Hoteliers upbeat about short-term prospects, concerned for long-term

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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.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Dede

    “It added that :
    1 energy costs for hotel units in Cyprus were up to three times those of Greece, the property tax introduced in 2013, which is ten times as much as what Greek hotels have to pay.
    2 catering costs the highest in Europe and
    3 interest rates for loans two times what their colleagues in Europe have to pay.”

    1 One has to pay the civil servants/SGOs perks and pensions
    2 Thwarted competition as usual (don’t complain, you do the same)
    3 how to compensate losses incurred by NPLs, huh ?

  • Slomi

    I agree.

  • Monica

    Thomas Cook cabin crew have just voted for Strike Action !

  • Andreas Louca

    Now that we have caught the tourist , we must ensure that with our hospitality , and service that we can keep them coming , and their friends and family . Repeat business is the sign of success . and out that are engage in the tourist industry must make sure we do not rip of the tourist while they are here . Now is the time to ensure our future , especial as other tourist spots are effected by terrorist .

    • Argent

      One hotel manager in Limassol has told the staff that they must not talk to or interact with the staff, go figure. The tourist areas and taxi drivers will make sure tourists dont come back.

  • Barry White

    Long overdue to start dealing with the NPL’s. For all Tourist industry entities with NPL’s, as above over € 1 billion, the Government can very simply require that any such company must receive and pay all overseas transactions solely through Cypriot based bank accounts. This until NPL’s are cleared.

    The industry has had the luxury for far too long of using overseas accounts where some revenue seemed to be depleted through service and managent fee invoices and the like while not necessarily paying the required taxes if revenues were more visible.

    To say nothing of missing out on the joys of the haircut.

    NPL repayment will accelerate markedly with the proper carrots and sticks.

  • Philippos

    This industry is too complicated for Cyprus to perform well in and with a ball and chain around both legs in loans costs and poor productivity, as well as clapped out buildings and facilities, it really does NOT have a future. Mostly to blame is the lack of a National Plan to ensure support and a positive business environment for this important industry. Presently that is as about as likely as someone eating a pork pie at a jewish wedding

  • tonytwotimes

    Cyprus Tourism Office is USELESS