Dr Mario De Marco Parliamentary Secretary for Tourism and Ms Marie Louise Coleiro shadow minister for tourism at the Annual General Conference© DOI - Saviour Cassar

Parliamentary Secretary for Tourism addresses MHRA's AGM

The Hon. Mario de Marco, Parliamentary Secretary for Tourism, delivers an address at the Annual General Meeting of the Malta Hotels and Restaurants Association (MHRA) held at the Radisson SAS Golden Sands Resort on Friday 30th October 2009.

Speech transcript

Mr President, Council Members, Friends,

They say that you need difficult times to test a friendship. I must say that during the past months, I have seen the spirit of co-operation between government and the MHRA strengthen. I have seen the flow of communication intensify. I have seen the development of a better understanding and appreciation, albeit not always agreement, of the positions taken by each side on issues that are of mutual interest. This is how partnerships should work.

I feel it is opportune to link these thoughts with a special word of thanks to the outgoing MHRA President Mr Kevin Decesare. If our relationship matured, despite the difficult international economic scenario, it is also thanks to people like Kevin, who kept things within their proper perspective. Kevin, in his inimitable style, has always been forthcoming with his thoughts on what we, as government should be doing, in the interest of the tourism industry. Over the past years the MHRA has brought to the fore, and focused attention on, various issues such as low cost carriers and product Malta.

Today I wish to return the favour. I would like to share with you, my thoughts of how I think your association can help even more in our common effort. I trust you will be taking the suggestions I will be making in the same spirit of partnership that I referred to earlier. For ease of reference I will group my comments under the three pillars of accessibility, marketing and product.

Accessibility

No less than 98% of our tourists use air travel to come to Malta. Studies show that there is a strong correlation between the existence of a direct air route to Malta from a city and the flows of tourists from that city to Malta. Studies carried out by the MTA also show that the type of air links between Malta and a source market impact on the performance of that market.

Our best performing market this year was Italy. Italy is served by two national carriers and a low cost carrier. We have a distribution of routes across the Italian territory that, by and large, covers most of the peninsula. The end result is that despite the international recession, tourist arrivals from Italy in the first nine months of this year grew by 9.7%. Italy is now our second largest source market after the UK.

Another market that is likewise serviced by a mix of legacy carriers and low cost carriers is the UK. Despite a drop of 10% in the first nine months, our performance from the UK is more than credible. Data published by the European Travel Commission puts Malta as the country that experienced the least percentage drop of outbound visits from the UK. In other words, while we, like all destinations that welcome UK tourists, witnessed a drop in arrivals from this market, ours was the smallest decrease percentage-wise.

I am pleased to note that the drops from the UK are tempering off. There is confidence all around that, despite the difficult economic situation and the situation with the Sterling, this market can return to a positive performance. However, one must keep in mind that charter flights, an important player in the market, will continue to shrink.

The Spanish market is served entirely by low cost carriers. The performance of this market over the past years is impressive going from over 20,000 in 2006 to around 50,000 last year. There is interest for increased routes from this market, an interest we are actively considering. Having said this, one must bear in mind, and this is obviously not applicable only to the Spanish market, that MICE and business travellers do not always mix with the low-cost concept.

The same performance, unfortunately, cannot be said for the French and German markets. In these markets we have a total dependence on legacy carriers. The European Travel Commission data shows that we were the country that witnessed the largest percentage drop in arrivals from Germany and the second worse performer from France; and this despite a substantial increase in the marketing activities and spending by MTA in such markets. Suffice it to say that in France and Germany, we had for the first time, TV promotion campaign apart from print and outdoor campaign and other marketing activities. MTA even brought over 1,000 agents from FTI over to Malta between April and May this year.

Various reasons can be given for the lack of performance of the German and French markets. Some say that these were two tour operator driven markets and in the absence of commitments on the part of tour operators, the tour operator in a time of recession will inevitably first push to sell the seats on which they have a commitment. Others will say that the airlines in the absence of price competition tend to outprice themselves going for yield instead of numbers. The truth would lie somewhere in between.

We are working to widen the mix of airlines that serve us from these two countries. We do not want to do so at the expense of the airlines that are currently serving us from these markets. Their business remains ever so important to us. When three years ago we launched our strategy to attract low cost carriers to Malta we made it clear that we wanted to attract their business but not at the expense of those who have served us in the past years.

We must also acknowledge the fact that charter flights have experienced a drop in the last few years, from a share of more than 21% of total air passengers to Malta in 2006 to a share of 11% till end of August this year. Whether this is the consequence of the introduction of low cost carriers – which now accounts for 21% of total passengers to Malta - or not is debatable.

In 2006 the MHRA presented a well thought report, penned by Deloitte and entitled ‘Low Cost Carriers, The State of Play and Way Forward’. The report included a number of recommendations including the following: “There is no free lunch in the Ryan Air proposals and the hotels also have to consider the impact of Ryan Air’s bed bank as their form of marketing support”.

In this report, I would hesitantly guess that MHRA was recognising that hotels should contribute towards the cost of introducing low cost carriers into our marketing mix, as hotels stood to gain from their introduction. If I fast forward to 2009, one finds that Government is paying millions to help develop underserved and new routes with, I must acknowledge, the contribution of Malta International Airport.

The MHRA rightly continues to press government to introduce additional routes. Each route, or nearly each route, comes at a price. As Deloitte stated there is no free lunch.

While on this subject, I would like to publicly acknowledge the work undertaken by the MTA and the MIA in concluding agreements on routes. The hike in the price of oil in the summer of 2008 affected us negatively. The number of seats flying into Malta for winter 08/09 decreased by 14%. We managed to correct this for the summer of 2009, by the introduction of new routes when airports across Europe were still experiencing a drop in routes and seat capacity. As a result we will end 2009 with the same seat capacity as that of 2008, when EUROCONTROL is forecasting that the number of flights in Europe will show a year-on-year decline of 6% in 2009. For the winter 2009/2010 we will have four extra flights per week with an increase of 2% over last winter.

Within this context, I am pleased to announce that the following new routes will be operational next year: Ryanair from Leeds Bradford, BMIbaby from East Midlands, and Norwegian from Oslo and Copenhagen. We are also in advance discussions for the introduction of new flights for the Milan area, which represents the second largest catchment area in Europe. Our goal in seeking routes remains that of bringing additional business to Malta.

Product

I would now like to turn my attention to the second pillar: product. The MHRA has kept the spotlight focused on product, particularly on issues such as cleanliness, noise pollution, the condition of our roads and noise from constructions sites. Let me be clear, these are all important considerations. Some of these are mentioned by tourists as things that mar the Malta experience.

Indeed, following a public consultation period over summer the Cabinet has approved a Building Regulations Act which is to be forwarded to Parliament for second reading shortly. The provisions of the amended regulations will provide for better safeguards for neighbouring properties and reduced construction impacts from vibrations and noise, as well as time restrictions when certain types of works are allowed to be performed.

However in the same surveys, tourists point also to other aspects that fall within the direct control of hotels. These include the aggressiveness of timeshare OPCs and the state of some hotels particularly in the three star sector.

Data collected by the MTA as part of the Winter 2009 Market Profile Survey shows that while nine out of 10 tourists were happy with our 5-star accommodation, four in 10 tourists using lower category hotels were not satisfied with the hotels’ facilities. A report drawn up by Mr George Micallef in April 2007, entitled ‘An Assessment of three and two-star accommodation in Malta’, points to the reasons leading to this state of affairs (and I quote):

Some hotels made profits over the years but did not reinvest back in the product and are in no position to do so at present;

Some hotels appear to have outlived their life cycle and need a complete redevelopment or to exit from the industry;

Frequency of refurbishment amongst this category of hotels is sparse, and some have not carried out any refurbishment at all since their first year of operation.

What are we as government doing?

We have launched an €10 million EU funded scheme to assist tourism operators to upgrade their offering.

We launched an interest subsidy scheme to assist hotel operators and owners to upgrade their property.

We are reviewing the classification system to give hotels the opportunity to design their product and service offering to meet the particular need of specific target groups.

We are strengthening our enforcement actions against those who persistently fail to comply with the required standards.

We have engaged the timeshare operators to come up with various proposals to control and limit OPC activity, failing which, we will have no option but to go down the route chosen by other destinations, namely that of outlawing OPCs from the streets. I am confident however that an acceptable solution will be found.

Over and above all this, government shall be investing millions of Euro in improving our tourism product with projects in Qawra, Buġibba and St Paul’s Bay area, Sliema, St Julian’s and Pembroke, Valletta and Gozo.

I ask what is the MHRA doing to self regulate in this regard? If we work together in these areas we could be achieving much more. I feel that the MHRA can and should be more forthcoming in taking action and providing solutions in this area as they are in other ‘product’ areas, as this is an area which is close to your heart.

Marketing

I have two particular issues to highlight under the third pillar of marketing. The first relates to price. This is an area where we as government should not and will not interfere. This government believes that the market should set the price.

However the MHRA can and should advise its members that panic price-cutting is detrimental to the long term sustainability of hotel operations. Having said that I do recognise that price cutting is not only happening in Malta. The Hospitality journal published by Institute of Hospitality is stating that hotel prices around the world fell by 17% to their lowest level in the past five years.

Statistics published by STR Global show that occupancy in our hotels dropped by 12%. Although this is not a statistic that the hotels or indeed I am happy with, I need to acknowledge that our drop is one of the lowest drops reported.Likewise the drop in the average daily rate is also one of the lowest recorded. In a recent presentation, STR stated that for August “double digit rate declines are the norm.” whereas the actual Revenue per available room in the eurozone in the first 8 months of this year is -17.6%, which compares well to non-eurozone European average of -22.7%. Incidentally, STR Global reports data that is given directly by the hoteliers.

On the other hand, eating out in Malta is being highlighted by our visitors as being on the expensive side and therefore eroding our price competitiveness. I have raised and will continue discussing these topics with the MHRA.

While I do appreciate that expecting government to lower the VAT rate on restaurants might seem as a simple solution to hoteliers and restaurateurs and is not excluded by government, I must point out that government’s income and government’s expenditure are intrinsically linked. I must also remind members that VAT on specific tourism services stands at 5%. To put it in a wider context, Spain has just a month ago increased the VAT on tourism-related activity by 1 percentage point to 8%.

One cannot expect government to forego income and yet continue to increase expenditure. Having said this, I must stress that government has not ruled out a revision of VAT rate on restaurants. And make no mistake; government has over the past years been increasing its investment in tourism. Government’s recurrent expenditure for MTA has increased from €17.5 million in 2000 to €29 million for this year (2009).

These additional funds have allowed MTA to strengthen its presence in our key markets. This year for instance, for the first time we were present on UK television practically all year round. We used television advertising in France, Germany, Italy and The Netherlands.

Fully aware of the power of advertising, we launched a scheme whereby we pledged to fund half of the cost of additional advertising undertaken by hotels. From 1,370 licensed accommodation properties only 10 properties took up this offer. I appeal to hotels to take up this opportunity and come forward with proposals. This can be done in various ways, including the joint collaboration in marketing of hotels operating in a particular region, such as the north of the island, and thus making the economies of scale much more effective.

This year, a year which I described as an annus horribilis for the tourism industry, will hopefully soon come to an end. It may, however, get worse before it gets better. I say this because over the next few months, we will continue to experience the drop in the conference business. On this point, I am pleased to announce that government is again setting up a fund to encourage international public sector conferences to take place in Malta. This fund was used to great success this year securing conferences generating 30,000 bed nights.

Ladies and Gentlemen,

Various opinions are put forward as to by when we expect things to start getting better. Some say we should start seeing improvement by the second half of 2010. Others say we have to wait till 2011 and 2012 till we get back to 2008 figures.

Whatever the case, we will / we must intensify our efforts to make up for any lost business by pushing areas of business that are less susceptible to the economic downturn. As has happened this year, I will be counting on the co-operation and advice of the MHRA.

Thank you.

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DOI – 30.10.2009