By Akis Vavlitis, STEK President
Reduction of VAT to 5% for accommodation and special subsidy plans for investments towards sustainable development is recommended by the president of STEK.
Normality in recent years is now the exception and not the rule, while at the same time tourism is called upon to adapt to the requirements and move towards Sustainable Development. The global scene has changed drastically, as a result of frequent and sometimes large and unannounced crises, which directly or indirectly affect the fragile tourism economy. If we try to outline everything that has happened in recent years we will see that from September 2019 and the bankruptcy of Thomas Cook, we have been led to the global health crisis of 2020-21, then to the effects of Russia's invasion of Ukraine in February 2022. The common component in all previous, and any subsequent crises, is uncertainty with all the consequent negative consequences in the tourism sector and beyond.
However, the path towards the Sustainable Development of tourism is not interrupted either by uncertainty or by unforeseen events. That is exactly why at this year's STEK Conference we chose “Tourism: The Path to Sustainable Development” as the theme. However, all of the above combined with inflation have created an explosive “cocktail” of increases negatively affecting the resilience of the sector. These are issues that we must address if we want to achieve real sustainable development of the tourism sector and the Cypriot economy in general.
Operating and other expenses
Energy costs, electricity – oil – gas, have increased by approximately 60% from 2019 to the end of 2022. A comparison is made of 2022 with 2019 and the reason is obvious because in 2020 and 2021 the hotel units either remained closed or were underperforming due to the health crisis. The example of a hotel unit member of STEK is illustrative, which has paid a total electricity cost for 2022 of €1,700,000, with an additional cost of €600,000 compared to 2019. However, out of the total of €1,700,000 the € 480,000 (around 28%) related to the fine for the polluters. In other words, businesses and every household pay a fine because some responsible, either due to deficiencies or omissions or due to inadequacy, did not ensure that the fuel used by the EAC's power plants was replaced in time. Now let's look at the absurd. While most hotel units have spent huge sums on their energy upgrade, the competent authorities of the state stubbornly refuse to grant permits for the installation of sufficient photovoltaic systems inside and outside the stadium to reduce their energy costs, and thus the pollutants.
At the same time, wage costs have increased at least in the last three years between 15% – 20%. The cost of raw materials for food as well as beverages has increased in the last two years between 15%-40%. The cost of maintenance, upgrades and renovations is estimated to have increased by over 20%. The cost of money has also increased if we consider that interest rates have increased in the last 10 months by 3.5%. This translates into an additional cost of €35,000 for every €1,000,000 borrowed on an annual basis. So for a €5,000,000 loan the additional cost is €175,000 and for €10,000,000 it is €350,000 per year.
The above list is of course not exhaustive, but indicative of the factors that adversely affect the competitiveness, profitability and in some cases the viability of hotel businesses.
Let us also recall the accumulated losses of the last two or three years which the majority of hotel businesses had, due to Covid-19 and the loss of the Russian market.
Some will reasonably question why hoteliers have not taken care to pass the cost on to their customers. The answer is simple. 2020 was as if it didn't exist, while for 2021 and 2022 due to the uncertainty that prevailed with the health crisis, securing any reasonable increases was almost impossible. The limited increases for 2023 with reduced bargaining power, given the heavy dependence on the Russian market and intense international competition, certainly do not compensate for the dramatic increase in costs of the last three years.
Under these adverse conditions, tourism businesses are urgently called upon to adapt within the next few years to the transition to the green economy and implement digital transformation. That is why we consider it necessary to offer the affected hotel industry special sponsorship plans for this form of investment in order to help it and enter the era of sustainable development. In addition, in order to give a little breathing space to the businesses in the sector, we propose to reduce the VAT from 9% to 5% only for accommodation for the next two-three years.
In addition, there are other important issues in but which I will not expand in depth in this article. By way of example, I note the huge issue of the lack of human resources, the regulation of the operation of short-term rental accommodation, the need to break dependence on specific markets and the need for the Deputy Ministry of Tourism to have more horizontal responsibilities.
STEK, which advocates that “quality tourism is a one-way street”, closes this year 25 years of action and offer. It was established to be an additional objective and non-political voice and a weighty presence in our tourism development. Finally, I will invoke a phrase that Hippocrates said almost 2,400 years ago: “Your food is your medicine and your medicine is your food.” Paraphrasing it, we say that “the sustainability of our tourism is quality and quality is the sustainability of our tourism”.