Issue link: https://maltatoday.uberflip.com/i/1316584
6 OPINION 10.12.2020 P KF has, for a number of years, been following the performance of the hotel industry, which has seen glori- ous advancement, reaching a total of 2.7 million arrivals by the end of 2019. Sadly, the ad- vent of the COVID-19 pandem- ic has turned the tables upside down. Hot on the heels of a poten- tial vaccine, the Prime Min- ister has declared he wants Malta to be back to business as usual by May, after the vac- cine has been rolled out. To help bail out the economy, the Government quickly offered a furlough scheme for all em- ployees which started in ear- nest in April and has now been extended until March 2021. is was hailed by par- ty apologists as a saviour of many jobs. However, only recently, the restaurants asso- ciation have complained that the wage supplement paid to their members is less than that paid to hotel workers. Andrew Pace, the president of the as- sociation, said that "the feed- back we are being given by the economy minister is that equivalence will happen. e sooner we get this imminent support the easier it will be for us to survive". Pace also said the rent and electricity subsidy announced by the government earlier this year provided a great boost, but these funds, which have yet to be paid out, were bad- ly needed as the industry ap- proached the peak shoulder this winter. He was commenting that the industry is very much in sur- vival mode at the moment, as a general guide there are over two thousand permits for var- ious restaurants and eateries so one would expect around 8,000 workers being at risk. Also, at risk are the hotel sec- tor which has been growing over recent years as the poli- cy for mass tourism has been prevalent and amply promot- ed by MTA. In order, to obtain a better understanding of the implica- tions of such a hiatus caused by a severe drop in arriv- als during this year, PKF has drawn an analysis which has been broken down properties according to the hotel classi- fication. e main question - is it true that the quality of arrivals (spending power) is dwindling? e ensuing pattern pre-Covid shows that the is- land is going for quantity not quality. Starting with the two- star hotels, statistics show that the year-on-year number of guests and nights spent by guests in such hotels is in- creasing. Over a six-year period, the total number of guests stay- ing at two-star hotels has in- creased by 48.19 per cent, that means an average annual growth rate of 8.03 per cent. Although not to the same extent, the total nights spent in two-star hotels have also increased over the aforemen- tioned period (27.5 per cent). When one undertakes a sim- ilar analysis for three-star hotels this yields comparable results to the ones attained for the second-class category. e facts show how from 2013 to 2019, the total number of guests staying at three-star hotels increased from 353,496 to 497,553, or by 40.75 per cent. On the contrary, the rate recorded amongst five-star hotels is a mere 4.21 per cent. It is evident that although the number of tourists coming to Malta has increased by more than 54 per cent over the past five years, the quality of the visitors is declining, as evi- denced by the greater influx of guests in the lower category hotels. is has been exacerbated by the sponsoring by the MTA of low-cost airlines. Surely the issue of quality tourism has been a regular topic by our parliamentarians such that recently, the Prime Minister argued that the COVID-19 pandemic has presented an opportunity to realign the tourism industry to cater for higher quality visitors, rather than focusing on attracting larger numbers. Everyone agrees that to up- grade there has to be a shift away from overcrowded tour- istic areas to a more upscale niche tourism thus reducing the pressure on the local ecol- ogy and environment. While one must give credit to a lot of embellishment car- ried out during the past dec- ade, yet there is an ongoing criticism that the burgeoning construction industry has been galloping ahead reduc- ing the island into a massive building sight replete with tower cranes. Surely, the Holy Grail to attract higher quality tour- ist starts with improving the standard of living and general ambience of an overcrowded island. e economic factor justifying mass tourism has led us to keep an inventory of underperforming assets - mainly built in central sites. e question is: are these investments yielding a decent return on capital? Certainly not: this means that workers are also suffering from lower wages and longer hours. An- other phenomenon that has challenged the profitability of hotels has been the popularity of Airbnb. More specifically, hoteliers are preoccupied that the pri- vate rental services system may attract house owners tempted to abuse the system, that is they do not register their property for rent and vat regulations. In recent years, tourist arrivals using such type of accommodation have regis- tered double digit growth rate. Facts show how growth in the private accommodation section was strong, whereby in March 2019, circa 30,000 (20 per cent) tourists rented a private accommodation. It goes without saying that Air- bnb has emerged as a major player in linking property owners with prospective visi- tors since its establishment in USA twelve years ago. e hotel lobby remark that this is unfair competition say- ing if users are not properly licensed or are not registered for VAT, then such non-regu- lated activity will generate an unfair disadvantage for hotels that must abide by the rules. Although no official data is available in terms of the sup- ply of properties, it is estimat- ed that Airbnb have had 813 properties listed for rent in 2013, over 1,000 in 2015, circa 6,800 in 2018 and 8,761 list- ings in 2019. is factor alone strengthens the maxim that our tourism sector pre-Covid, has been growing healthily but in real terms the earnings per arrival was in decline. Sadly, the percentage of tour- ists who decide to stay in five- star hotels has been declining. e good news is the recent appointment of a qualified accountant the Hon Clayton Bartolo as minister of tourism. With his stamina and determi- nation, he is promising to lead a think tank of experts to plan outside the box and map a fu- ture cure to our dilemma. Objectively, a logical solu- tion is to undertake a root and branch reform of the hotels licensed so far and to discuss each on the merits of their fi- nancial viability. Following such a study with stakeholders on board, a sug- gestion is to incorporate an SPV as a PPP with funding from Malta Development Fund and an issue of popular government bonds. Ideally, over five years, the administrators of the SPV, start buying non-performing hotel properties and demolish same. e vacated plots will be transformed by the SPV into recreational parks, public car facilities and ornate gar- dens adorned with elaborate water fountains. is is a major restructuring task so somebody with nerves of steel has to bite the bullet to revamp our image as a quality resort. anks to the brief res- pite in the hospitality sector one can with the guidance of the energetic minister of tour- ism take the bull by the horns and plan a Renaissance. A Renaissance in the hospitality sector George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island