Nick Captur, from Deloitte, who presented the results at Maritim Mellieha last week, said the third quarter “looks good” and reminded his listeners that a year ago all was doom and gloom.
The five-star hotels reported an increase of three per cent for the whole quarter, including an eight per cent rise in September. The four-star hotels reported a six per cent surge in September while the three-star hotels reported a seven per cent increase.
The above figures tally with the figures for departing passengers (Maltese and foreigners) released by Malta International Airport which showed a seven per cent surge in July and the NSO figures which showed that tourist figures were up by three per cent in July.
Beginning of a recovery
The MHRA hotel survey for the second quarter said that the quarter saw “the beginning of a recovery”.
Highlights
Tourism volumes: The number of departing tourists in Q2 increased by 2.2 per cent and the cumulative number of tourists for the six months to June was slightly up on last year. However they remain some 13 per cent below peak levels seen in the first six months of 1999, 2000 and 2001. As regards source markets, the UK and Germany contracted during Q2 but tourists from other European countries filled the gap, with the strongest rise coming from Scandinavia. Notwithstanding the increase in tourist volumes, the number of bed-nights sold fell by two per cent and tourist expenditure is six per cent down on last year.
Occupancy: Five-star occupancy for Q2 is five percentage points lower than last year at 69 per cent while occupancy in the 4-star sector improved slightly by two per cent.
Average achieved room rates: Five-star AARR increased by 11 per cent in Q2 and now stands at over Lm40 per room as pricing in this sector stabilised following last year’s increase in supply. In sharp contrast, both 4-star and 3-star rates declined by six and eight per cent respectively and are at historically low levels.
Total revenue per available room: Overall, hotel revenue is marginally down in the 5-star sector as the increase in achieved room rates did not fully offset the drop in occupancy. Despite the dilution in 4-star rates the twoper cent increase in occupancy lifted revenue per room by three per cent in Q2.
Results: Gross operating profit per available room is five per cent higher in the 5-star sector as margins improved to compensate for the marginal fall in revenue. In the 4-star sector margins declined slightly so that combined with the marginal fall in revenue the overall impact on operating profits is a drop of one per cent.
Overview
There appear to be signs that tourism activity is beginning to recover during the second quarter of this year but there remains much ground to be covered to reach pre 9/11 trends seen in 1999, 2000 and 2001.
Overall volumes of tourist departures in the second quarter are two per cent up on last year and six per cent up on two years ago. In particular, June was a very strong month with volume growth of 8.1 per cent reported by the NSO.
However, the recovery is not consistent on a month by month basis or across all tourism indicators. For example, April showed a 2.6 per cent loss in volume compared to last year, despite Easter falling in April in both years, while May showed a 0.7 per cent improvement.
Both Malta’s main source markets, the UK and Germany, declined in volume during Q2. Most other source markets reported offsetting increases with the maximum increase coming from Scandinavia (+41 per cent), a direct result of additional airlinks. The French market also performed well with growth of nearly 10 per cent.
The average length of stay has fallen from 9.4 nights to 9.0 nights so the total number of guest nights generated in Q2 stood at 2.77 million this year, down by two per cent compared to last year’s 2.83 million notwithstanding the increase in visitor volumes.
The length of stay varies according to the type of accommodation taken, which is typically eight to nine nights in a 4-star or 3-star hotel, six nights in a 5-star hotel and over 10 nights in a holiday complex or aparthotel.
On a cumulative basis, tourism volumes in the first six months of this year are practically unchanged on last year at 471,407 departures compared to 470,138, an increase of 0.3 per cent. Compared to 2002 this is an increase of 2.2 per cent. However, this is still substantially lower than the 530,000 registered in pre-9/11. This suggests that a further increase of 60,000 tourists in the first six months of the year, or 13 per cent, is required to make a full recovery.
Total expenditure by tourists on a per capita basis (including expenditure on air fares and packages) in the first six months of this year appear to have fallen by nearly six per cent over last year.
Occupancy
Total occupancy in the second quarter is up by one percentage point at 71 per cent, reflecting the absolute two per cent rise in tourist volumes as diluted by the fall in reported average length of stay which led to a fall in bed-nights sold.
By sector, it would appear that the 5-star segment went against the overall trend, with a fall in occupancy of five per cent from 74 per cent last year to 69 per cent this year, although an improvement in AARR cushioned the fall.
The decline in 5-star occupancy is not restricted to a few properties, but is widespread and can be seen across eight of the 5-star properties. Once again, it must be pointed out that 203 5-star achieved occupancy had been depressed following an increase in supply, and to fall below last year’s trends is disappointing. In absolute terms the total number of 5-star room nights sold in Q2 is 158,000 compared to 164,000 last year.
The 5-star sector had a weak May and a very weak June, which is the month when tourist volumes increased by eight per cent. It would appear that due to international sporting events not much conference business took place in June and the growth in volume must have been in package holidays, which has less of an impact on the 5-star sector.
The two per cent increase in 4-star occupancy from 70 to 72 per cent reflects the broad trend in tourism volumes. It represents a substantial improvement over 2002’s 66 per cent, but remains far short of the 77 to 80 per cent range seen in 2001 and 2000.
The increase in the 3-star trend must be treated with extreme caution, Mr Captur warned, as the number of participating rooms in the survey has fallen substantially.
Mr Captur said he understands that non-participating 3-star properties in the Paceville area were very badly hit by the extremely disruptive upgrading works, which extended beyond March into the important months of April, May and June. As a result, their loss of business may have benefited other hotels participating in the survey. Therefore the trends shown are unique to these circumstances and do not reflect the overall picture.
On a year to date basis the cumulative occupancy figures indicate that the 5-star sector has yet to come round to the strong levels of occupancy seen in 2001 of 66 per cent. The 4-star sector as well, while gradually improving from a low of 60 per cent occupancy in the first six months of 2002 has a considerable way to go until it experiences the 70 per cent occupancy levels seen in the first six months of 2000.
Average Achieved Room Rate
At the volume end of the market, room rates remain under pressure and have fallen. The 5.5 per cent decline in 4-star room rate (which accounts for the bulk of the room stock on the island) closely matches the fall in total tourism expenditure reported by the NSO.
However the improvement in 5-star AARR of 11 per cent is very encouraging for that sector and takes AARR for Q2 beyond the Lm40 bracket for the first time in the history of this survey,. Indeed, six 5-star properties had second quarter room rates in excess of Lm40 and the overall range of 5-star average room rates extends from Lm25 to over Lm50.
Trends in monthly room rates are consistent in the 4-star market suggesting that they are driven by overall pressure through tour operators in the wholesale market, while in the 5-star market they are more variable. The level of improvement in the 5-star market is healthy in each month and suggests that the fierce discounting which occurred when the supply of rooms came on stream last year is now receding.
In the first quarter of this year, the 5-star segment had also reported a strong improvement in room rate of 10 per cent so that the cumulative improvement to June is 11 per cent up on last year.
In the 4-star sector, the first three months of this year saw a nine per cent decline in room rates which has slowed to six per cent in the current quarter. Cumulative room rates have therefore fallen by seven per cent compared to the first six months of last year.
In the 3-star sector it appears that the trend is also negative but to a lesser extent, and year to date room rates are around four per cent lower than last year in participating properties.
International benchmarking
As a new initiative, the MHRA has decided to compare data with Deloitte’s International Hotelbenchmark.com survey to enable a comparison of Malta’s trends to that of other resorts in the region.
The analysis indicates that the various resort markets around the Mediterranean had a mixed set of results. Malta’s increased occupancy in the tour operator dominated 4-star sector is not unlike the two per cent increase seen in the Balearics and is better than the decline seen in the Costa del Sol or the Canary Islands.
Furthermore, a comparison of room rates immediately shows that, in absolute terms, Malta’s 4-star room rates are much lower than in other mass-market holiday destinations such as the Canary Islands, which immediately offsets the slight advantage they appear to have when it comes to occupancy.
Having said that it must also be considered that the international survey is dominated by full-service branded hotels and is therefore broadly comparable to Malta’s 5-star and the newer 4-star offer.
Prospects
Prospects for winter 2005 are generally positive. Room rates are set to remain the same or improve slightly for the vast majority of respondents across all categories and occupancy expectations, and are also generally positive.
This contrasts with a year ago when expectations were generally considered to be neutral as opposed to broadly positive.
The key issue facing the industry remains the overall state of the tourism product. The effectiveness of Malta’s promotion and its profile as a destination abroad is another concern voiced by a number of hotels. Flight capacity and accessibility is a key concern of the 5-star sector as this is a limiting factor for the growth of the conference and incentive market.
MHRA President
Commenting on the report and on the industry’s performance, Winston Zahra, MHRA’s outgoing president said: “MHRA had foreseen a small turnaround in Q2 and more growth in Q3. But we are far from being out of the woods yet. Last year was not a good year for tourism and when we compare to 2001 which was one of the best recent years, we are still far short.
“The average room rates are still very low: this is the real problem in the sector. Malta cannot attract the rates it needs to attain sustainable profitability levels. It does not have the pulling power and is not creating enough demand. The perception of Malta ‘out there’ is not very positive and we have to change this
“The solution is two-fold: We must take our product development seriously. We must tackle the environment, our roads, the quality of service on offer and also what we are doing to our cultural heritage.”
There is lack of action everywhere, Mr Zahra commented, especially on the part of government entities. He urged the government to take the industry seriously and to take action fast. The government, he complained, takes forever to do anything. Too many local initatives are met with brick walls.
“Malta is still a long way off from being anything like the South of France,” he continued, “but if we get our act together Malta has the raw ingredients to be like the South of France and even better considering the considerable heritage it offers the visitor.
“It will only be when the demand for rooms outstrips supply that Malta can demand and get the room rates it wants.
“Restructuring at MTA is now being implemented and MHRA was very involved in this exercise. Hopefully, before the end of the year one will be able to see a more forward effort. We then need to find the political will to have the reform implemented.”
Mr Zahra reminded his listeners that one of the reasons MHRA had been in favour of EU accession was because of the opportunities to obtain funds from the EU for the tourism sector.
Recently, MHRA joined BOV to create a scheme for people in the industry, who do not have the capital required to get EU funding, to get help from the bank.
He is certain that this scheme will be very popular, and if the tourism industry takes full advantage of the current grant scheme funds available it will give Malta much more strength to negotiate for more funds at the next round of funding. If they are not all used, the next round of negotiations will be less fruitful.
Additionally, MHRA, together with the MTA and bodies from other member States, is working on a scheme to create training opportunities for the 3-star and 4-star SMEs. This scheme has been awarded e440,000 in direct funding from the European Commission
As regards Gozo, MHRA has had a number of meetings to address Gozo’s specific problems. One of MHRA’s efforts has been to insist that the present helicopter service that is being axed must be replaced immediately, and it now looks as if this will be done once the current agreement runs out in October.
MHRA is also preparing its proposals for the budget. There is no way it will accept a hike in VAT rates for the industry after its fight last year to resist such a move.
It also intends to ask the government to address some anomalies in the taxes on conference travel because the rigid interpretation of the EU rules has made Malta much more strict than other European countries (“being holier than the Pope”) by not allowing refunds although places like Germany and the UK allow them.