STAFF REPORTER
MADRID

THE world-leading Majorcan hotel chain, Sol Melia said yesterday in Madrid that the VAT increase which came into force at the beginning of the month could seriously damage the country's tourist sector.

Sol Melia sources claimed that Spain may lose out to its competitors because there are rival holiday destinations where national governments have actually introduced rescue plans and tax relief systems for the industry.

The source said that what is also likely to happen with VAT increasing the overall cost of a holiday, is that clients will reduce the average length of their stays. Their spending will similarly be reduced both in the hotel where they are staying and in nearby bars, cafés, restaurants and tourist shops.

Looking at the expected results of the tax rise, according to the type of its hotels, Sol Melia said yesterday that it is its holiday hotels (as opposed to its business or other purpose accommodation) which will be the hardest hit. The holiday hotels have the most “rigid” tariff systems, said Sol Melia, of which the best known is the “all-inclusive” offer which obliges all hotel chains which invest in the system to absorb any additional cost.

In urban-based hotels, however, the pricing strategy is what sources described as “more flexible according to the requirements of the clients.” Looking ahead to the rest of the summer season, Sol Melia indicated that it had been running publicity campaigns to encourage people to buy their holidays ahead of time, as opposed to at the last minute, “with great success.” Around half the rooms of its holiday hotels in Spain have apparently been sold through this campaign.

In spite of the VAT rise, there of course will also be the “avalanche” of last-minute bookings, said Sol Melia. The hotel chain pointed to “the notable improvement” in the markets in the island regions of the Balearics and the Canary Islands. Meanwhile, it has also been having measured success in its Latin American and Caribbean establishments with the recovery of its North American client market.

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