In Greece, we are living in an epoch shaped by a severe economic crisis. As a result, the hospitality and tourism industry has experienced a serious downturn in sales and profitability, especially in the last few years.
Historically, hotels in Greece have been small in size, with the average number of beds per hotel standing at 76. Unfortunately, small hotels have been the most affected by the economic crisis. Everyone talks about development and investments in tourism; however the truth is that the government incentives have most benefited larger hotels and travel businesses. This is not new; even before the economic downturn, increasingly small grocery shops have been replaced by big supermarkets, small clothes shops by larger malls, and so on.
Let’s look into a number of factors that have prolonged the period of crisis for small/medium-sized hotels for the last seven years.
In many areas around Greece, All-inclusive have created new five star hotel facilities that led to oversupply of rooms and strong economic competition for small hotels and local businesses. In order to become viable, many smaller hotels have been forced to reduce their rates for lower category beds.
I believe smaller hotels better support the local economy, since they provide only accommodation and leave the guests to move into the local market for dining and other services. All-inclusive here have seen strong growth, and this year, many large hotels went well by dropping their prices (some to as low as 14 euro per night). Small and medium accommodation fared well only in late July and August. Right now, an all-inclusive week in October is available for about 50-60 British Pounds per person which includes everything. Compared to family hotels with the same price – with no food or drinks included – what chance do small hotels have to survive?
Seasonality is a major problem in the Greek tourism industry, especially for smaller hotels that have fewer financial resources. They have lower returns on investment, with overuse and underuse of facilities in high and low season respectively. 17% of SMTEs operate up to four months, and 70% have great problems with seasonality.
More severe seasonality is observed in the regions of Southern Aegean and Crete. In the three months of high season, the volume of tourists is immense. There are only so many that can be served in this time period; creating more hotels is not a solution. Based on the Institute for Tourism Research and Forecasts (ITEP), in the quarter July-September 2013, the proportion of foreign tourists accounted for 56.5% of total tourism, while in the year 2008 the figure was 51%. The solution is the rational allocation of domestic tourism holidays from April to October; possibly new beds in selected areas, but always in moderation. Greece has all the conditions to extend the season, but only if incentives, proper infrastructure and serious advertising occurs in collaboration with the Government and tour operators.
Taxes and interest
In Greece taxes are abundant, and always higher for smaller hotels. The addition of the last tax called ENFIA (property tax) has proved the final blow for the many already struggling small hotels. Moreover, SMTEs face significant financial constraints as they have few assets to support their request for loans from financial institutions and thus they tend to suffer higher loan rates and unfavourable financial deals. Many Greek hotels have to pay up to 26.6% of their turnover to service their loans. Currently, with high rates, rising energy prices, the reduction in room rates and the decline of domestic tourism, it is basically unattainable to meet this turnover requirement. Furthermore, small hotels are obliged to pay higher interest (from loans) making their profits lower; small hotels (21-50 rooms) must pay 23 percent of their turnover as annual instalment while larger hotels (over 100 rooms) pay 19 percent.
Illegal rental is an extra burden that creates unfair competition and threat to SMTEs. Illegal lodging, undeclared villas, and old houses casually refurbished are being rented without license as tourist accommodation. Many villas host from 30 to 1000 people per month as “guests” of the same owner, or with residential leases that are replaced by different tenants in the same month. Concerning “receipts” – nobody asks and no one provides them.
The end result: more than 900 Greek hotels are currently for sale at distressed prices and every month more and more are listed. Many of those that are not on the market for sale just survive with zero profits. Most of them, of course, are small/medium sized hotels.
Greek tourism owes its undeniable success in all undertakings, despite the poor conditions, to small hotels. As the backbone of Greek tourism, it is noteworthy that according to the data of SETE, direct revenues from tourism in Greece is projected to total 13.5 billion Euro in 2014, yet the 700 largest hotel companies in the sector will contribute only 1 billion.
In Greece there are two classifications of hotels: “main and additional tourist accommodation’. Should not all accommodations be considered equally and not be classified as a main and supplementary? All are tourist accommodations and should be treated the same.
All properties should be subject to the same favourable or unfavourable provisions of the law. Smaller family hotels should be able to benefit from the strengthening of the state initiatives for expansion or modernization the same as 3- and 4-star hotels.
Those who lease small, furnished apartments and rooms should be able to elevate their quality to differentiate themselves to attract the tourist of higher demands, or those tourists who simply do not like to queue at the buffets of All-inclusive. (As far as I am concerned, queuing in a buffet it is not “Greek” culture.)
Solutions and prospects for the tourism industry cannot take a monoculture tack and still attract foreign tourists. Tourism is not a commodity that is massively produced. The solution for sectors can only be obtained if we reverse the perception that tourism is a “product”.
The last few years, Greek hotels in most parts of the country have experienced drops in occupancy, average daily rate and revenue per available room. Nevertheless, luxury hotels have been less susceptible to the financial crisis due to the fact that the number of guests able to afford luxury accommodations has risen dramatically over the past few years. The government has to give priority and support the SMEs that have always been a huge “income driver” in tourism. This nation – tired of recession and perpetual crises – has its arms wide open to tourists. Any government that comes into power here will face immense pressure to aid a vital industry that could offer Greece a chance of emerging from the current malaise.
About the author
Philia Tounta, MBA, Ba, Di, is a travel and tourism consultant and ambassador of tourism in Chania, Crete, Greece. She is the General Manager at Apokoros Family Club Hotel 7 Villas and has been a Customer Service consultant for various hotels since 2004, as well as sales ambassador for You Planet.com. Philia is also a speaker at conferences and seminars concerning tourism.
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