How far can Mallorca's hotels keep pushing price increases?

Also last summer, unions were starting to let it be known that they would be looking for favourable salary increases when negotiations got under way for the updated collective bargaining agreement for the hospitality sector. Inflation was what it was, workers had suffered because of Covid, the bargaining agreement had been put on ice because of the pandemic. Now that it was fading away, it was time for salary adjustment - up to fifteen per cent.

The hoteliers were to say that a demand of this order was impossible. It was out of the question. The unions were to warn of a "hot winter" if they didn't get their way. Industrial action could last into the 2023 summer season, it was threatened. As summer 2022 turned into winter 2022-23, the two sides eventually sat down at the table, the hoteliers by then pointing to the fact that inflation had fallen. Indeed it had - to 5.8% by December. And so by some magic of numerical reversal, agreement was reached. From the first of April, salaries were to be raised by 8.5% over two years. Meanwhile, inflationary easing had not influenced hoteliers' arrangements with tour operators.

One accepts, and obviously so, that hotelier cost pressures are not confined to the costs of labour. I had sympathy with their need to raise prices because of other cost increases on top of all that had happened from March 2020. For some hoteliers, the damage had started earlier - September 2019 and the collapse of Thomas Cook. Yes, there was assistance, as there was during the pandemic, but it was assistance largely in the form of credit rather than direct aid. Loan repayments were necessary, while there were the returns on investment for quality improvements made prior to the pandemic to factor in. Price increases were inevitable, and they weren't about to be minimal.

While the hoteliers were talking with the tour operators last summer and with the unions over the winter, they also had to take account of tourism legislation. There was an acceptance on their behalf that much of what was contained in the law for tourism circularity and sustainability was positive. Some chains had already embarked on initiatives, regardless of legislation. For those which had not, there was a view that they would get round to them but when they were in a better financial shape to do so. The government should therefore not have been imposing requirements, such as replacing beds with ones that could be lifted automatically, especially as the promised funding underestimated the actual cost.

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So, there were any number of factors that fed into price increases and contractual arrangements with tour operators. They were all perfectly understandable.

This all said, it was inflation, or so it appeared at any rate, which formed the basis for justifying price increases - inflation as it was in July 2022. And yet this same inflation factor was to be key to the collective bargaining agreement, i.e. that inflation had fallen, the hoteliers having argued last summer that inflation would come down. They were right, but falling inflation wasn't to influence prices.

It is forecast that Spain's inflation by the end of 2023 will be much as it is now - around two per cent. But it is understood that hoteliers are looking for price increases for 2024 of between seven and ten per cent dependent on the type of board. The lowest increase, it is said, would be for bed and breakfast; the highest for all-inclusive.

The tour operators, for their part, are baulking at these increases. It should be stressed that they normally do challenge increases. The annual merry-go-round of negotiations is always characterised by the same themes, with tour operators warning of potential loss of competitiveness to other Mediterranean destinations. For them to now be issuing their warning should therefore come as no surprise. It is said that they are insisting on two to three per cent and no more.

The mantra is, as it has been since at least the turn of the millennium, that Mallorca doesn't compete on price. Has tourism been affected? Most certainly not, and Mallorca cannot compete on price with certain destinations which have lower cost bases, especially when it comes to labour. But it is nevertheless legitimate to ask just how far prices can be pushed.