, accommodation supply is still effectively increasing at a faster rate than demand in certain segments of the market, hence the eight per cent drop off in peak season 5-star occupancy rates. This actually increases to a 10 per cent decline in occupancy if Malta is considered in isolation (from Gozo) notwithstanding the fact that during this period an extra 32,000 5-star room nights were sold, compared to Q3 last year, so there is underlying growth of 23 per cent, but supply increased by 41 per cent and this overwhelmed the results of this sector." He added "One should also caution that the survey reports average results, and that on either side of each figure there are good performers and bad performers, so its not to say that every hotel on the island is performing badly, as that would be unrepresentative. But it is undeniable that the sector is facing tough times."
The survey also found that hoteliers’ prospects for winter 2004 were generally pessimistic with few hotels expecting an improvement in either rate or occupancy. Most hotels are expecting the same or worse occupancy at unchanged rates.