12 July 2006

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Business Today

Clash of the titans

The contrasting views on the reform in tourism is like a cacophony of two badly orchestrated arias

According to the Prime Minister’s latest prognosis, the country is getting healthier economically.
It is undisputed that progress has been achieved since joining the EU and the perceived improvement in the economy is confirmed by the NSO. The confirmation of an injection of EUR822 million, starting next year is most welcome.
Some may ask if these good tidings will tempt the exchequer to loosen the purse strings. But there is a fly in the ointment. The ever present lure to hive off reform under the guise of highly paid consultants survives.
Only just recently we saw two audit firms responding to their paymasters’ requests for lambasting the ‘opponent’ in the debate on low cost airlines.
Air Malta commissioned its auditor to analyse the effects of an extra two million tourist arrivals and the judicious study harped on the negative effects of increased economic activity. It also comes as no surprise that MHRA utilise the melody, sung so beautifully by its resident auditor consultants that argued all out in favour of low cost travel.
The resulting confusion in the contrasting views on the reform in tourism is like a cacophony of two badly orchestrated arias. Without any doubt the improvement of the product and lowering of operational costs is a must. GRTU proposes different methods to reduce the cost base such as lowering income tax bands, reducing the VAT rate on food and drinks in hotels to five per cent and a reduction in FSS for SMEs.
Another bold step could be the rethinking on how to match the request by low cost airlines for a volume discount on landing charges. To start we note how Meridiana, Italy’s main low-fare airline, has started operations to Malta. Although no match for the volume carriers such as Easyjet or Ryanair it is certainly a modest breakthrough. More positive news which will contribute handsomely to the state coffers concerns Tecom, the company owned by the Gulf Arabs who intend to invest Lm110 million in SmartCity, an ICT paradise which should create 5,600 new jobs.
The acquisition by Tecom of 60 per cent shareholding in Maltacom is a strategic move and will further ease pressure on government’s cash flow. This deal was signed last month totalling EUR214 million. Again, one would comment that as has been the case with previous privatisations, offers tend to be discounted mainly due to the penal condition linked to a guarantee of full employment.
In most cases this made political sense and although Maltacom is profitable it also carries surplus workers. Now that the rhythm of privatisation has gathered momentum, politicians sing in unison assuring us that in the coming months the people will be able to reap the positive results of government’s direction. Will Air Malta as a flag carrier be privatised or at least seek a strategic partner? Who knows?
Another positive sign is amply pointed out by the minister of tourism as he proudly reminds critics of 1,009 new jobs last year. In his opinion, such a number is expected to go up as we begin to reap the benefits of new capital investments in hotels. In this context, Air Malta is shedding its non core investments and this policy has generated seven bids for Crowne Plaza Hotel on the site of Fort Cambridge in Sliema. Offers reach Lm23 million which is more than double the ticket price for the land parcel at Pender Place in St Julians.
Such proceeds help in no small way to lower the deficit. With hindsight, it just shows how this site situated next to the burgeoning Midi development also built on public land vastly appreciated in value. Conservationists plead that Holiday Inn site will not be turned into another concrete jungle adding to the cacophony of luxury apartments on the once pristine Tigne peninsula. The alternative to office blocks and residential apartments is of course more bed stock. It comes as no surprise that MHRA is warning that the proliferation of more bed stock in an already saturated Sliema/St Julians area needs to be monitored by the authorities. But then since the successful bidder must assume the entire workforce of Holiday Inn, one assumes they will opt for a hotel with the obvious expansion of five star accommodation. MHRA is sensing a saturated market with the opening of the St Julians Le Meridian,the new Radisson Golden Sands and expansion plans at the Hilton and the Westin Dragonara. So is there a solution in sight?
There is no quick-fix solution and consultants confirm that the future of our tourist product shows reason to be cautious.
With exotic resorts competing head-on the Malta destination is likely to lose market share to upcoming destinations, especially the Asia-Pacific region. Overall, Mediterranean tourism is losing the virtual monopoly it held over the world tourist market until a few decades ago. This relative fall in tourist numbers to the Mediterranean is linked to the globalisation of tourism, which entails more and more competition among world destinations. One possible solution is to re-brand by attracting alternative tourism focused on the importance of cultural tourism as a key factor in boosting arrivals. Lobbying for more cultural tourism leads us to start discovering and preserving our heritage, investing more in our culture. Otherwise, this legacy from the past will remain in a state of neglect.
Nasty tongues question whether the millions lost on Air Malta’s failed Avro liner project should have been redirected to refurbish St Elmo and raise the Opera house from its ruins. We are still in time to optimise the EU funds to finance direly needed upgrades.
Anything less and we cannot expect better than a miserly single digit growth in arrivals. All this is confirmed by reading the World Tourism Organisation’s latest barometer. As an island destination, we suffer from an ageing tourism product, combined with severe under capacity in three star accommodation. A lot has been written by MTAs in-situ consultant about ways in guaranteeing a plan securing new arrivals of 50,000 annually for the next three years. This plan faltered. Others favour the low cost airlines solution. Quite the contrary, a cautious view is being taken by Air Malta’s auditors who believe the introduction of low cost airlines would sound the death knell to our national carrier.
Consultants call it a cliché that more wealthy tourists prefer using low-cost airlines because they would rather spend more money at their destination. But not everything is doom and gloom. The positive news is that there was a 6.8 per cent increase in the number of British tourists. Other moderate increases were recorded from Austria, Belgium, France, the Netherlands and the US.
The minister for tourism regularly writes in the media trumpeting the new investment in quality hotels. Inevitably these result in sustainable jobs. But critics reply that by comparison, these openings are dwarfed by the thousands of potential new jobs that the arrival of two million tourists could create by the introduction of low cost airlines.
In retrospect it is vital to point out that Malta is in competition for the millions of passengers that no frills airlines will carry to competing destinations. In the meantime, Easyjet registered two Maltese companies while Ryanair, one of the world’s biggest growing airlines, promised to fly two million extra passengers within three years.
Deciding what is best for the future and acting upon decisions made takes a lot of political courage hence the delay by government in discounting landing charges. Hoteliers and developers of luxury apartments have invested Lm400 million in five star complexes only to realise that they had to slash rates to maintain business. Is this a clash of the titan consultants who may play to the tune of their masters or is there a deeply rooted hidden agenda?
Can this clash result in that we are not succeeding to attract the upper segment in the tourists market who can afford luxury holidays. Logic dictates that the way forward cannot lie in offering more cheap ‘bucket and spade ‘or the bloated ‘teenage students ‘ tourism route but to incorporate a cultural route based on our rich Mediterranean historical, cultural and gastronomic heritage.

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