Young holidaymakers keep Malta’s 3-star hotels in the black

Three-star hotels in Malta, once the standard accommodation in less prosperous years, have discovered a new formula for resilience thanks to their appeal to budget-conscious and younger tourists.

A Central Bank report finds a growing number of young visitors drawn by Malta’s vibrant entertainment scene, show a marked preference for affordable three-star accommodations, particularly during peak summer months.

While overall tourist expenditure has risen significantly – by 20.3% over the past four years and a notable 23.3% in 2024 alone – spending habits have shifted. Younger tourists, drawn to Malta for its entertainment options, typically spend less per capita compared to affluent visitors, which impacts the profitability of luxury hotels.

Although average per-night spending rose slightly to €141 in 2024 from €130 in 2023, operators in the five-star segment reported a noticeable decrease in tourist spending power. This trend has led many travelers to downgrade from five-star to four- and even three-star hotels, reshaping occupancy patterns across all hotel classes.

Competitive edge

Three-star hotels have however managed to maintain strong occupancy rates by appealing to younger, cost-sensitive tourists. Their competitive pricing, combined with a focus on high occupancy and lean operational costs, has allowed them to remain profitable despite rising costs in the hospitality industry.

Unlike five-star establishments facing high wage demands and increasing maintenance costs, three-star hotels have navigated economic pressures more effectively. This segment saw a substantial 34.7% growth in accommodation capacity from 2020 to 2024, outpacing the moderate growth observed in the five-star category.

In contrast, the five-star hotel segment is struggling with decreased demand from travelers with limited disposable income, who are now opting for more affordable accommodations.

Although five-star occupancy is stable during peak seasons, profitability has been affected by increased competition and high operational costs, forcing some hotels to adjust pricing. Luxury hotels, especially those in high-traffic areas like St Julian’s, face added challenges due to local “sanitation and traffic” issues, which detract from their appeal.

Four-star hotels are also feeling the impact, experiencing increased pressure from five-star hotels’ competitive pricing. Many mid-tier establishments have had to invest in refurbishments and new facilities to remain competitive, although there are concerns about potential oversupply in the market.

Increase in accommodation facilities

The report shows a significant increase in Malta’s accommodation options, rising from 215 establishments in January 2020, to 317 by June 2024, marking a 47.4% expansion.

The strongest growth was in the “Other Collective Accommodation” category – mainly apartments – which grew by 84.4%, followed by the three-star segment at 34.7%. Bed and bedroom capacity also increased by 12.6% and 13.4% respectively, during this same period, in the collective accommodation and four-star hotels, with moderate growth in the five-star segment.

Addressing seasonal fluctuations

Higher room rates, especially during peak months, remai  vital to offset elevated costs for hotels, but now competitive pressures and reduced tourist spending power are making it difficult to maintain profitability.

The Central Bank’s report in fact highlights potential growth areas, especially in mitigating winter season slowdowns. To combat seasonal drops in occupancy, stakeholders recommend promoting Malta as a destination for business and events, which would necessitate improved infrastructure for hosting large gatherings. One of the options proposed is a public-private collaboration that wouldo enhance Malta’s appeal as a winter destination through investments in eco-friendly and event-supportive infrastructure.