The Smart All-Inclusive Resort: Mallorca's future tourism

Sometimes articles suggest themselves to me in odd ways. "Let's All Meet Up In The Year 2030" (http://alcudiapollensa.blogspot.com.es/2013/10/lets-all-meet-up-in-year-2030.html) was one such. I had Pulp's "Disco 2000" in my head and somehow that developed into the article. It was a song with heavy nostalgia, a peculiarly inverse nostalgia for a time in the future, as the song came out in 1995. Let's all meet up in the year 2030 was, therefore, a look at the future through the nostalgia both of the present and of the not too distant past. Pulp, in a tribute form, were the article's anchor for a nostalgia different to that of the Deborah of "Disco 2000". It was one for Mallorca's tourism.

Tribute acts are probably one element of the current-day tourism scene that will not be with us in 2030. The article was futuristic but it was plausible. Visions of the future take what exists in the present and fly off into the blue sky and attempt to actually visualise the future. The trademarked Tourist Integrated Televisualistion System may have been a convenient invention to have come up with an ooh-er acronym, but it was chosen for a purpose. The future of tourism will be transmitted and visualised. And in a way it already can be. The tourist sunglasses in the article were an extension of what Google Glass is.

Tribute acts will cease to be if visualisation is such that actual artists and performers can be re-created as virtual reality on a hotel complex stage. Far-fetched? Maybe so. But can such a possibility be dismissed? It wouldn't be all bad news for live performers, though. The hotel of the future will have ever more lavish actual entertainment. The bad news, possibly, will be for venues which currently offer such entertainment.

And this will occur within all-inclusive complexes. The all-inclusive, with ever more sophistication and variety, is the future of tourism and not just in Mallorca. It will form a holiday offer that also exploits technology and which appreciates consumer behaviour and demands. It is the future, and there is no going back.

The debates and arguments we currently have about all-inclusives, indeed about different aspects of tourism, are too rooted in the past and in the current-day. Those to do with all-inclusives are sterile, repetitious, uncomprehending, nostalgic. They do not look into the future, possibly because the future can seem too grim to contemplate, except to parrot ad nauseam the ghost-town image. But we are at a point where it is futile to nuance arguments about all-inclusive as they have been for several years. We are at a point where it has to be understood what all-inclusives together with technology and shifts in consumer needs mean for the future.

Until we address this future, we cannot move on. And by we, I mean the regional government, businesses of different types and those who work in the tourism industry. And if you think it is difficult to project into the future, then you are wrong, because you are not taking into account what is already occurring.

I'll give you one example. In 2014, the Rosa del Mar hotel in Palmanova will be one of an initial offer of ten "SunConnect" hotel resorts. This is a new concept from Thomas Cook. SunConnect is in response to customer demand for "high-tech, high-touch experience". It will be a holiday experience that uses digital technology through a website, free wifi, a teen zone for games, booking of daily activities through smartphones and tablets. It will be supported by a "ConnectScout", a holiday host who will facilitate digital activities for the whole family. The RepBot of my article might not have been as fanciful as it might have seemed.

These hotel resorts will be all-inclusive, and just consider the "booking of daily activities". Where will these be? In the hotel resort and increasingly so over the years. Don't forget that in Mallorca, the tourism law permits hotels to introduce secondary activities that were once the sole preserve of businesses outside the hotels. This legal provision together with the all-inclusive operator's need to provide an ever-growing range of activities of ever higher quality is a reason for entertainment venues to be hugely concerned.

But do they have to be? As hotels turn themselves into "smart" complexes with connections to an increasing array of activities and offers, so they may expand and create "smart resorts", namely clusters of businesses currently outside the hotel. These businesses could, though, be brought inside. Physically so. To achieve this would require remodelling parts of Mallorca's current tourist resorts, but this is also happening; Melia in Magalluf is the first step.

The technologically connected, smart all-inclusive resort of the future would not want to limit itself in terms of what it can offer. It would, therefore and in effect, take over parts or all of current resorts. New business models would need to be established, and businesses as they are today would have to adapt to the brand image of the smart all-inclusive, but it is not impossible to envisage a situation in which a variety of businesses form part of an, if you like, resort campus, all of them connected through technology and all of them part of one branded hotel complex. And these clusters might be complemented by businesses not in the immediate vicinity, so entertainment venues, for example, might move their operations and become a part of a vast hotel complex.

Behind all of this, financially and strategically, will be major tour operators, the leading hotel chains and foreign investment. This latter element is already in place, as with Melia, while TUI is part Russian-owned. There is more to come and which is coming. From Russia, China and the Middle East. And with this investment comes a changing tourist market in terms of origin and value. Again, this is already beginning to happen.

There will be casualties, as there already are and have been casualties. It is for this reason that the regional government has to understand how the smart all-inclusive of the future would operate and what this would mean for general economic welfare. For too long it has shown a total lack of appreciation of the wider economic and social impacts of the changing tourism market. But then, this lack of appreciation has been one shared by many and not just by government.

The future is here. It is time to shed off the past and understand what it will bring. The vision of 2030 was not so wide of the mark, and it isn't so far away.

Photo: The Thomas Cook SunConnect logo. SunConnect is just an example of the move towards smart holiday complexes.

Bill Gates And The Spanish Recovery

You would have to think that Bill Gates has some shrewd investment advisors. You would also have to think that the co-founder of Microsoft might typically invest in technology stocks. Thinking this, then what does one think of Gates having acquired a six per cent holding in Fomento de Construcciones y Contratas? Yes, a construction company. One that deals with bricks and mortar and one that is also Spanish. Remember Spanish construction companies? The ones who helped push the country to the edge?

The purchase makes Gates the second largest shareholder in FCC, some considerable distance behind Esther Koplowitz, who developed a construction firm that she and her sister had inherited from their father, and one that, through merger, became FCC in 1992. Sra. Koplowitz controls 53.9% of what is one of Spain's biggest construction concerns.

But why would Gates be interested in a construction company, and a Spanish one at that? And why would FCC be interested in him becoming a shareholder? The answer to the latter may have to do with the company being in the midst of a restructuring of both debt and strategy. It returned a significant loss in the first quarter this year, partly because of a write down in the value of its renewable energy assets, a move probably in response to the Spanish Government having gone cold on renewables, especially solar, as it seeks to tackle the enormous energy tariff deficit. Otherwise, FCC was, as with the rest of the construction sector, badly hit when public-sector projects were cut and when the property market went belly-up.

Nevertheless, FCC is a company in reasonable shape thanks to its diverse operations and its global status. It is active in 55 countries and its business operations are not confined to mere bricks and mortar. There are environmental services, for example, as well as construction of an industrial nature. It is said that  Gates is taking a punt on a recovery in the Spanish construction market. I'm not so sure that someone like Gates either takes a punt or takes one on something as potentially volatile as simple construction. My guess is that it is FCC's global operations, its investment in various technologies, such as with environmental services, and potential in emerging and less-developed markets that has attracted Gates. One can perhaps be persuaded too much that he is an investment benefactor and philanthropist rather than a hard-nosed investor, but I would suggest there is a fair element of the former about his interest in FCC, and FCC would probably feel it could benefit from an association with a universally recognised businessperson who has become known for wishing to pursue good works. As FCC says on its website, it invests globally in "technology, improving processes and developing eco-efficient communities". Bill Gates as part of this? Yes, it would make some sense.

However one interprets Gates's investment, it is an encouraging vote of confidence in a major Spanish company, and it is evidence of what the president of the Santander bank said recently about money "coming in from all directions" into Spain. FCC, with its overseas operations, is evidence also of the export-led recovery of the Spanish economy. These are feelgood elements which will allow the government and others to point to the corner having been turned, but how real are they? The economy may move into growth on the back of exports - tourism and global actors like FCC - but how much impact does this have on the home market, given that, for example, so much of the export earning from tourism is not actually kept in the home market because it is earned by overseas tour operators and airlines? Moreover, what are the targets for all the money that is coming in from all directions? One is real estate, the consequence of an adjustment in property markets which has made Spain attractive to inward investors. Yet, there is a fair amount of evidence to suggest that much of this investment is being directed towards speculative commercial real estate and in particular the rental returns on investment from commercial property. The feelgood element is also being felt in the stock market, but where it isn't being felt is in actual, productive investment, something which might stimulate the domestic market, create employment, increase consumer demand and so effect a more balanced growth in the economy.

Still, things are better and psychologically, if nothing else, Spain may be moving in the right direction. But for the time being it is a psychological boost enjoyed more by investors and bankers than by the man in the street. There is a long way to go yet.

Why Mallorca?: Business development

Why Tenerife? Without any explanation as to this question, an interpretation of it might be "what's the point of Tenerife?" On its own, it does sound odd, but the world (some of it) is going to get used to the question being posed. "Why Tenerife" is a slogan and it is intended to draw attention to what Tenerife has to offer for foreign investors, to its location as a hub for three continents (Europe, Africa and America) and to further develop international air and sea routes.

This initiative brings together various organisations on the island, such as the Tenerife Council and the Chamber of Commerce, who will share resources in advancing what they hope will be a new model of economic promotion for Tenerife. Key to the whole thing is a recognition that, or so says the vice-president of the Santa Cruz chamber, the only opportunity in current difficult economic times is to "look outside and to be attractive to businesses which might locate themselves (in Tenerife)".

Such an outward-looking attitude doesn't necessarily come easy to those with an insular mentality. Islands breed certain attitudes, and suspicion of outsiders, of whatever type, tends to be one. The presence of such an attitude might be denied by Mallorcans, but it prevails in Mallorca nevertheless, as no doubt it does in Tenerife, or has done.

There are similarities between Tenerife and Mallorca, other than attitudinal ones. The two islands' populations are virtually identical, Tenerife having fractionally more people than Mallorca, even if Tenerife is significantly smaller than Mallorca (roughly half the size). There is a similar reliance on tourism, but surprisingly perhaps, given that Tenerife is known for its greater level of all-year tourism, the annual volume of tourism is quite a bit lower than that in Mallorca (three to four million tourists lower).

Apart from tourism, Tenerife's economy has a similar mix to Mallorca's: agriculture, some industry, construction (not that there is much of this at present) and ambitions for further developments in the world of information and communications technology. One advantage that Tenerife enjoys over Mallorca is its status as a special tax zone, which means a considerably lower rate of corporation tax. This status is a recognition of a natural disadvantage, being stuck out in the Atlantic; Mallorca may suffer from being isolated but not as much as Tenerife does.

But this isolation, tax advantage or no tax advantage, is just one reason why attempts at attracting foreign investment might be difficult. And for Tenerife, read also Mallorca. If there were to be a similar campaign for Mallorca - a Why Mallorca? campaign - what would be the benefits? Any?

Economic diversification for Mallorca is essential, but there are several obstacles to inward investment or to that which might mean more than just small amounts of employment opportunities. One of them is the standard of education (in the public education sector at any rate), a problem shared with Tenerife. This might not matter if investment requires primarily manual skills, but information technology, if this is to be the key to diversification (and Mallorcan politicians keep insisting that it is), tends to demand rather more than the local education service can offer; the Balearics and the Canaries both underperform badly.

Other problems are ones that are all too familiar: political capriciousness, the result of government changes, trade-offs between coalitions and a general absence of any form of consensus across the political spectrum; political favouritism and suspicions or examples of corruption; environmental challenges and legal decisions that can take even businesses with the best due diligence by surprise.

A further problem, at least at present, is a structural one in government. It is one that is being highlighted by the planned introduction of the environmental tax for large retailers and the car-rental sector. The minister overseeing this tax, the vice-president, José Aguiló, is also meant to be the minister for business and employment. How on earth he reconciles these roles by going around looking to slap taxes on businesses I have no idea. It makes no sense to have one minister in charge of such potentially competing portfolios.

The fact that there is a minister with joint responsibility suggests that the government has not thought through what its commitment to business development might be. Indeed, does it actually have one? It would argue yes, but the evidence suggests no. This is a government interested in the short-term and the short-term alone. Its strategy for business is a shambles, which is a compliment in that it suggests that there might actually be one.

In Tenerife, they are at least trying. In Mallorca, they are not even doing that. Why Mallorca? Who knows.


Any comments to andrew@thealcudiaguide.com please.

Mallorca Is Open To Business: Or is it?

The Balearic Government wants to make life easier for businesses. It wants to promote and encourage entrepreneurship, to simplify procedures, to make the finding of relevant information and relevant decision-makers easier, to attract foreign investors and to develop local talent.

It wants to do all these things and up to a point it is going about them in the right way. It talks the talk, but whether it walks the talk is another matter.

A gathering of mainly British businesspeople and others on Thursday last week at the offices of the Centre Balears Europa (CBE), part of the government's department of the presidency, was designed to impart information regarding "the changing landscape of business opportunity for European entrepreneurs in the the Balearic Islands". This was the title of the meeting at any rate.

It wasn't a bad meeting insofar as the most interesting aspect of it was to hear from a body that few people knew existed - the IDI, the institute for business innovation. It was interesting as there appear to be people within the institute, and by extension, therefore, the government, who do seem to know what they're talking about and who do seem to be genuinely committed to pursuing the objectives set out at the top of this article.

It was a pity, then, that I left the gathering with a distinct sense of pessimism, one formed by different factors: administrative structures, culture and attitudes.

There is an admission, and God knows why it has taken so long for there to be an admission, that governmental and agency structures that businesspeople have to confront are labyrinthine to say the least. Ultimately, what is needed is a flat structure, one which, culturally, places the user (the businessperson and/or company) above, and which serves this user. When there are as many agencies as there are, it is hard to see how such flatness can ever be achieved. Not while turf wars and vested interests remain endemic.

I give you a case in point as to how the government wanted to flatten decision-making but was denied the opportunity because of the interests of town halls and the Council of Mallorca. It was the process for obtaining permissions for hotel conversion. The town halls and Council were meant to have been taken out of the equation, but they refused to be. One-nil to the vested interests.

Changing bureaucratic structures can only come with a fundamental change of culture. This isn't necessarily a cultural change that brings about more Anglo-Saxon attitudes towards business, i.e. those which are more in tune with the needs of business and entrepreneurs, and away from an obstructive, everything in triplicate and then in triplicate again just to be sure, southern European mindset. These attitudes may well help, but there is also a question of cultural change of public sector mentality, and this is one that is universally obstinate in resisting change.

While the Balearics might look to northern Europe for guidance, it might be recalled how the British public sector once was. It still carries baggage from the past, but cultural change was one that proved hard, despite the insistence of Margaret Thatcher and then John Major. It can be done, but it doesn't happen overnight, especially if the structures inhibit or even prohibit its being effected.

Attitudes die hard. The landscape may apparently be changing for European entrepreneurs, but neither the CBE nor the IDI has fully cottoned on to the fact, if their websites are anything to go by. The best one can say is that the IDI does at least have a Castellano version; the CBE doesn't even have that. So much for an apparent wish to make English a language of business locally. Talking the talk (but only in Catalan), rather than walking it.

When there is a linguistic attempt to engage foreign investors, the attempt ends up being mind-boggling. I give you a different case in point: the translation into English of the new tourism law. Reader-friendly it most certainly wasn't.

Just how much do the Balearics and Mallorca want foreigners to invest and to pursue business activities? It is a key question, and I'm afraid that there is antagonism that stems from parochialism and even xenophobia (which is far more prevalent away from Palma and its cosmopolitan satellites, it should be noted). The reaction to Media Markt's opening from parts of the local business community has pretty much betrayed this antagonism, it being couched in an insular Mallorcan style.

But for big-ticket business, such xenophobia can be overcome. The labyrinth of bureaucracy can be worked through. Relationships can be formed easily with governmental leaders. Big-ticket business can do these things, but what of the small business or the one man? The IDI and the CBE might hope they can make life easier, and I wish them every success, but optimistic I am not.


Any comments to andrew@thealcudiaguide.com please.

Conversion At Fault: Changing hotels

The hoteliers' federation has been meeting with Mallorca's leading banks. There are no prizes for guessing what the federation is after.

The regional government's new tourism act, welcome though much of it is, has some serious fault lines running through it. And these fault lines are such that they end up coming together to make an even wider fault line. The new law has an absence of joined-up thinking, but unintentional joins can still be made which really shouldn't be there, and wouldn't be if the government had displayed a bit more common sense.

The federation has gone to the banks with cap in hand to ask for finance for 52 change-of-use projects that have so far been identified by its member hoteliers; one shouldn't dismiss the possibility that this number will rise. The banks are said to have taken the request on board and are supportive of such initiatives in the tourism sector.

The banks would probably say this anyway, but when it comes to handing over the cheques, how supportive might they still be? As the different projects haven't been identified, one can't say for sure which hotel groups would need bank finance, but one could make a good guess; they probably wouldn't include the larger chains which are well capitalised and would already have plenty of lines open for credit or investment were they to need them.

Predominantly, they will be the smaller hotel groups (the federation has said as much) and it is their difficulties in raising finance for hotel conversion that exposes one of the law's fault lines. The act makes provision for conversion, but conversion will be awkward because of the lack of credit in the banking system. These smaller hotel groups are not necessarily blessed with holding huge assets by way of collateral, which wouldn't be the case with the larger chains. Consequently, the banks will need some convincing.

An option for conversion is that to residential use. This would mean the loss of a hotel, but for the smaller hotel chain it might be a loss worth bearing if it were able to realise value from its asset. The main problem with this, and so therefore a further fault line, is the state of the property market. Sales are down and values of property are down, quite markedly in some instances. Conversion of hotels to apartments of a minimum size of 90 square metres would simply add to a supply for which there isn't the demand and for which there is unlikely to be the demand in the foreseeable future.

So, what do the banks do? Take a risk and potentially end up with more debt on their books because the converted properties can't be sold? Hotel conversion could well lead to a type of property bubble, but without the rise in values, while at the same time making it even harder for other owners to shift property because of an increase in supply, engineered by a tourism law and not a property law. The attractiveness of conversion as a solution to hotel obsolescence becomes less attractive when the realities of the marketplace kick in.

The government has issued the tourism bill in English, German and Russian, hoping that by doing so investors from overseas will be attracted, and one thing they may be attracted to is a hotel that can be converted into real estate for sale. Foreign investors might mean a hotel group not having to avail itself of bank finance for the conversion, but the investor would be confronted by the same problem of supply and demand.

The further fault line in the law, and this is where the fault lines come together, is that to do with illegal accommodation. Why would someone want to buy an apartment in a tourist area? Would they want to live in it? Some would, but many would not. I imagine you can see where this is heading, but if not, then the government has created an inherent obstacle with one aspect its own law to facilitating and making a success of another aspect. The threat of legal action over privately owned apartments being made available for holiday purposes undermines the aims of modernisation and conversion. It doesn't make sense.

One wonders if the smaller hotel chains are going to wise up to the problem, though one can probably imagine that they already have and were well aware of  the issue prior to the law being approved. The law has been called a law for the hotels. Increasingly, it is looking like a law for the large hotel groups. Because they don't have the same problems.


Any comments to andrew@thealcudiaguide.com please.

Mallorcski: Hotels for sale

The Eden Playa hotel in Playa de Muro, as I have previously mentioned, has been sold to a German hotel chain. Financial pressures may have forced the sale, but does it represent the beginning of a change to hotel ownership not just in Playa de Muro but also in other resorts in Mallorca?

The Eden Playa is a four-star hotel. One could consider it the jewel in a small crown that is Eden Hotels. Modern and airy, it opens out directly onto the beach. There is another four-star in the Eden portfolio, the Eden Lago just over the border into Alcúdia, but this isn't a beachside hotel. The company has lost what was really its flagship establishment.

The acquisition via the Allsun hotel group by the German tour operator Alltours is most unlikely to be an isolated case of foreign purchase. It is being reported that German and Russian buyers are on the lookout for hotels in all of the main resort areas in Mallorca - Alcúdia bay, Calvià and Playa de Palma, Cala Millor and Cala d'Or.

The type of establishment these investors are said to be interested in conforms very much to the Eden Playa. Four-star, relatively large (the hotel has 298 apartments) and preferably with some financial issues. When the hotel association for Alcúdia and Can Picafort refers to investment which depends on a particular hotel's financial situation, it isn't implying that this situation has to be strong. Quite the opposite.

On the bay of Alcúdia, I can think of a number of hotels that might fit the bill, certainly where size and star rating are concerned. What is unknown (unknown within the public domain, that is) is the financial health of specific hotels or hotel groups. But Eden is not the only group with financial concerns which may find it necessary to divest itself of at least one property.

Mallorca's hotels are primarily Mallorcan or Balearic-owned by any number of hotel groups, some of them, like Eden, comparatively small with few establishments within their portfolios. Behind the scenes, there is foreign ownership and investment, and there has long been foreign involvement. Riu, now 50% owned by TUI, is an example of such involvement. Another of Mallorca's hotel chains, and one I won't identify, makes a virtue of drawing on foreign investment; it is said to actually put relatively little of its own capital into ventures.

On the face of it, though, hotels are Mallorcan and can be pointed to, with justification, as being representative of local entrepreneurship and business acumen. They are symbols of island pride and perhaps also a certain parochialism. There is, one often feels, an ambivalence, not to say antipathy, towards foreign investment and ownership in Mallorca.

Such attitudes are, however, going to have to change. Away from the main resort areas, there are clear examples of foreign investment, as with the Jumeirah in Sóller and the Middle-Eastern money that is meant to be behind the village hotel complex in Canyamel together with the involvement of the US Hyatt group. These are specific luxury developments, though. They are not the more regular bread and butter of the resorts, the target of German and Russian investors who can sense potential bargains.

We are witnessing a shift in the hotel scene in Mallorca. Larger hotel chains, such as Melià, are clearly committed to ongoing investment in Mallorca, but they also have plenty of opportunities overseas, so offering the possibility of greater inward investment to Mallorca from abroad. But this investment appears to be interested only in the higher end of the middle market, i.e. the four stars. So, where would this leave all the three stars?

If smaller hotel groups, without major financial clout, are unable to fund the types of modernisation that the new tourism law envisages and are also unable to attract buyers either locally or from abroad, then their futures might be uncertain. The foreign investment that is being spoken about in the main resorts is one of cherry-picking.

Would this investment mean a change also to the overall tourism profile of Mallorca? Possibly it would. Russian investment is already established, as with TUI's largest single shareholder being Russian, while more direct investment in hotel real estate would be with an eye on the anticipated huge expansion of Russian and eastern-European tourism.

Greater foreign ownership might not play well with an insular mentality, but it shouldn't come as a great surprise were it now be a feature of Mallorca's tourism. This tourism is in its mature stage of a classic product life cycle. There are only certain ways in which tourism can continue to develop in such a circumstance, and one of these is what appears to be happening - acquisition by foreign investors, seeking to exploit the new tourism markets that will fundamentally change Mallorca.


Any comments to andrew@thealcudiaguide.com please.