Air Malta cuts 11 UK flights for summer, as Budget inflicts 2% VAT rise on tourist beds

Corrected at 1:15pm with clarification on departure tax.

The national airline will be discontinuing eleven 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 flight schedule for summer 2011 shows it will be halving its activity from London Gatwick from 14 flights, cutting two flights from its previous 7 to Manchester, one flight from London Heathrow, and practically pulling out of Birmingham by operating only until 30 April 2011.

UK-based tour operators and hoteliers who spoke to MaltaToday said the reduced capacity could see Malta lose over 300,000 bed nights after its record summer.

“At 80% capacity over a six-month season, Air Malta would be bringing in 38,000 tourists less,” the same sources said.

The other carrier flying to Malta from Gatwick is EasyJet.

Hotelier Michael Zammit Tabona, for whom the UK core market is a mainstay, said the lack of capacity would push up airline prices.

“At an average length of stay of some 8.1 nights, the loss in UK business will translate into over 300,000 bed nights lost – enough to keep four hotels booked up for the summer season,” Zammit Tabona said.

“With airlines committed to the 2011 schedule, less flights operating to Malta from the UK will only push up airline prices, a clear case of demand outstripping supply… unless a new route is created or a new carrier starts operating, this void will not be filled up immediately by the low-cost carriers.”

In the meantime, Finance Minister Tonio Fenech is insisting the government cannot postpone the raising of VAT from 5% to 7% on hotel and other tourist accommodation, to be introduced on 1 January.

While the Malta Hotels and Restaurants Association complained it was not consulted on the VAT rise, hotels have already committed to prices in agreements it signs nine months ahead with tour operators.

“As things stand, with our hotel prices already set for the May-October 2011 season, hotels will have to absorb the cost of this VAT increase,” Zammit Tabona said.

“But if Air Malta cuts down on these UK flights we will have less VAT to pay the government because we will lose thousands of bed nights.”

Finance Minister Tonio Fenech said the VAT increase would not be postponed, “unless the MHRA wants to postpone additional funding for marketing and new routes.”

The VAT increase should be funding an additional €4 million in marketing funds for the Malta Tourism Authority.

Prime Minister Lawrence Gonzi also said on Monday that the government had turned down the MHRA’s proposal for a departure tax, claiming the measure would have been “populist”.

Commenting on the proposal, Michael Zammit Tabona said a departure tax of between €4 and €5 would have generated revenue from everybody, Maltese travellers included. “The Maltese are still enjoying weekend breaks in Maltese hotels - so they will be paying the increased VAT anyway. But everyone benefits from tourism. With a VAT increase and less airline capacity, fewer tourists will make it difficult for everyone to reap the benefits from tourism.”