Hotels reversing €10 million net loss

The Malta Hotels and Restaurants Association's president Tony Zahra said a decrease in tourist arrivals registered in the association's hotel survey by Bank of Valletta and Deloitte for the first quarter of 2012, had already been predicted by the associaition.

“I cannot say I’m surprised since in my speech in November 2011, when I had warned that the decrease in seat capacity of 50,000 seats may result in less arrivals. This confirms what MHRA has been saying, that accessibility is the key to our success,” Zahra said.

During the presentation of the BOV-Deloitte survey results, Zahra said that despite this decrease, improved figures are already being recorded as seat capacity for the period between April to October is equal to that of the same quarter in 2011.

“Even better news is that the load factor for April and May have surpassed the load factors of 2011 and consequently we are now making up lost ground of Q1,” Zahra said.

The MHRA president took the opportunity to stress the need for yield management among hoteliers. “Do not panic. Do not lower your rates unnecessarily. In our business, every euro less revenue is a euro less on your bottom line, period.”

In the coming months, Zahra said that the main objective of the MHRA was sustainability. “The industry experienced a net loss of around €10 million over the past five-year period. This will reflect in years to come when refurbishing and renovation comes up, which is generally every 10 years if not earlier.”

Zahra said that sustainability does not solely affect the investor as believed by some. “It affects the whole economy as with poor hotels or no hotels, there is no tourism industry, no employment and no government revenue. Tourism impacts everyone.”

Zahra also said the MHRA is concerned about electricity and water bill charges and was meeting with the government and MCESD to increase energy efficiency to 40% once the Delimara power station extension commences operations in July 2013. “That means €6 million back to hoteliers in the form of energy. Hoteliers have a limit to how much they can sell or reduce their product. Hotels are the backbone of the economy and industry.”

Nick Captur, Deloitte’s Leader of Clients and Markets, said that when compared with 2011, tourist arrivals decreased by 10.9% but had increased by 17.9% when compared to figures recorded in 2009.

“There has been an 8% decrease in guest nights since 2011 but an increase of 11.4% since 2010 while tourist spending has only decreased by 2.5% since 2011 but has increased radically by 34.2% since 2009,” Captur said when presenting figures from the survey.

Five, four and three star hotels all saw a decrease in of between 7.2% and 8% when compared to the same period in 2011 but five and three star hotels saw an increase when compared to 2010.

“However, four star hotels  saw a decrease in occupancy of 7.2% when compared to 2011, 2.8% in 2010 and 3.5% decrease since 2009 during the Q1 of each year,” Captur said.

Deloitte’s Leader Financial Advisory Raphael Aloisio discussed the financial consequences of rate management decisions particularly during challenging times.

“Many hoteliers may choose to adopt a discounting rate policy during challenging times to increase revenue, but this was not particularly successful in maintaining levels.

Aloisio said that the main message was that hotels should increase marketing initiatives and focus on particular market segments and distribution channels.

“If discounting hotel rates is the only option, this should be done in an intelligent and strategic way. This is not only for big hotels. Yield and revenue management is also necessary among smaller hotels to always offer better deals to consumers, similar to the approaches taken by low-cost airlines,” Aloision said.  

However, Aloisio warned hoteliers not to compare downturn periods with previous good periods. “Don’t cut your marketing budget and consider new marketing approaches Don’t talk about rates but rather talk about profit rate per room.”

Giving a presentation on behalf of BOV on the Valleta Fund Management’s low risk and liquid investment solutions, Grace Debono said that the most common solutions for liquidity including the current account, savings account, short and long term deposits, and money funds.

“Money funds invest in a broad range of liquid assets such as bank deposits and short term debt securities and is becoming increasingly popular with investors,” Debono explained.