Speech by the Mario de Marco, Parliamentary Secretary for Tourism at the 50th Annual General Meeting of the Malta Hotels and Restaurants Association (MHRA) – Sliema – 21st November 2008
Roughly eight months ago, literally hours after being handed the tourism baton, I was invited to an MHRA gathering in Floriana. The mood during that meeting was cautiously upbeat. The industry had just experienced one of the best winters on record and predictions for summer were good even if the clouds on the horizon were blackened by the ever-rising price of oil. Then the sky fell on most of the world economies; the airline industry, inherently fragile, went into a nosedive and before we could say hello to summer we had to recast our predictions downwards. I like to think that none of this had anything to do either with me taking over the tourism portfolio or with the fact that I attended an MHRA meeting. Whatever the reasons, things have taken a turn for the worse.
Notwithstanding the turn of events, overall growth worldwide for tourism in 2008 is still projected at around 2 per cent. This growth is due to the strong results of the first five months. For the first eight months of 2008, international growth averaged 3.7 per cent compared with the same period in 2007 while for the year as a whole it is now projected to be at around 2 per cent globally. Europe currently stands at plus 2 per cent for the first eight months of 2008… well down from the 5 per cent growth of the last two years.
How did we fare? The situation locally mirrors that of the international situation except for the fact that we performed better than average and better than most if not all of our direct competitors. In the first nine months of 2008, we had, in comparison to the same period last year: An increase of 75,596 tourists that is an increase of 7.8 per cent; An increase of 4.8 per cent in total bed nights to a total of 9,209,845; A 2.9 per cent increase in the collective accomodation nights spent by tourists; An 8 per cent decrease in per capita tourist spending (€829), due in part to a reduced average length of stay and reduced expenditure on the ‘package’ element; and an increase in the direct tourist expenditure on accomodation of over €22 million.
This means that by the end of the year we are envisaging an overall growth of around 4 to 5 per cent in 2008, which is still beyond our target of 1 per cent more than the European average growth, and most of all, it is still a record on an already record year registered in 2007, hoping to end the year by reaching the 1.3 million figure.
The situation for next year, as our main source markets enter into a deeper recession, does not appear positive. The situation is further aggravated by the airline industry cutting seat capacity as it seeks to contain costs following the severe losses they incurred in the wake of the fuel hike prices in the first six months of this year. So far international tourism has resisted the downturn better than other economic sectors such as construction and real estate or car manufacturing.
We are witnessing and will continue to witness certain shifts: traffic to closer destinations, including domestic travel, is expected to be favoured as compared to long-haul travel; segments such as visiting friends and relatives, repeat visitors, as well as special interest and independent travellers are expected to be more resilient; the decline in average length of stay as well as on expenditure is projected to be more pronounced than in the overall volume; destinations offering value for money and with favourable exchange rates have an advantage as price becomes a key issue; companies will and should concentrate on containment of cost in order to keep their competitive edge.
It is more critical than ever before to work closely together in the tourism value chain – between the public and private sectors, and destinations and the travel trade.
In this changing scenario, if left unchecked, our tourism industry will most probably shrink. We must, however, take advantage of certain trends above indicated - which can work to our benefit: the shift from long-haul to mid-haul; from mid-haul to short-haul destinations; the emphasis on value for money destinations.
Our combined action is needed to ensure that the positive trend we enjoyed over the past couple of years is maintained and certainly not reversed. We need solutions but these cannot be the same solutions we applied three years ago. The situation we are facing now has one significant difference from the situation we were facing three years ago. Three years ago we were underperforming while the rest of the industry was on a high. This time round the industry in general is shrinking and if anything we are performing slightly better. Three years ago all we had to do is realign our industry with international trends. This is not an option now.
Our immediate response to the previous crisis was to open up new routes to low cost carriers and other carriers and to radically shift the way we advertised Malta. We chose routes carefully selecting regions that gave us additional business. We chose regional routes for low cost carriers leaving legacy carriers to service the important hubs and regions where tour operator business is still strong. Most of the routes we launched performed to our and the airlines’ expectations. Some didn’t and had to be stopped. Unfortunately, as a result of factors beyond our control we also lost some routes which were performing well. The main net result of these changes is that: the UK, our most important source market, is – as evidenced from the high load factors – underserved; Germany our second most important market is back to being served only by two legacy carriers; Italy is performing below its capacity; and France, our fourth largest source market, still being served solely by our national carrier.
Opening up new routes, especially in the UK remains a valid, indeed necessary line of action. We need new seats to push up, and in some cases contain, numbers from this market. Government published a call last month inviting airlines to express an interest in operating to Malta from three UK regional destinations. We hope, that this call can generate a positive response even if we acknowledge that getting airlines to commit today is ten times more difficult than it was a couple of years ago.
We also need to push up numbers from Italy, our closest neighbour. Closeness is a big issue when oil prices are such an uncertainty. Five months ago, predictions pointed at the $200 mark per barrel. Yesterday oil prices fell below the $50 mark, the lowest level since January 2007. However one has yet to see what effect the reduction in oil production is going to have on price. If the price of oil goes up airlines will push for shorter routes. But this is only part of the solution. We also need to fill the empty seats we have flying in from Milan and other Italian regions, as well as from other destinations where the load factors allow for this.
Filling available seats should in theory be cheaper and easier than starting new routes. From my discussions with members of the trade, I concluded that this solution is highly underrated.
I have set up a special team which meets regularly to discuss tourism trends and propose intervention measures. I will keep insisting with this group and with MTA on the need to push up load factors from existing routes. I want MTA to carry out more intensive marketing campaigns, targeting those regions with low seat factors. Filling up those seats will make up for lost seat capacity from other routes.
We need to stir up demand. I would have wished that the problem we are facing today is simply one of accessibility. It is not. It is also a problem of stirring up demand to fill those seats that we have available on those markets that have been traditionally our core markets, on those markets that although secondary are important, and on those markets that are emerging. The additional money voted by Government will help us run the extra mile and make a route sustainable.
Speaking of sustainability, I feel I must underline the importance of Air Malta. Air Malta will as from next summer operate all its twelve aircraft on Malta routes. The national carrier is planning to introduce new routes. One has to assume that initially these routes will suffer from low load factors. However, it is in our long-term interest to do what ever we can to see these routes gain strength. I have in mind, particularly, the new French routes and the increased frequencies from German airports. Our tourism industry has survived a number of crises not least thanks to the fact that we have a national carrier. Our collective position when bargaining, when considering options, when dealing with crisis, would be so much the weaker if Air Malta was not around.
I talked about accessibility, I talked about marketing, I must of course refer to product. Those who know me know that I share the view if not frustration of those who want our product to sparkle. We have so much more to offer. We also need to display better what we are offering. We need to manage, clean and present our resources better. Some members of the industry, including some of the nodding heads I see in front of me, might think that this is an area that can or needs to be addressed only by government. Let me state clearly. We as a government are aware that we need to do more and in fact, we will be spending €120 million over the next years to improve our tourism product. But on this one the buck does not stop only with me or with government. It stops with all tourism operators not to mention all citizens. We all have our part to play in improving our tourism product.
However, as I said earlier this week, there is one determining factor that in today’s circumstances is critical. We need to offer our visitors good value for money. It is a shared responsibility amongst us all. By this I do not mean that we have to be cheapest on the market, but we can, and certainly should offer best value for money. It is the best competitive edge that we can have over other competing destinations in these arduous times.
I have put across the underlying thinking behind the line of action we intend to adopt over the coming months. I know that Josef Formosa Gauci will be taking you through MTA’s actions and initiatives in greater detail.
From my part, I want to remind you of the commitment I made to you eight months ago, in my first address to MHRA. My door is always open to you as it is to other important stakeholders in this industry. We can overcome this period if we pull in the same direction.
