Hotels Sector in Crisis Situation

The Irish Hotels Federation (IHF) today called on the Government to intervene as a matter of urgency to safeguard the long term viability of Ireland’s tourist industry which it maintains is in a crisis situation. Addressing over 200 delegates at a special meeting of members convened at the Grand Hotel, Malahide, Matthew Ryan, President of the IHF states that, unless urgent action is taken to address the financing crisis in the sector, the emerging situation will have immediate and devastating implications for otherwise viable hotels and guesthouses.

Mr Ryan states that, “Our members are struggling to deal with decimated revenues while their cost bases have yet to adjust to the economic reality on the ground. Following years of substantial investment, we have an excess capacity of 12,000 bedrooms which is now exacerbating the situation. We are calling on the Government to intervene and facilitate an orderly restructuring of the sector in a way that is sustainable and allows our members to continue to be major employers and contributors to the Irish economy.”

The IHF maintains that there is a strong case for facilitating a reduction in capacity, at least for a temporary period, and for the Government to provide selective support to hotels which are potentially viable but do not meet current onerous bank requirements for credit. Mr Ryan states, “Many hotels are now in crisis talks with banks and in some cases banks have taken control of hotels. Unless a strong set of public policy measures is put in place to support hotel finances, the sector is going to experience a high casualty rate.”

Among the issues discussed at today’s meeting were:

• Need to manage the substantial excess capacity that exist in the sector;
• Distortion of the market with unfair competition as a result of hotels under the control of the banks operating at below cost prices;
• Severe difficulties faced by hotels and guesthouses in obtain adequate bank credit to survive through the recession;
• Need for the cost base of hotels to adjust to the worsened market conditions;
• Excessive public sector charges to which hotels are subjected;
• High regulated wage rates forced on the sector;
• Potential for NAMA operations to introduce market distortions and unfair competition.

Reduction in capacity

The IHF is calling for the removal of tax provisions where hotel capital allowances claimed by investors are clawed back if the hotel ceases to trade within the seven year tax life of the hotel investment. The IHF maintains that these provisions act as a major ‘barrier to exit’ for inherently unviable ‘tax based’ hotel businesses which are kept trading only to protect the benefits of the capital allowances attached to the hotel.

Credit availability

Matthew Ryan states, “We are calling on the Government to engage in a risk sharing approach with banks to provide adequate seasonal or recession related credit to hotels. Under our proposals, annual credit of up to an additional €150,000 per hotel would be guaranteed by the Government where certain previous and current commercial viability criteria are met. These criteria could include a requirement for the business to have taken significant measures to improve its competitive position.”

Employment Subsidy Scheme

The IHF maintains that hotels must be allowed to participate in the Government’s recently announced Employment Subsidy Scheme. Mr Ryan states, “The Government must find a mechanism to provide hotels and guesthouses with targeted support for staff retention so that we don’t lose the valuable skills hotels have built up that will position the sector for a return to growth. We’re calling for employer PRSI be immediately reduced by 50% for qualifying businesses in respect of staff who have been in continuous employment for twelve months.”

Public sector costs

The Government should improve the financial position of hotels through an immediate 10% reduction in all public sector charges and a reduction of at least 30% in local authority rates backed up by a more supportive mechanism for payment of taxes and all local authority charges.

New equity investment

The IHF is calling for a tax incentive based scheme to encourage investment in existing viable hotel businesses that need to improve their capital structures by reducing reliance on debt. This incentive would not be based on property or expenditure criteria (which increase capacity) and could be structured in a way similar to venture capital or Business Expansion Scheme type reliefs.

Operations of NAMA

Mr Ryan states, “Our members are concerned by the potential for the operations of NAMA to distort further the hotels sector. We are calling on the Minister for Finance to explicitly require that NAMA operates in a manner that does not distort markets, does not support unfair competition and does not provide state aids to specific enterprises or entrepreneurs.”

Background to hotel financing crisis

The domestic and international tourism markets have declined greatly in the past year, and this decline will continue throughout 2009 and into 2010. In the month of June 2009, overseas visitors were 15.1% less than in June 2008. In the same period British visitors were down by 19.8%. In the Jan-June period, overseas visitors declined by 10.7% between 2008 and 2009. Between Jan-Mar 2008 and 2009 domestic holiday trips declined by 17%. These tourism declines greatly exceed the overall economy declines.

Tourism’s contribution to the Irish economy

According to the IHF, tourism is Ireland’s largest indigenous industry, employing over 200,000 people across the country. Notwithstanding the recession, tourism made a direct contribution of €6.3 billion to the Irish economy in 2008, representing 4% of overall GNP. The main economic contributions of the tourism industry include:

• €4.8 billion in foreign exchange earnings in 2008 compared to €2.1 billion in 1995 and €4.3 billion in 2005;
• 7.5 million overseas visitors to Ireland in 2008
• Domestic tourism expenditure of €1.5 billion in 2008;
• Annual national tourism revenues of €6.3 billion
• Almost €2.7 billion in revenues to the exchequer from tourism in 2008;
• Tourism accounted for 4% of GNP
• Tourism industry accounts for 250,000 full-time, part-time and seasonal jobs, of which almost 60,000 are in the accommodation sector alone.
• Greater spread of regional economic activity than most other industries;
• Provides a substantial entrepreneurial resource as the vast majority of tourism enterprises are small and medium enterprises.
• 925 hotels with 60,729 rooms.
• 337 guesthouses with 4,070 rooms.

ENDS

FOR INFORMATION:

Siobhan Molloy / Eoin Quinn Tel: 01 6760168
Weber Shandwick Mobile: 086 817 5066 / 087 233 2191