12 October 2005

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Business Today

From high-rise to high concern

The Preluna Hotel, Malta’s first high-rise development, is one of two hotels opened in the late 1960s which has survived under the same management and ownership right till this day. The hotel owes its name to its founders Preca and Scicluna who took a leap in the dark 37 years ago when tourism was still in its infancy.
After the initial tourist boom in the late 1960s when tourism benefited from incentives offered by the British government, leaner years followed but the Preluna managed to thrive over the years.
Loyal to his father’s vision, Joseph Preca, the present chief executive of Preluna Hotel and Spa, explains that the secret behind this success story is constant investment in the tourist product which it offers.
Tourism runs deep in Preca’s veins. As former President of the Malta Hotels and Restaurants Association and former Chairman of the MTA’s marketing board he speaks with a sense of authority on the problems facing tourism in Malta.

How do you explain the fact that while occupancy in hotels has peaked, hoteliers insist they are experiencing difficulties?
At present the vast majority of tourists, perhaps over 80 per cent come through tour operators. This also means that Maltese hotels are very dependent on tour operators. These operators put up a package, which includes airfare and accommodation besides transfer from and to the airport. Operators compete with each other, keeping prices low is crucial for them to be able to maintain or increase their market share. This can be done by cutting down on hotel rates since little can be done about airfares. This has led to a situation in which hotels are in dire straits despite high occupancy levels. This is why the MHRA is stating that hotels are doing badly. It is not just occupancy that matters but also rates.

What impact have rising fuel prices had on hotels?
Contracts between hotels and tour operators are negotiated and signed at least 18 months ahead. Considering that during the past year fuel has increased substantially, hotels have absorbed the brunt of this increase themselves. With profit margins at an all time low, the increase in fuel prices is causing a tremor in our industry.

Would the introduction of low cost airlines offer a lease of life to hotels?
This possibility is giving the tourist industry a glimmer of hope, as it would increase the demand of tourists who book their hotels through the Internet. With the advent of low fare airlines, more and more tourists are booking their holidays independently without resorting to tour operators.
While the tour operator business is price sensitive and is thus keeping hotel rates as low as possible, the business which can develop over the internet has no such price limitations. We need to tap the market of travellers who decide on the destination first by checking which destinations are offered by low cost airlines and than by booking for accommodation on the internet.
Hotels selling over the Internet are free to set their rates according to prevailing market conditions without the constraints imposed by the tour operator. Having made a saving on the airline’s fare, these clients would be more willing to pay decent rates, which are far higher than those negotiated with operators.

Would the availability of low cost flights increase the amount of tourists opting for weekend breaks?
Through low cost airlines we will be in a greater position to tap this market. Currently, a vast majority of tourists come here for a minimum of seven nights. Few opt for a weekend break in Malta when the flight itself is more expensive than the accommodation.

In the last budget, government gave the MTA a benchmark of 50,000 extra tourists as a carrot for increased funding. Was this realistic?
Setting this benchmark at this particular moment was a bad idea. Tourists do not increase simply because someone wishes them to increase. This needs careful planning and the allocation of substantial financial resources. The timing for setting this benchmark could not have been worse because it coincided with the restructuring of the MTA. You can only aim for such an increase when your house is in order and after devising a marketing plan which provides a road map to stakeholders and which tour operators can support.

Is the restructuring of the MTA bearing fruit?
The restructuring of this important organisation was a courageous and ambitious venture. Hopefully it will render positive results in the long run. However in the short term the industry is suffering. I did not agree with the roughshod manner in which the reform was implemented. The MTA was always a serious organisation and the negative publicity has demoralised the MTA staff and put it unnecessarily in a bad light in front of the public.
In the past the industry had a say in all the important decisions taken by the MTA. This did make a big difference. Today we are going back to the time when decisions were taken behind closed doors. The MHRA has no longer a right to be represented alongside other important associations on the MTA board although presently it is represented. The impression, which is being given, is that the Ministry is only giving importance to the individual companies, which it regards as the big investors in the tourist industry whilst before we had the input of all the stakeholders.

Branding the Maltese product is a key issue in making Malta a popular destination. What do you recommend?
Besides finding the right formula to represent a recognisable image for our islands, we need a substantial budget to give our chosen brand exposure. Are we investing enough money in advertising and promotion? Malta’s budget in the field has always been limited and became available after a decision was taken to remove the Tour Operator Support Scheme which used to cost the Authority about Lm4 million a year. Branding is the competence of professionals and can only be effective if it is backed by a substantial budget.

What are Malta’s present assets and liabilities in competing with other destinations?
Malta’s chief asset is its uniqueness. No other Mediterranean country is similar to Malta. There are so many countries with larger beaches. However, Malta is unique because of its history, architecture and warm people. Visiting Malta is not like visiting a tourist resort exclusively composed of hotels.
Our liability is a serious lack of organisation and discipline. Serious liabilities include chaotic traffic and overbuilding. We should be aiming to attract a higher spending tourist.
That is why we should be careful where and what development should take place.

So far there has been a focus on the development of five star hotels. Do you see a future for three star hotels?
There is definitely a future for very good three star hotels. We have already built enough five star hotels to the extent that we can speak of an over supply of these hotels. Although we have excellent five star hotels these do not cater for the average holidaymakers. Five star hotels are an excellent venue for conferences but if we restrict ourselves to five star hotels we will end up competing with resorts which offer a more attractive product. Most probably if one can afford to pay for a five star hotel, one could also afford more lucrative destinations.
Tour Operators would grasp the opportunity to feature good modern three star hotels as these are seriously lacking.

What changes have you seen in the tourist industry throughout these last 37 years since your father embarked on the Preluna venture?
The most significant change I would say is the fact that in the seventies and eighties Malta saw the development of a big number of self catering properties mainly aimed at the British market most of which were situated in the Bugibba area together with hotels catering for the same market. Today things have changed and the demand for these has almost diminished. On the other hand a good number of excellent five star hotels have opened shifting our tourist base from the lower end of the market to the higher end. When it comes to our product, improvements have been made however there are still many very basic things that need to improve.
Those that quickly come to mind include public toilets, pavements in Valletta, access to the sea from rocky beaches such as Sliema.

Do you consider Sliema as an important tourist resort?
The amount of tourist beds is comparatively low in Sliema and it cannot be considered solely a tourist resort because it is first of all a residential town. But Sliema and St Julians are the best two all year round tourist localities. Tourists visiting Malta in winter can find all the facilities they need. In this sense Sliema is a prime tourist resort.

A number of projects are in the pipeline for the Tigne/Qui-Si-Sana promontory. Is their a risk that business will shift from the centre of the town?
If commercial development is allowed in Qui-Si-Sana and adequate parking facilities are also offered, a shift towards this part of Sliema is inevitable. Our market is limited. Operators closer to the Sliema centre will suffer.

Why did you propose a parking in Ghar id-Dud in 1998?
The Ghar id-Dud promenade has not been properly refurbished since the 1960s. The Chalet has also been an eye sore for all these years. It is a shame that the first thing that attracts tourists as they look outside from the hotel window is a derelict and rusty structure. This would have been understandable in the sixties but this is not acceptable in 2005. The first thing that should be done is the demolition of this structure. Regarding our idea of a car park, this came along because of the acute problem that exists. So before embarking on this much needed embellishment we felt that it would be wise to take the opportunity to solve this problem. Developing a car park under the promenade also gives us the opportunity to eliminate parking on the pavement of the Ghar id-Dud promenade. It would surely become a more attractive place.
What we had in mind back then when we applied to build an underground parking was a one storey parking without any additional development. But subsequently a public tender was issued and we lost out.
Unfortunately for the past years nothing has happened despite the fact that the proposals of the winning tenderer departed from the principles outlined in the development brief. It is a shame that we lost five precious years.

According to the Planning Directorate the development of a car park would endanger the caves in the area. How can a parking be developed without endangering the caves?
I think the caves are only a pretext to stop the development. The real reason why the development cannot take place could be that the developer committed himself to pay an astronomical annual sum of Lm152,000 to government, which was a crucial factor in being awarded the tender.
This is definitely not a sustainable amount. I would like someone to prove to me that a one-storey parking would have an impact on the caves.
Our architect is convinced that the caves would not be affected. And even if a problem exists we should think of other solutions to alleviate the parking problem.

Will you be willing to re-apply for this project?
Yes, but only to alleviate the parking problem. We would only be interested in breaking even from this investment. We are not interested in any speculative development. I cannot understand why the government does not allow the Sliema local council to manage such a car park. When a public tender is issued, it is inevitable that speculators will be among the bidders. There is a known tendency for developers to twist the development brief according to their designs. The genuine intentions of the local council cannot be put in doubt.

In Sliema both the Qui-Si-Sana developer and the Sliema local council are proposing a resident parking scheme. How do you view these proposals?
We look at this scheme through the eyes of a commercial enterprise. I cannot agree with the notion that employees and patrons are not allowed to use surface parking and are obliged to pay for using the Qui-Si-Sana car park.
As regards the Sliema Local Council’s proposal I think it is more balanced. The council is saying that part of the road will still be accessible to non-residents but I cannot understand yet, how this is going to work.

Joseph Preca was interviewed by James Debono

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