Analysis: The importance of a good summer for tourism

As Malta’s tourism season kicks off today, takes a look at how this vital industry has faired in the past years and why a good summer 2021 is a life-saver.

In 2019 the tourism sector in Malta broke yet another record, with nearly 2.8 million tourists visiting our islands. Back in 2012 the number of visitors was 1.4 million, meaning that in 7 years the industry has doubled. This increase was more than that achieved in the previous 50 years taken together. In terms of revenue this has risen to €2.2 billion, more than doubling in less than a decade.

Tourism has passed through troubled times at several points in Malta’s history. After doubling in the last three years of the 1970s, tourism numbers collapsed from over 0.7 million to less than 0.5 million in the early 1980s. It was only in 1987 that tourism numbers exceeded once again the 1980 mark. In the 2000s tourism numbers effectively fell during the second half of the decade, with the largest drop being a 0.1 million fall in 2009.  However, the decline in tourism experienced in 2020 was by far larger than any previously incurred by the industry. In fact, tourism numbers fell by 2.1 million or by 76%. This was ten times the drop experienced between 1981 and 1982, the previous worst decline observed in Malta. The tourism sector reversed back to the numbers it had in 1986.

The decline in tourism experienced in 2020 was by far larger than any previously incurred by the industry.

While the wage supplement lessened the impact on employment levels of this devastating drop, working hours were reduced by a third. This was three times larger than the decline observed in other services sectors. Besides the decline in labour hours, the average wage in the sector fell by 15%. As a result, the wages and salaries earned in this sector fell to below €200 million when a year earlier they were €250 million. Wages and salaries went back to what they were in 2015, which given that revenue was back to 1986 levels, meant that firms had to take quite a hit. In fact, the drop in operating surplus was four times the decline in employment income.

Besides sustaining firms’ operating costs, Government tried to boost domestic tourism. While in the first half of 2020, hotels saw a decline of over 74,000 nights spent by locals, in the second half there was an increase of 145,000 nights. In the months when the vouchers were active, hotel stays by locals were double what they had been a year earlier. This contrasts with what happened in other countries, where domestic tourism was weak.

While there are high hopes that the relaunch of the voucher scheme will once again boost domestic demand, the future viability of tourist operators depends crucially on the successful reopening of international tourism in June. Up to now 2021 has been worse than 2020, in that in the first quarter of last year tourism numbers were 91% higher. The industry has already lost €0.2 billion more in revenue. During the second quarter of 2020, Malta was closed to tourism, so any tourists received in June will mean an addition over 2020.

However, it is the third quarter which will determine whether the sector starts to recover. In 2020 the summer season had been relatively bleak, with only some 213,000 tourists visiting, bringing in some €363 million in revenue.

A recent Central Bank of Malta study notes that “a €1 million increase in the final demand of accommodation and food services generates a €0.66 million increase in total value added in the economy”. According to the Central Bank research, accommodation and food services have the highest employment multipliers, which means that an increase in demand in this sector can support the creation of a considerable number of jobs. To give some idea, if the financial services sector registers a €1 million rise in demand, the ensuing economic activity generates about 3 jobs. If the same increase is registered in accommodation and food services, the increase in jobs is of 23 jobs.

Last year’s summer tourism activity was some 40% that observed in summer 2019. If this percentage rises to 80%, this would generate additional revenue of €334 million. This would be enough to support the work of nearly 7,700 workers. As a result, the industry would be able to cover about 90% of the pre-pandemic cost of its workforce. With the added boost to domestic tourism thanks to the vouchers, operators would be able to return to levels of operating surplus relatively close to those that prevailed pre-pandemic at least for the summer.

Given that Government has already stated that it would continue supporting the sector with financial assistance, this would ensure that firms rebuild their financial buffers. Already in recent months the proportion of firms dependent on moratoria from banks has halved, and a good summer could bring down the dependence of this sector on assistance closer to that in other sectors that have started to recover. 

All this however hinges on the sector having a good summer, which though remaining still nearly a quarter worse than 2019 would be much better than 2020. While financial assistance and Government incentives to attract tourists are important, it will also be crucial that Malta remains a safe tourism destination, with continued low levels of infections and high vaccination.

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