26 July - 1 August 2001

Leisure industry operators facing tougher times

by Ivan Brincat

Operators in the leisure industry are keeping their fingers crossed, hoping that tourism levels over the next couple of months will be enough to offset losses suffered during the winter season and the problems they are facing at the moment.
The President of the Leisure and Hospitality Division of the Association of General Retailers and Traders, Philip Fenech, told The Malta Business Weekly that business was “extremely quiet” in the leisure industry.
Sources in the banking industry also said they are being faced with requests for extensions to overdraft agreements or for a rescheduling of loans payment from individuals or companies in this sector. The reason given is that they cannot honour their repayments schedules.
This negative situation is compounded by the fact that many tourists currently on the island are young students studying English at various language schools.
“These students go to fun bars and takeaways but we have received complaints from establishments which cater for older people and who spend more in restaurants.”
Mr Fenech said suppliers of wines and spirits and food-stuffs will confirm this. “There has been a drop of at least seven per cent over last year. And last year was not a good year either,” he said.
“To make matters worse, everyone was looking forward to the summer months to make good for the losses incurred during winter. This has not happened,” Mr Fenech said.
The cash-flow problems experienced by many sectors is also having its impact on the leisure industry and many operators are finding it difficult to cope.
“The government has not helped as it continues collecting revenue from business and people. Then again, the government is also faced with a cash-flow problem. The situation at the Priceclub is of concern because suppliers now think twice about giving credit. You can feel the tension as everyone tries to collect as much cash as possible,” he said.
Mr Fenech warned that the credit squeeze has to be controlled. If not, “then the industry will collapse and we will have a domino effect. Some are now asking for cash on delivery or payment within a month. But this could lead to huge problems and
create panic.”
With tourist levels expected to be lower in September, Mr Fenech said he fears the situation will become worse as income dries up and accumulated bills have to be paid.
“A lot of operators are cutting down prices. However, costs are increasing while their market share is going down. Lower prices will not help profit levels.”
Tourism in general and the state of the leisure industry seems to be a reflection of the state of the Maltese economy.
The opening of a number of entertainment outlets this summer has increased supply but there are fewer tourists and this is causing problems. “Faced with accumulated losses over the years, some operators are in dire straits,” Mr Fenech said.
Besides a decrease in demand from tourists, the derived demand from the local market has also
suffered.
“Disposable income is decreasing. You do not have to be an economist to read the signals. If you look at the overall performance of the economy and the figures released by the Central Bank you can identify the problems.”
When the GRTU had forecast this situation would develop as a result of the wrong economic strategies: “We were labelled as prophets of doom and gloom.” Now, he said, even the Central Bank’s figures
confirm this reality. The situation locally is bad because various sectors of the industry are experiencing a downturn. “Spending is going down in all segments. For example even ST Microelectronics is having a tough time. Overtime has been stopped and this means that employees will have less to take home and less to spend.”
“Apart from a low demand from tourists, we are facing fierce competition from destinations such as Spain, Cyprus, Turkey, Greek Islands and Tunisia which offer a better product at a cheaper price.”
Mr Fenech said it will be difficult to make a recovery even if late bookings are good.
“The tourism/leisure industry is important for the economy. It is a cash-generating business and this brings with it an influx of foreign exchange earnings.”
He said the GRTU was calling for an Economic Task Force to be set up to address these problems immediately.
The MTA, he said, was doing a lot given its limited resources.
“All successful economies lower taxes and give excellent incentives to overcome similar problems. In Malta, we have the opposite – high taxes and few or no incentives,” Mr Fenech said.