The Hospitality Industry – Reaching New Heights

The tourism industry has long been one of the main pillars of the Maltese economy, generating income and employment for thousands of Maltese families. The industry as we know it today has come a long way, breaking new ground and reaching record levels of tourist arrivals and overall industry performance. Over the years, the industry has managed to continue to reinvent itself by growing niche markets such as language travel, diving and conference and incentive travel. The profile of visiting tourists has continued to evolve and become more diverse and less dependent on the traditional core inbound UK, German and Italian markets.

In 1974, the year in which AirMalta was set up, the Maltese Islands welcomed 272,516 tourists. Last year, Malta received just under two million tourists. An impressive result for a country the size of Malta. Between 2006 and 2016 the number of tourist arrivals increased by 75%. As a result of shorter average length of stay tourist guest nights increased to a lesser extent by 42% to reach just under 15 million guest nights in 2016. Tourist expenditure, increased by more than €724 million during this last decade, with €1.7 billion spent during 2016.

2006 2016 Change: 16 vs 06 % Change
Tourist Arrivals 1,124,233 1,965,928 841,695 75%
Guest Nights 10,502,988 14,961,000 4,458,012 42%
Expenditure by Tourist € 984,041,463 € 1,708,951,000 € 724,909,537 74%

These results would not have been achieved were it not for the commitment of all stakeholders involved in the sector, who despite having their own interests to safeguard, all worked together in making the tourism industry a success story for Malta.

A key contributory factor driving these results has undoubtedly been Malta’s increased connectivity to the rest of the world and the ease with which tourists can now travel to Malta. MIA statistics report that the number of aircraft movements increased by 29% during the past 10 years. The number of airlines operating to Malta reached more than 40 in 2016. The increase in the number of carriers flying to Malta has not only resulted in a very significant increase in carrying capacity but has also allowed Ryanair to establish itself as the carrier bringing in most passengers.

% CHANGE: 16 vs. 06 29%
Top 10 Airlines Passenger movement 2006 Top 10 Airlines Passenger movement 2016
1 Air Malta 1,612,926 1 Ryanair 1,731,881
2 British Jet 151,268 2 Air Malta 1,600,408
3 Alitalia 147,458 3 Easyjet 279,266
4 British Airways 127,078 4 Lufthansa 230,965
5 Lufthansa 111,638 5 Wizz Air Hungary 177,420
6 Emirates 54,193 6 Turkish Airlines 132,521
7 Thomson Fly 51,115 7 Alitalia 111,504
8 Thomas Cook Airlines 44,102 8 Emirates 88,329
9 First Choice Airways 38,301 9 British Airways 80,024
10 MyTravel Airways 34,503 10 Vueling Airlines 73,131

These positive trends are translating into significantly improved operational performance for hoteliers and all other sectors which are dependent on the performance of the tourism sector.

Deloitte Malta has been reporting on the performance of the hotel sector for more than 25 years. Over the period, the sector has faced some tough challenges especially in the wake and aftermath of the global financial and economic crisis. Profit levels had taken the brunt of the crisis and for some time the outlook was bleak. As carrying capacity improved and tourist arrivals increased, hotel performance began to steadily improve. 2016 was a very strong year for the hotels sector.

4-STAR KPI 2006 2016 5-STAR KPI 2006 2016
Occupancy 70% 82% Occupancy 63% 76%
ADR €37 €72 ADR €89 €141
RevPAR €50 €86 RevPAR €108 €160
Direct costs PAR €5 €9 Direct costs PAR €14 €19
Indirect Overheads PAR €9 €11 Indirect Overheads PAR €21 €25
Annual GOPAR €3,697 €13,655 Annual GOPAR €7,615 €21,362
GOP margin 20% 42% GOP margin 19% 36%

Between 2006 and 2016, hotel occupancy rates increased by more than 12 percentage points while the average daily rate (ADR) increased from €89 in 2006 to €141 in 2016 for the 5-star category and from €37 to €72 in the 4-star category.

Hotels profitability has also improved significantly and hotels have managed to pull themselves away from the rather bleak and precarious prospects they were facing less than 10 years ago. Following a period of recovery, in the aftermath of the international economic crisis, hotel profits have improved steadily, more so in recent years. In 2016, 5-star hotels registered an annual gross operating profit per available room (GOPAR) of €21,362 while 4-star hotels had an annual GOPAR of €13,655. Over the ten year period between 2006 and 2016, 5-star and 4-star hotels in Malta increased their average GOPAR by close to three times.

While these results are clearly satisfactory and all indications point towards sustained growth for the hotel industry in 2017, the tourism sector remains a cyclical industry which is highly impacted by both internal and external factors which may be outside its control.

Malta’s strong tourism performance has not been exclusive to our islands, as most other competing European Mediterranean destinations have also reported strong tourism growth and performance on the back of the misfortunes of other traditional competing destinations facing internal unrest. For this reason our success cannot be taken for granted as it is only a matter of time before these other destinations bounce back.

Whilst reported revenues and profits have been steadily improving, direct costs and indirect overheads have also increased during this period. In addition, hoteliers are clearly facing increasing challenges when it comes to recruitment and most operators are having to increasingly resort to the employment of non-Maltese nationals on a less permanent basis.

A closer analysis of the tourist arrivals figures shows an evident shift from tourist staying in collective accommodation (hotels, apart-hotels, guest houses and hostels) towards private accommodation (holiday furnished premises, host families, use of private residence, and staying with relatives or friends). This shift in tourist preference could have an impact on hotel performance if the growth in tourist numbers begins to subside. In 2006 the share of tourists opting for private accommodation represented 30% of the total guest nights compared to a very significant 41% in 2016.

Unquestionably, Malta should be proud of its achievements in tourism over the years. Having said this, the sector cannot afford to rest on the laurels of these successes and must remain focused and reactive to issues as they emerge. It is our conviction that if everyone continues to pull in the same direction the industry will continue to progress in the months ahead.

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