‘We’re about to commit tourism suicide’

No sooner had the inclement weather brought chaos to our waterlogged roads, that the blue skies of last summer’s ‘record year’ for tourism suddenly appeared overshadowed by some very grey clouds.

While Prime Minister Lawrence Gonzi sang Malta’s praises at the Association of British Tour Agents, and tourism parliamentary secretary Mario De Marco lauded a summer that saw tourist spending go up by 20% to €777 million, hoteliers now appear at a loss at the change in tune.

Fast forward to Budget day, and an increase in VAT on tourist accommodation from 5% to 7% and the national airline cutting 11 UK flights has taken everyone by surprise.

Never one to shy away from bold statements, Fortina Hotel owner Michael Zammit Tabona calls the increase in VAT “suicidal”.

“We’ve just finished a record year where the golden goose has only just started laying its eggs. We’re seeing some light at the end of the tunnel and we’re just switching it off.”

This summer, promotion by the Malta Tourism Authority really paid off. With tourist spending higher than ever, up to €103 million spent on accommodation alone, and €294 million spent on restaurants, excursions and museums, hotels were looking for some further returns in the shoulder months.

“MTA’s promotion paid off, specially in the core markets in the UK, France, Italy and Germany. But at the end of the day, travellers are price-sensitive, and we are competing against destinations where hotels charge less because they have cheaper labour rates and cheaper capital costs,” Zammit Tabona says, mentioning North African and Far East destinations as an example.

The increase in VAT has caught hoteliers off-guard because the industry negotiates its room rates with operators a full nine months ahead. “The industry cannot absorb the increase simply because contracts have been signed and prices set for the next summer. We’re already committed,” the hotelier says.

This winter, hotels will be competing to slash prices on rooms – some five-stars even going down to a meagre €25 a night – in a bid to gain winter travellers and cut their losses.

But hoteliers have been at odds with the government over taxing tourists for years now. In 2008, the government introduced an unpopular €0.50 bed tax, postponed to April 2010. The Malta Hotels and Restaurants Association demanded that departing tourists instead pay a tax. The government disagreed, claiming it would punish Maltese travellers leaving the island.

“The Maltese are still taking weekend breaks inside our hotels… the VAT increase ‘punishes’ them too,” Zammit Tabona says.

But even more worrying is the discontinuation of 11 Air Malta flights from the UK, as the first signs of reduced activity from Air Malta – which announced its first-ever summer losses this year – start to worry tour operators.

Air Malta’s summer 2011 schedule will halve London Gatwick flights to just seven, cut two flights from its previous seven to Manchester (notoriously expensive compared to EasyJet), one flight from London Heathrow, and practically pulling out of Birmingham by operating only until 30 April 2011.

UK-based tour operators who spoke to MaltaToday claim the reduced capacity could see Malta lose over 300,000 bed nights after its record summer, or 38,000 tourists less.

“That’s enough to keep four hotels booked up for the summer season,” Zammit Tabona says. “And less flights will only push up airline prices, a clear case of demand outstripping supply… this void will not be filled up immediately by the low-cost carriers.”

Zammit Tabona questions whether Air Malta’s reduced activity this year was even taken into consideration when the finance ministry decided to raise VAT.

“Air Malta is reserving less seats for tour operators. It’s a policy to have flexi-pricing. Previously they allocated up to 20% of the seats at special prices for tour operators and special incentive travel. I believe these routes could have become profitable thanks to tour operator business.”

His conviction is disputed by Finance Minister Tonio Fenech, who in comments to The Times said it was “well known that a large proportion of tourists now made direct bookings and not through tour operators.”

“But did they cost the damage from the VAT increase with the risk of airlines raising their prices? I envisage a scenario of mass discounting by hotels on their empty beds, leading to less VAT – unless the MTA works to increase airline capacity,” Zammit Tabona says.

“There’s something defeatist about Air Malta cutting flights from Gatwick and leaving it up to EasyJet to take up. I understand the airline has a bee in its  bonnet about the fact that MTA subsidise the low-cost carriers, but even Air Malta gets promotional support.

“We’re in a mess: the VAT increase on top of the reduced flights all contribute to a situation where we are committing tourism suicide.”