Updated 1.44pm

Malta's tourism sector was facing a likely slowdown even without the COVID-19 pandemic, industry analysis has found, with a sharp increase in the number of available tourist beds outpacing demand for them in 2019. 

Raphael Aloisio, a Financial Advisory Leader at Deloitte, said that “the writing was on the wall” for the tourism industry, and that increasing supply of accommodation property was starting to have an impact on profit, with a ten-year growth trend having started to stall in 2019. 

Aloiso was giving an overview on the state of the tourism sector before the COVID-19 pandemic during the National Tourism Forum, organised by the Malta Hotels and Restaurants Association. 

He highlighted that it was important to stop and reflect after the “tsunami of difficulty” the industry has been through.  

“After nine years of growth, there is a tendency to act on impulse and look at the upsides without assessing the risks, challenges and changes,” he said. 

Let the good times roll

In 2010, the industry saw 1.3 million arrivals with 12 million guest nights and €1.1 billion in tourist expenditure, accounting for some 13% of Malta's GDP. 

From 2010 till 2018, the industry saw an increase of 1.4 million arrivals and tourist expenditure increased by over 120% to €2.5 billion. This represented an increase of 8.6 million guest nights and tourist expenditure grew to occupy some 17% of the GDP. 

The country's tourism sector was brought to a sudden halt in March 2020 as the pandemic reached Malta and the country's airport was shut for months on end.  While tourism has now restarted, it remains significantly below pre-pandemic levels. 

Overheating signs in 2019

However, Aloisio noted that the “signs of overheating” were already present in 2019, as revenue started to stabilise for the first time despite tourist numbers continuing to increase.  

That indicated that as the number of beds available increased, room rates started to be affected, he said. 

“Rate value, quality and profitability are more rewarding than volume. We do need numbers of course, but I think moving forward investors and authorities need to have their feet on the ground and be more realistic in ensuring that we aspire for the right volume of tourists and the right quality,” he said. 

“If supply exceeds demand, notwithstanding that demand was increasing, the reality is that it will have an impact on rate which will have a direct impact on profitability.”

“However, the writing was on the wall. The pressures of increased in-supply were starting to raise their dangerous horns and starting having an impact on performance.” 

Reliance on foreign workers

Another key issue in the industry observed during the time is the increased dependence on foreign workers to keep services running. 

Between 2010 and 2018, the national workforce rose from 165,000 to 239,000 - an increase of 74,000 employees. Tourism accounted for 12,000 of those jobs, a total of 16% of the share in the workforce increase.

Aloisio noted that 62% of the total increase in the employment sector was taken up by foreign employees. With unemployment levels continuously low, that indicates that was a challenge to find workers even before the difficulties imposed by the pandemic. 

Malta's 'natural limit' on tourist numbers

When it comes to capacity, in 2018 there were 200 collective accommodation properties, accounting for some 19,000 rooms and 40,000 beds. 

While tourism numbers started exploding, between 2011 and 2015 the supply growth was flat, which resulted in increased profitability, Aloisio said. However as bed stock capacity started to increase between 2015 and 2018, this was considered to be a major contributor to profitability rates levelling off in 2019. 

“If it were not for COVID, would the level of supply have continued to increase faster than the increase in tourism numbers? Given the physical limitations of an island, the level of tourists that can be brought here has a natural limit,” he said. 

“If we continued to increase supply and the level of tourists that can visit starts to become contained, we would have, irrespective of Covid, had an impact on performance.” 

“Does this mean that we should place a freeze on development? Not at all. But we have to achieve sustainability.” 

“Instead of simply growing, we need to focus on evolving. Evolving our product and service offering to be inline with future aspirations.”

What next for local tourism operators?

Aloisio also touched on the issue of private accommodation and how this was a reality the tourism industry was facing all over the world. 

He said that hotel operators should embrace the concept and cater to tourists looking for that kind of accommodation. 

“I think when we look at new investment we have to think if our future product should be a traditional hotel or include a hybrid between typical hotel rooms and apartments.”

“When we talk about the future, we should be the whole fabric of the hospitality sector and sustainable capacity. If we over-expand bed stock capacity we will risk undermining the sustainability of the whole sector.”

With the global tourism industry slowly picking up, Aloisio nonetheless forecast that the country what not be well on it’s way to recovery before 2024, despite Malta pulling slightly ahead in numbers when compared to global trends. 

“We have a situation where 50% of people are still afraid to board an international flight. So the secret to pulling tourists towards us is becoming and remaining the ‘safe’ destination,” he said. 

“We are all made somewhat uncomfortable with restrictive measures, however it is one of the things that holds bearing on whether we are perceived as a safe destination. 

“The propensity for people to travel to Malta is increasing at a slightly faster pace than general trade, not dramatic but positive, so I believe what we are doing is clearly positive.”

“Malta as a whole needs to embrace sustainability and learn to do more with less and add value through quality and service rather than volume.”

PN: Operators should guide industry

Opposition leader Bernard Grech, who addressed the forum, said in prepared remarks that Malta's tourism sector faced a tough struggle to return to its pre-pandemic heights. 

He said the PN believed that operators know the market "better than any politician or authority" and therefore needed to be empowered to attract tourists to Malta. 

Grech listed a number of tourism-related proposals that the PN has made, ranging from a €25,000 reimbursement scheme for marketing expenses, allowing flexibility in tax payments and a proposals to slash VAT rates to 7 per cent for restaurants and hotel services.