Tuesday, 26th October 2010

BUDGET 2011 MUST SUPPORT SURVIVAL OF IRISH TOURISM

Hoteliers call for Direct Focus on Improving Cost Competitiveness

The Irish Hotels Federation (IHF) is calling on the Government to introduce measures in the forthcoming budget that support the survival of the tourism industry and ensure the sector is ready to avail of the international and national economic recovery in 2011. In its pre-budget submission, the IHF calls on the Minster for Finance, Brian Lenihan, TD, to improve the trading environment in Irish tourism by promoting cost competitiveness, maintaining current levels of tourism marketing activity and addressing the capacity and credit problems facing hotel and guesthouse owners.

According to Mr Tim Fenn, Chief Executive, IHF, the strategic policy objectives for tourism must be to survive the downturn and thereafter begin to increase market share in both domestic and international tourism. He states that, in the absence of supportive policy measures, the hotel and guesthouse sector will not be in a position to actively participate in an ambitious medium term economic growth strategy which is clearly needed.

Key Tourism Proposals for Budget 2011:

• Increase the current level of activity funded by Fáilte Ireland and Tourism Ireland
• Immediately remove the air travel departure tax
• Impose a four-year freeze on all public sector charges at the 2009 level
• Introduce a scheme to waive 30 per cent of local authority rates on hotels and guesthouses
• Ensure the urgent availability of appropriately priced credit to the hotels sector
• Avoid any tax increases in tourism related products and services at national and local levels

“Irish tourism is capable of substantial and rapid growth relative to other export sectors provided we have a cost-competitive economy and a commitment to strong international promotion of our product,” said Mr Fenn. “Unfortunately, the Government’s policy framework has been too slow in recognising cost competitiveness and this has been intensified by the international economic slowdown. Budget 2011 provides Minster Lenihan with an opportunity to address the needs of tourism businesses which continue to struggle through a perilous trading environment.”

In addition to costs, marketing is a key aspect of competitiveness that can quickly respond to policy measures. Mr Fenn states, “Given the unprecedented collapse in visitor numbers, we’re calling on the Government to ensure that levels of marketing activity by tourism bodies are increased in real terms. This must include targeted support for marketing drives to reverse the collapse in the arrival numbers from Britain and attract corporate conference business to maximise the benefits of the Convention Centre Dublin.”

Taxation policy

It is essential for the future strength of the hotel/guesthouse sector that the Government avoids any tax increases in tourism related products and services at national and local levels and introduces a four-year freeze on all public sector charges at the 2009 level.  The IHF is seeking a country-wide reduction in Local Authority rates of 30 per cent applicable to hotels and guesthouses and an immediate reversal of the 5 per cent electricity price levy announced by the Commission on Energy Regulation.

The IHF is calling on Minister Lenihan to abolish the €10 departure tax in order to reverse the disastrous decline in visitor numbers, stating that Ireland cannot afford to incur competitive disadvantage that makes routes to and from Ireland less attractive for airlines seeking to maximise their return. Mr Fenn, states, “As an island destination the range, cost and quality of access is absolutely critical to tourism and its export earning potential. It is now clear that the departure tax is doing more harm than good, with the exchequer forgoing substantial revenue including lost VAT and employment tax.”

Availability of credit

Tourism businesses continue to experience severe difficulties accessing appropriate levels of credit from financial institutions. The IHF is seeking adequate levels of credit to be made available on a risk-sharing basis with banks and/or direct lending by Government using the banking system as an agent. The Federation calls for a credit guarantee scheme or equivalent to be introduced. In addition, as part of the medium term higher growth strategy, a new bank for reconstruction and development should be established and directed at the SME sector.

Removal of excess capacity

Over capacity has the potential to destroy the short term viability of the overall hotel sector and, as such, planning regulations should not be allowed to be a barrier to this capacity reduction. The IHF is calling for an orderly reduction of capacity to be facilitated by adjustment of the claw-back regulations attached to capital allowances for hotel development which acts as a barrier to unviable properties exiting the market.

While not specifically a budgetary matter the IHF continues to urge that NAMA should be operated in a way which does not distort the operation of the hotel market either through below cost prices of NAMA operated hotels should this arise or inappropriate disposal of assets.

Background to hotel financing crisis

• International visitors have declined by 20.5% in the first six months of 2010, British visitors declined by 22.2% following earlier substantial declines in 2009
• Domestic holiday tourism trips declined by 8.2% between 2008 and 2009
• The average room rate declined by 11.8% in 2009 following a decline of 9.7% in 2008.
• The 2009 room rate is now at 1999 levels
• Hotels have introduced substantial cost cutting measures while being constrained by costs such as labour rates and public sector determined costs. The operating cost per room declined by 16.5% in 2009
• Profits per room declined by 34.1% in 2009
• Many hotels have gone into receivership and examinership and the worsened business environment has made it difficult for hotels and guesthouses to obtain required levels of bank credit to cope with the recession despite the various initiatives introduced by Government.

Tourism’s contribution to the Irish economy

Tourism remains a large, strategically important industry and employment generator, which is deeply embedded in the Irish economy. As Ireland’s largest indigenous industry, tourism employs almost 200,000 people across the country. The main economic contributions of the tourism industry include:

• €3.9bn in foreign exchange earnings
• 6.6m overseas visitors
• Domestic tourism expenditure of €1.4B
• The Exchequer received €1.3B in taxation from tourism or 3.7% of total taxation revenue
• Tourism accounted for 3.8% of GNP, 2.5% of Gross Value Added and 2.6% of total exports
• According to Fáilte Ireland data, the hospitality industry accounts for 190,000 full-time, part-time and seasonal jobs.
• Provides regional economic activity to a greater extent than most other industries and is a substantial entrepreneurial resource as the vast majority of tourism enterprises are small and medium enterprises

ENDS

FOR INFORMATION:

Mary McCarthy/ Orla Molloy                           Tel: 01 6760168

Weber Shandwick                                         Mob: 086 2568429/ 087 7705108