By Stelios Orphanides
The Cyprus Hotel Association, a business group representing more than 250 operating establishments or roughly six out of ten licensed units, said that it was upbeat about the sector’s prospects this year but remains concerned for its long-term future.
“There are reasons for concern over whether this very important and sensitive economic sector will again grow and perform well,” the association said in its 2015 annual report posted on its website. “Indicatively, the overall debt of tourist enterprises at banks was €2bn”.
According to the Central Bank of Cyprus, at the end of 2015 the total facilities extended to hotels and restaurants stood at €2.2bn and 59 per cent of it was in arrears. Total loans extended to the hospitality branch made up 3.7 per cent of the total and 9.3 per cent of credit given to non-financial corporations. Directly or indirectly, tourism accounts for one quarter of Cyprus’s economy, according to the London-based World Travel and Tourism Council.
The Cyprus Hotel Association, which represents a bed capacity of 54,120 or roughly two thirds of the overall beds in operations in Cyprus, said that Cyprus’s deficit in competitiveness vis-à-vis other competing destinations persists even after “continuous discounts offered” and justifies pessimism over the sector’s future.
The association singled out as one of the factors preventing the sector from growing in the long-term, the operating expenses which make up roughly 40 per cent of a hotel unit’s revenue and compared them to the 25 per cent, or less, labour costs of competitors abroad.
It added that energy costs for hotel units in Cyprus were up to three times those of Greece, catering costs the highest in Europe and interest rates for loans two times what their colleagues in Europe have to pay.
In addition, seasonality, exacerbated by the lack of liquidity that makes investment in capacity extension or upgrades more difficult, the property tax introduced in 2013, which is ten times as much as what Greek hotels have to pay, are also factors contributing to the hoteliers’ pessimism, the association said.
“Productivity in the hotel industry has considerable room for improvement, by utilising staff in a more flexible way and introducing more effective work procedures implementing new technologies,” the association continued. “It is therefore inconceivable that while export industries enjoy a zero value added tax rate, the hotel industry is burdened with value added tax, even with a reduced rate”.
“It should not be ignored that the hotel and tourism industry are the economy’s leading export sector, contributing a huge revenue in foreign exchange,” the association said.
In 2015, revenue from tourism rose 4.4 per cent to €2.1bn, which was 12 per cent of Cyprus’s gross domestic product. The number of tourists who visited Cyprus last year rose 8.9 per cent to 2,659,405 almost matching the record arrivals of 2001, partly caused by geopolitical developments.
Still, the hotel association said that it remains confident that last year’s data signal the recovery of the hotel sector as it expects for 2016 “a record performance” both in terms of arrivals and revenue, citing an increased flight capacity, offsetting losses caused by the demise of Cyprus Airways and Russia’s Transaero.
While current signs are positive, factors related to exchange rate, the drop in oil price, terrorism and Cyprus’s completion of its adjustment programme allowing Cyprus to function “without the troika’s supervision,” are challenges the industry faces, the association said.