TOURISM DEVELOPMENT
The development of tourism in Malta took off in the late 1950’s. Prior to this the Maltese economy was geared towards providing services to the British military base. The tourism industry was not at all important during that time. However, this situation changed as a consequence of the fact that the British Government started running down the base due to Malta’s loss of strategic importance.
New areas of economic development had to be identified. Tourism, together with ship repair and light manufacturing were identified as possible areas capable of immediate development. These sectors earn the Maltese economy the much needed foreign currency. This foreign currency is required because Malta has to import most of its requirements since it has very limited resources which are not at all numerous in variety.
So, in the late 1950’s, Government initiated a programme of capital spending on improving access to beaches, and on promotion and advertising. In 1958, the Malta Government Tourist Board was set up with the aim to start promoting Malta. However, very limited funds were available, Lm0.5 million spread over a five-year period. At the same time there were only 25 hotels with some 1,200 beds. Tourist arrivals were about 12,500, leaving a gross income of only Lm 765,000.
In the mid-1960’s, a grants programme to encourage new hotels was adopted. This was a costly measure but very successful. In fact, by 1969, Malta had 101 hotels with over 7,500 beds and over 186,000 tourists visiting the islands and leaving over Lm 10.8 million as earnings.
Tourism development slowed down in the 1970’s as a consequence of a change in administration and in mentality. The grants programme was halted and funds were channelled towards the creation of industrial infrastructure. This was done because, then, the tourism industry was considered to be very vulnerable.
Consequently, hotel building activity declined. Over 10 years, from 1970 to 1980, the number of beds increased by only 3,000 whilst the number of hotels fell from 110 to 100. However, tourist arrivals, especially from the UK, increased by fourfold, from 170,853 to 728,732.
During this period there was a shift from hotel to self-catering accommodation. Apartments which were previously used by British services now became available as tourist accommodation. New apartment blocks were built. Places like Bugibba and St Paul’s Bay were built up in less than 10 years. Whereas in 1979 apartments provided 14,000 beds, in just three years to 1981 this had increased to 29,000 beds.
At this time, 76% of the tourists came from the UK and 60% of all available accommodation was in self-catering. Demand continued to increase, prices rose but quality fell. The then current Maltese infrastructure could not take this new scenario with the result that massive infrastructural problems, such as water shortage problems, began to arise.
All this resulted in a drop in arrivals, especially from the UK, which dropped by 35% leading to a 28% in the total figure. This decline continued till 1984 when tourist arrivals fell to almost 480,000 compared to 728,000 of 1980. Income from tourism also fell from Lm111,900,000 in 1980 to Lm 63,100,000 in 1984, a decline of 44%. This situation was accentuated by the international recession.
The accommodation sector was also adversely affected as occupancy rates declined. Self-catering accommodation was the most badly hit. Beds in this sector fell from just over 29,000 in 1981 to just over 6,600 in 1991. Some of the surplus accommodation was sold to Maltese people for domestic use whilst the rest , after investment, were upgraded to holiday complexes. These complexes offered basic hotel facilities to a predominantly self-catering holiday.
Measures were taken to combat this decline. These included:
• diversification into new continental markets: New tourist offices were opened in Frankfurt, Paris, Amsterdam, Milan and recently in New York;
• further additions to the accommodation sector were halted;
• a Forward Buying Rate scheme was introduced in 1986 to the UK tour operators. This helped to increase tourist arrivals from this market and restore tour operators’ commitment to Malta.
This resulted in an increase in tourist arrivals and in tourism earnings in 1987. However, the UK market accounted for a smaller share of the total as a consequence of the diversification efforts undertaken.
In 1987, there was a new change in administration and in mentality. It was realised that tourism could not keep growing at the rates of previous years. Malta had to increase foreign exchange earnings from tourism by maximising revenue from a better quality tourist. New steps were taken to improve the overall tourism industry infrastructure, including:
• a major reclassification exercise for all hotels
• new permits only given to 5* or 4* hotels
• new airport terminal by 1991
• setting up of an Institute for Tourism Studies
• commitment towards the setting up of excellent conference facilities
• general infrastructural developments such as improved water supply and brand new distribution network. Latest fibre-optic technology for telecommunications and an extensive road-surfacing programme.
Tourism, being so vulnerable, requires proper planning. So, in 1989, a Master Plan for Tourism was completed setting out the strategic approach for the future development of tourism in Malta. The main weaknesses of the past Maltese tourist industry were a heavy dependence on the UK market, the seasonality of the industry and the quality of the product being offered as well as the environmental issues. The strategies suggested to overcome this situation were:
Market diversification: For 1993, UK 49%, Germany 17%, Italy 8%, France 5% and the Netherlands 3%.
Deseasonalisation: more evenly spread throughout the year, achieved through promoting an attractive tourism product to attract visitors in off-peak months.
Product/tourist upgrading: the cultural and historical assets of these islands are being promoted instead of the traditional sun, sea and sand image previously associated with Malta. E.g. Hagar Qim/Mnajdra project. Aim at better appreciation of our assets.
The first half of the 1990s registered growth in tourist arrivals and earnings up to 1994. Slight declines were registered in 1995 and 1996, which were then followed by periods of growth, but at a slower rate. The 1995 and 1996 decline were mainly due to announcing the removal of the Forward Buying Rate scheme. This scheme was replaced by the Tour Operator Support Scheme, which was introduced after tourism authorities realized that the unfavourable exchange rates would make Malta even less competitive. This would have resulted in further declines. Following a policy decision, the Tour Operator Support Scheme was phased out in October 2001. The scheme was replaced by other marketing initiatives. This policy was in line with the shift being made in the approach adopted to target the market.
At this stage of Malta’s economic development, the services sector expanded further and played a larger role in the islands’ economy. This was due to the expansion of other industries such as the financial and private services. Over 70% of Malta’s GDP during the 1990s was generated through the manufacturing, services and through the public sector. National statistics do not provide the percentage contribution to GDP of the tourism industry. The tourism sector, given its fragmented nature, is spread throughout the various other sectors. However, tourism authorities, during the 1990s have commissioned studies to assess the economic impact of tourism in Malta. The latest study available, which is based on data for 1998, estimates that the full impact of tourism on GNP is 24.2%. At a direct level, the impact of tourism earnings on GNP is estimated at 10% (Mangion ML & Vella L, 2000).
During this decade, the number of beds on the market exceeded 40,000. This was mainly due to the large five- and four-star hotels which were built following government’s policy to allow only this category of accommodation development. By the year 2000, 41,000 hotel type beds were available on the market together with an estimated 5000 beds in self-catering accommodation.
The rate of growth of bedstock has by far exceeded that of guestnights with the result that occupancy rates are being negatively affected. During the past years, occupancy rates for all types of accommodation (excluding self-catering accommodation) have been in decline indicating a not so healthy situation. Occupancy rates increase almost to full capacity during the summer months and are lower during the winter period.
In 2000, the overall occupancy rate fell to 47% primarily due to decreases in the occupancies of five and four star hotels and of villages, complexes and aparthotels. Overall the five and four star hotel segments still maintain quite healthy occupancies. During the year 2000, more tourists stayed in five star hotels registering higher guestnights and accounting for a higher market share. However, these increases were offset by the increase in hotel beds in this category, which increased from 2902 beds in 1999 to 3750 beds for the year 2000. Four-star hotel occupancy has gone down dramatically from an average occupancy of 70% throughout the previous five years to 56% for 2000. This is due to fewer nights being registered in four-star accommodation due to fewer tourists staying in this category of hotels. Villages, complexes and aparthotels also registered a strong decline in occupancy level for the year 2000. Although more tourists opted for this type of accommodation, their length of stay was much lower than that for previous years. This resulted in fewer guestnights and therefore lower occupancy levels. Three star occupancies for the year 2000 slightly decreased over that for 1999 due to fewer guestnights resulting from a shorter length of stay. It is worth noting that in the past years there has been a shift in accommodation usage, partly due to better quality accommodation charging lower rates.
Although Malta has been striving to achieve a more even spread in tourist arrivals throughout the year, major changes in visitor flows are difficult to achieve. During the 1990s, the summer months have attracted around 36% of total arrivals, i.e. a volume of 400,000 tourists. The shoulder months (March to June and October) account for 45% of arrivals with a further 19% visiting during the winter months (November to December).
Malta is becoming more accessible. The islands are connected to 48 countries through chartered and scheduled flights. In 1993, 40% of tourist arrivals used scheduled flights and 60% were booked on chartered flights. This ratio has changed to 57% scheduled and 43% chartered. In 2001, there was a further shift to 63% scheduled and 37% chartered. This does not necessarily imply that because of the increased use of scheduled flights a higher spending tourist is visiting the islands. Some previously chartered flights have been converted to scheduled but are still predominantly booked by tour operators. AirMalta currently holds 57% market share.
Malta’s tourist profile has changed from one which was mainly focused on visiting friends and relatives to a much more diverse purpose of visit. Malta has been transformed into a destination which has the potential to offer something for everyone. Malta attracts 1% of total tourists to the Mediterranean. It is being marketed not solely as a destination for one’s main annual summer holiday, but also, and even more so, as an off-peak destination. Particular niche markets have been developed. These include English language learning, the meetings, incentives, conferences and exhibitions market, diving and other water sports. The aim of this line of tourism development has been to enhance Malta’s offer and make the country more attractive as a tourism destination and thus earn further foreign earnings from the more lucrative source markets.
Currently, as indicated in the pie chart below almost 40% of tourists’ expenditure is allocated for accommodation which very often is included in the package which visitors purchase in order to visit the islands. Almost one-fourth of tourists’ expenditure is generated through the provision of aviation and handling services.
Tourism expenditure breakdown by segment
The general trend in expenditure patterns is that the bulk of visitors’ expenditure during the stay is on food and drink. This is not only because this is a basic necessity, but also because eating out is a form of entertainment in itself and Malta does offer a variety of restaurants and a choice of cuisine. Due to their preferences, expectations and reasons for visiting Malta, different source markets register some different expenditure patterns. These include:
· the Dutch are the ones who spend the largest share of their expenditure on food and drink
· the Italians and the French take up accommodation outside the package
· the Germans are the ones who allocate a larger share of their expenditure on recreation
· shopping is more attractive to the British than to other nationalities especially the Dutch.
One of the deciding factors which influence the level of demand for a holiday in Malta is the brochure price. Brochure analysis conducted by the Malta Tourism Authority on an annual and seasonal basis, particularly for the UK market, indicate that package prices have increased throughout the years. Malta’s competitiveness depends on the prices featured in these brochures, which reflect the different price and cost levels of each destination’s offer. These brochure prices are indicative as often tour operators provide special offers. Malta is featured together with other Mediterranean countries: Spain, Tunisia, Turkey, Cyprus, Greece and its islands, and in the more recent brochures with other destinations which tend to be more exotic and long haul.
Brochure prices for Malta have to compete against the cheaper destinations such as Tunisia and Turkey and the more expensive destinations such as Cyprus. Malta, through the TOSS, had in the past years, set its eyes on achieving a price which is at least competitive with that of Spain.
These brochure prices, together with domestic prices, and other variables such as image and awareness about Malta, disposable income, influence potential travelers in their decisions regarding which destination to choose.
At the current level of tourism demand, pricing and expenditure, Malta’s tourism industry contributes to a maximum of
- 24% of the country’s GNP
- 22% of Government Income
- 11% of Imports and Outflows
- 17% of full-time equivalent employment
This level of economic activity by the tourism industry is supported by:
- 194 accommodation establishments providing 39105 beds, 48% of which are in five and four star hotels;
- 917 catering establishments (varying from speciality restaurants to take aways to bars), servicing over 39,000 covers;
- 229 travel operators;
- numerous retail outlets and other providers of support services.
Additional accommodation establishments and other investments are envisaged for the next three years, following development permits issued in the past. Following the Carrying Capacity Assessment which takes into account economic, environmental and social issues, tourism policy was amended as recommended by the CCA study. Furthermore, through its Strategic Plan, MTA has identified the direction it is to follow to ensure that tourism is developed in a way that ensures the best allocation of its very limited resources.
Marie-Louise Mangion
Senior Manager
Strategic Planning & Research Division
