Last week, tourism operators were anxious to note that, compared to the same week last year, bookings for August were down by as much as 50 per cent. On Sunday, MHRA president Kevin de Cesare said the tide was turning, as work for the first three weeks started coming in, while the last 10 days looked bleak and room rates were going down too. Charlot Zahra spoke with three prominent economic analysts – Karm Farrugia, John A. Consiglio and John Cassar White – on the impact of the Maltese economy if there had to be a substantial drop in tourist bookings for this year. They concurred that any drop in tourism arrivals during the critical season would further dent Malta’s already negative growth for this year.
Karm Farrugia: “The impact would be catastrophic for hotels whose yearly profitability hinges on their high seasons and shoulder months”
What would be the impact of such a reduction in tourist bookings on the Maltese economy? The reduction is not likely to stay at 50 per cent, but it is likely to remain a steep reduction, not only in bookings but also in price, as last-minute bookings always come after a hefty reduction
Which would be those sectors of the Maltese economy that would be most hardly hit if this scenario materialises? With tourism contributing around 15 per cent of Malta’s Gross Domestic Product (GDP), nearly all sectors in the economy will be adversely affected to varying degrees.
Could you quantify the impact on the country’s GDP for this year if this scenario had to materialise? One needs to have a sophisticated constantly-updated econometric model to answer this question, which only the government – maybe also the Central Bank – might and should have
What would be the impact of a 50 per cent reduction on tourist arrivals on the profitability of hotels, restaurants and other catering establishments in Malta? The impact would be catastrophic for hotels whose yearly profitability hinges on their high seasons and shoulder months – seasons that usually follow inevitable losses for the low winter months.
Would jobs be at risk as a result of this substantial reduction in bookings? If yes, could you quantify by how much? Jobs are always at risk whatever degree of business contraction has to be endured. It could run into hundreds, besides transforming some from full- to part-timers.
What concrete actions should the MTA and the Government take in order to assist the Maltese tourist sector to prevent such a problem from happening? It is probably too late for any government or MTA intervention, except perhaps through Air Malta.
The issue of VAT reduction for restaurateurs is meaningless unless they themselves reduce their exaggerated mark-ups on drinks concurrently.
John Cassar White: “In economic terms this could well mean a bigger drop in GDP for 2009”
What would be the impact of such a reduction in tourist bookings on the Maltese economy? A 50 per cent fall in tourism during the peak summer period would have a serious effect on local operators.
This could lead to a further major knock on their profitability and could lead to cost-saving measures that would probably take place in autumn and winter.
In economic terms this could well mean a bigger drop in GDP for 2009. One hopes that this does not materialise.
Which would be those sectors of the Maltese economy that would be most hardly hit if this scenario materialises? Tourism has a large multiplier effect on various economic activities in Malta. Besides hotels and restaurants, one would expect the retail and wholesale traders to be affected.
Transport operators would also be hit with the major impact being on Air Malta. In a few words, practically every sector of the economy would be affected, even if in varying degrees.
Could you quantify the impact on the country’s GDP for this year if this scenario had to materialise? It is difficult to quantify the actual affect that such a drop could have on our GDP. One would need to make certain assumptions and have an econometric model that is reliable to come up with a credible assessment.
The Central Bank could possibly be in a better position to estimate what effect such a large drop could have on our GDP for 2009.
What would be the impact of a 50 per cent reduction on tourist arrivals on the profitability of hotels, restaurants and other catering establishments in Malta? It is no secret that many hotel operators have already slashed their rates to attract business earlier this year when it was evident that the season was going to be tough. I doubt whether there are more than a handful of hotels that are operating profitably this year.
Of course, if the summer season proves to be disappointing, even more hotels will end up with significant operating losses and would need to rely on banks to shore them up until the next season.
Unfortunately, some may find it difficult to continue in business and will wind down their operations. Others are likely to postpone refurbishment projects that are vital to maintaining quality in this industry.
Would jobs be at risk as a result of this substantial reduction in bookings? If yes, could you quantify by how much? There is no doubt that cost-cutting measures will be considered by any operator facing losses. Jobs unfortunately could be at risk.
It is difficult to quantify because many hotels would prefer to keep their more experienced staff and save costs by postponing refurbishment projects.
Overtime and part-time work will be the first items that come under the surgeon’s knife. This in turn would have a major effect on private consumption, thereby aggravating our recession.
What concrete actions should the MTA and the Government take in order to assist the Maltese tourist sector to prevent such a problem from happening? It may be too late to do anything about attracting more tourists during this summer. But certainly more can be done to really put Maltese tourism on a stronger footing.
A long-term strategic plan needs to be hammered out by the operators in this sector and the government. I believe that our tourism industry has some structural problems that need to be addressed.
Some believe that our island has become increasingly unattractive to visitors both because of considerations of cost and a fall in quality. All these can be put right with hard work and patience.
We can no longer rely on marketing to patch up our ineptitude to address the deeper issues that are affecting our tourism.
We first need to go to basics by improving the costs on holidaying in Malta and improve the quality of our environment, including noise, cleanliness, beach facilities, and good transport, among other things.
We then need to build in more quality in our product by enhancing the holiday experience of those who visit us.
John A. Consiglio: “This blessed tourism industry has become too big for our own good”
A 50 per cent drop year-on-year would indeed be a very big drop, and only the tourism enterprises that are very strongly capitalised – in terms, that is, also of retained undistributed profits from previous years’ operations – which would be able to survive this conjuncture.
It would be only these enterprises, that is, those who left profits in the business, who would be able to retain employees, re-double their marketing, improving their facilities for better times when these do come around.
Those hotel and restaurant owners who went off flaunting good past profits into new villas for themselves, new yachts, new this and that, and, in short, never ever thought that bad times would come about, well, several of those will probably engage quite early in either downsizing or even selling off their operations.
There will of course be multiplier effect consequences, but let us not overplay these to the extent that many in the MHRA often find it convenient to do so.
So if, for example, some farmers may have based their production, and selling prices, to certain tourist enterprise links, then these will obviously still produce and sell elsewhere, for instance, to families at probably cheaper prices, thus probably helping bring down in some measure the cost of living. And that will apply to other sectors too.
The drop in bookings may be an opportunity for all of us to give some thought as to whether – like the building and construction industry – this blessed tourism industry has become too big for our own good.
Ours has become an economic model that is almost totally dependent on these two economic activities, and some serious thought may need to be given as to whether we should – in a sensible manner – downsize their role in our economy, with obviously veering towards other economic activities.
Travel agents, the hotels themselves, the restaurants, the taxis, the airlines, tour operators of various types, these and similar sectors are those sectors of the Maltese economy which are hit when tourism bookings drop.
But aren’t there also upsides which nobody mentions? For instance, less pressure is placed on parts of our infrastructure, including usage – and wastage – of water, electricity, and other utilities, possibly less muck and dirt in several public places, damage to roads from hired cars, bingeing by boats, and so on.
So, as the Italian saying goes: “Non esiste nessun male che tutto nuoce”, or “There’s no cloud without some silver lining”.
If drops in Malta’s GDP for the end of this financial year have been forecast by different sources in the ranges of from 2 per cent to 5 per cent, my estimate is that an overall drop of 50 per cent in tourist arrivals for over the whole period of from June to September would mean something around a 0.25 per cent drop in our effective end-of-year GDP on 2008.
This would mainly come from the lower profitability of hotels, restaurants, and other catering establishments, plus also job losses.
This is an industry where much seasonal employment is resorted to by entrepreneurs, and it would be in that segment that losses would first be most felt.
I must say, if it means that many young people below the age of 16 will no longer be seen working in tourist establishments in places like Bugibba, Marsascala, St. Julian’s, and Gozo, then I wouldn’t be sorry at all.
Such employing operators probably do not realise the bad image they keep giving of their sector to visiting foreigners.
Now this August 2009, the drop in bookings is of course no longer a case of “stopping it”. It’s there, it is a fact. It is about August 2010 that everyone should be thinking and planning for.
And that, in my book, and certainly not in the MHRA’s book, does not mean that lobbying body and others in the sector continuously running up and bleating to the Tourism Parliamentary Secretary – or even a possible future minister – to “Please spend more money on marketing for us!”
I hate governments doing for business what businesses should be doing for themselves. And I also expect the sector to be forcefully realistic about itself, for example, asking itself whether the sector has in fact grown too big?
Why is it that we never hear from the sector itself things like, for instance: “There are too many hotels in Malta for Malta’s own good. Dear MEPA please say an absolute no to all new permit applications”.
Or: “Dear Minister of Finance, if you reduce VAT in our sector to 5 per cent, we bind ourselves to a 10 per cent drop across the board in all prices of our hotels, restaurants, and other establishments for the coming five years”.
Or: “Dear Parliamentary Secretary, stop asking us for payments to finance your tourism marketing involvement. You should only be a regulator, not a marketer.
“And, if you accept, we promise to set up our own collective marketing organisation with the same, and indeed, better funding”. But these of course are brave ideas, outside-the-box as one might say.
And such thinking usually never really curries favour with people whose finger is already in the pie, does it?