Maltese crossover
WHEN the 311-bedroom Westin Dragonara opened in St Julians, Malta, in April 1997, it was the top of the line in the five-star market and there seemed every reason to expect a rosy financial future. The former hotel on the site had been ripped down to make way for the new, modern, luxury hotel, and Maltese investment group Peninsula Investments had put Lm18m (£28.3m) into the redevelopment of the property, which stands near the island's casino on the Mediterranean shore.
The hotel has five restaurants and bars, a conference centre with 13 function rooms, an indoor swimming pool and gym, two outdoor pools and the historic Sunken Garden, which dates from the time when the estate was owned by Maltese nobility.
When the early investment studies had been done, the five-star market in the area was relatively uncrowded, the Corinthia San Gorg across the bay being the main competition and the 252-bedroom Radisson SAS Bay Point Resort due to come on stream in May 1998. But the problems became apparent when the Dragonara threw open its doors, and the market was suddenly spoilt for choice at the five-star end.
According to the National Tourism Organisation (NTO), the number of beds in the five-star market on the island doubled between 1995 and 1997 to 2,874. In addition to the Westin Dragonara, there was the 207-bedroom Victoria hotel in Sliema and the 200-bedroom Kennedy Nova. Unfortunately, no one had told the paying clientele, which at that time was primarily brought in by the tour operators.
The Westin's business is 38% conference and incentives, 37% from tour operators and 25% individuals, corporate and weekend breaks. The tour operators, always alert to a bargain, played hotels off against each other to get the lowest possible rack rate for their clients. And according to Westin's general manager, Michael Duncan, from a business perspective it got nasty. "We had an increase of capacity and it was pretty cutthroat," he says. "Rates went down by 50%."
As a result, the average achieved rate in 1997 at the Dragonara was Lm25-31 (£39-49) instead of the Lm45-50 (£71-79) enjoyed by rivals before the Dragonara's opening.
"The new hotels hurt us," says Roger Tannous, general manager of the Crowne Plaza in Sliema, around the point from St Julian's Bay. "One thousand new rooms opened the week of my arrival. We suffered for a year, although now it has settled down."
NTO records show that hotel occupancy in the five-star market between January and October 1997 dropped by 5.8 percentage points to 53.2% on the same period in 1996. As a result, all the hotels have re-evaluated their pricing strategies. "The other five-star hotels have realised that we do not want to undercut each other," says Alex Incorvaja, sales manager at the Westin Dragonara. "Last year we tried special offers and now we have various prices."
One hotel insider says that Westin came in as a US company, believing that its name and brand would be enough to keep rates high. This didn't happen in year one but, with a change of attitude and management, occupancy in 1998 was 63%, with an average achieved room rate of Lm30 (£47.19), and 1999's occupancy target is 70%. The hotel recorded a turnover of Lm5.5m (£8.7m) in 1998 and is budgeting for Lm6m (£9.4m) this year.
Tannous was not the only one to notice an effect on business. Across the bay is the Corinthia Beach Resort, containing the Corinthia San Gorg, a five-star, 250-bedroom property, and the four-star, 210-bedroom Corinthia Marina. Its man on the spot, Peter Stephenson, managing director, hotel division, of Corinthia Hotels International, is philosophical. "In 1998," he says, "rates stayed the same as in 1997 but there was a huge increase in occupancy. In the peak period in '97 it was about 67%, and in '98 it was 82%." NTO figures support this claim, showing a 6% increase in occupancy year-on-year, and summer last year brought an all-time record.
Part of this boom in occupancy is down to Malta's new attractiveness to the conference and meetings market, brought about in part by the growth of the five-star market.
In 1997 45% of the Corinthia San Gorg's business was tour operator-based; today it is 35% meetings and conferences and 33% tour operator. The conference business has helped boost occupancy during the shoulder months of April to June and September to November. Consequently, sales and marketing director Denis Johnson expects the group's occupancy to reach 67% this year, compared with 57% in 1998. The Corinthia San Gorg alone is forecasting 69% occupancy, with average achieved rates of Lm37 (£58.20).
Key to the hotels' success following a year of cutthroat rates was clever negotiating with the tour operators. "We are trying to tell tour operators we can't just cut rates, but we can add value," says Johnson. "If they want us to help them in the summer when they want our rooms, they need to be aware of our needs in the quieter periods."
The building of all these five-star hotels was encouraged by the Maltese government, partly in an effort to stem a drop in tourist arrivals during 1995 and 1996. On an island where tourist revenue last year represented one-quarter of all exports of goods and services, it is not hard to understand why falling arrivals caused concern.
In 1997 1.11 million tourists visited the island, with a mean-length stay of 9.6 nights, generating Lm249.8m (£392.9m) in revenue. The average length of stay in a five-star hotel was 6.4 nights. The tourists are primarily from Europe, with the UK accounting for 40%, Germany 20%, Italy 10% and France 9%.
However, Malta needed to market itself not just as a sun, sea and sand destination but as a serious contender for the conferences and meetings that take place annually around Europe. Alfred Cassar Reynaud, deputy chairman and chief executive officer, wrote in the NTO's 1997 annual report: "The advent of these new properties was a generally positive development for Maltese tourism, particularly in view of the growing potential of the conference and incentive travel market."
The NTO's target is to increase visitor numbers from 1.2 million today to 1.5 million by 2001-2002, and to achieve this it needs to attract visitors in the shoulder and off-peak seasons. British Airways franchisee GB Airways is offering a daily service to Malta from the end of March. The airline has seen a substantial increase in passenger traffic, and commercial director Peter Kenworthy says: "GB Airways' passenger figures have increased every year for the past three summers, with more than 22,000 flying from London to Malta in summer 1996, nearly 40,000 in summer 1997 and more than 44,000 last summer."
The added competition is, therefore, not all bad news. "The extra competition has brought more people," says Tannous at the Crowne Plaza. "We can do 1,000-people conferences at five-star hotels now."
Indeed, the lowering of rack rates in the five-star market allows hoteliers on Malta to claim that it is cheaper to bring some three-day conferences to the island rather than pay the going rates in, for example, London.
This has the knock-on effect of putting pressure on the three-star market. "If the four- and five-star hotels are lowering their rates, where does that leave the three-star market?" asks Johnson. Apparently, the three-star market's hotel association has said recently that there are discussions about these properties closing during the slow winter season.
However, the five-star hoteliers are not planning to keep rates low forever. "The strategy is to stabilise the rates and then push them up," says Duncan at the Westin. "We need to create an awareness of Malta to more affluent spenders in, for example, the UK."
The NTO has a budget of Lm6m (£9.3m) to market Malta and maintain its seven overseas offices. Meanwhile, at home, Cassar Reynaud acknowledges that the government needs to tackle some basic infrastructure, such as the roads, before the island itself reaches five-star standard. Revamping the three-star market hotels is also on the agenda, and, Cassar Reynaud adds, the government will be providing tax incentives for entrepreneurs to demolish existing properties and rebuild, catering for today's tourists.
Meanwhile, the battle for the five-star market continues to escalate, with the 294-bedroom Hilton Malta due to open in July and an attached convention centre opening early in 2000. In total, 3,010 beds will come on line in the four- and five-star markets in 1999.
Now, however, Duncan foresees a rather different problem, albeit one with which most UK hoteliers can empathise: a staff shortage. All these five-star rooms require servicing and, although the island has its Institute of Tourism Studies, there is a limit to how many graduates will want, or be able, to work at the five-star level.
Duncan says that some of his staff already work two jobs. Compared with elsewhere in Europe, he says: "Salaries are not very high, so staff work full-time here and part-time at another hotel." A part-time waiter on the island earns about Lm2 (£3.15) per hour but full-time waiters usually receive additional incentives.
Naturally, all hoteliers place an emphasis on training and keeping good staff. Duncan allocates $300 (£185) each year per full-time employee for training, and has approximately 360 full-time equivalent staff at the Westin Dragonara hotel.
Obtaining work permits for foreign workers can be difficult, says Duncan, and the process is time-consuming. And, if a foreigner is employed, the employer must undertake to train a Maltese to do the job within 24 months. n
