A survey of the Irish hotel industry published today shows that profit levels in Dublin have fallen by 8.2% and although occupancy levels are 10% higher than other regions across the country, hotels in Dublin are experiencing a decrease in profitability due to many properties discounting room-rates. The fear for the second half of 2008 is that further discounting is imminent in the marketplace, a factor which will continue to undermine the profitability of hotels in Dublin.
Horwath Bastow Charleton, a chartered accountancy practice says in its annual Ireland and Northern Ireland Hotel Industry Survey, while overall results for the industry in 2007 were good, the sector must keep rising costs in check if they are to protect future profitability and have issued a stern warning to hoteliers.
"We are now entering a period where room revenues may continue to fall due to lower demand or lower rates as discounting becomes the norm," said Aiden Murphy, Partner, Horwath Bastow Charleton. "While business in 2007 was consistent with previous years, the challenge for the industry is to minimise further falls in profitability as we continue into the next 12 months."
Continued Murphy: "We may see a steeper fall in the profitability of Irish hotels as lower rooms sales impact the bottom line in a more pronounced way. Many hotels, whether recent acquisitions, new entrants, refurbished or extended properties carry significant borrowings. The impact of higher costs (operating and interest) and the slowing economy needs to be factored into hotel budgeted cashflows, to ensure required sales targets and their importance in sustaining business are well understood by all stakeholders."
Horwath Bastow Charleton said that 2008 and 2009 will be a challenging period for the sector. The fall off in economic growth and the reduction in consumer confidence will have a negative impact on demand by the domestic market, who now represent over 60% of all hotel guest nights. With a slowing hotel sector, higher hotel categories will tend to chase business from lower categories. Any reduction in visitor numbers from the USA or the United Kingdom will lead to higher end hotels seeking a greater share of the domestic market with special promotions they offer having a knock on effect on the lower end market. The hotel sector relies heavily on its physical product and its staff in providing a quality experience. While customer service should not be sacrificed, it is essential that management find a happy medium between devoting sufficient time and resources to understanding the financial implications that a slowdown in the economy implies.
Aiden Murphy continued: "As always, well located, more established hotels and stronger management teams will help shield properties from the impact of a changing operating environment. Hoteliers must maintain a tight reign on the financials underpinning their business. Astute financial and operating information are the key building blocks for understanding likely changes to the financial performance of a property and will assist hotels in dealing with the new reality of tougher times ahead."
Revenue from Business Tourism Sector Could Reach €1billion by 2012
While the industry is in for a marked change in operating conditions over the next two years Horwath Bastow Charleton have said that effectively targeting business tourism will assist in alleviating some of the difficulties that the industry is facing.
Continued Murphy: "The introduction of the National Conference Centre to Dublin in 2010 is eagerly anticipated and expected to create up to €50m per annum for the economy. It is expected that revenue from the sector could double to €1billion by 2012. By introducing deductibility on VAT on conference related accommodation expenses, Ireland is becoming a more attractive conference destination. Business tourism is a high yielding sector and represents a major opportunity in potential growth. “
The National Conference Centre is expected to boost the ability of Dublin hotels to attract business/meeting related markets. It is estimated that over 30% of an international association attending a 3 day conference in Ireland will stay on as tourists either pre or post conference. Therefore the international bias of conference delegates to host events at the National Conference Centre will have a positive ripple effect on hotels in Dublin and throughout the entire country.
