Wednesday, 2nd July 2008

Hoteliers Call for Wage Restraint to Safeguard Competitiveness
‘One size fits all’ approach of national pay bargaining no longer sustainable

The Irish Hotels Federation (IHF) is calling for wage restraint in the short-to-medium term in light of the major challenges facing the hotel sector due to a substantial slowdown in domestic consumer demand. With domestic customers making up over 61% of room-nights in hotels nationwide and over 70% in hotels outside of the Dublin area, the IHF is predicting that the current year will be the most challenging in the last decade. Matthew Ryan, President, IHF states, “A prudent short-to-medium term strategy for improved competitiveness based on curtailing all costs over which we have control and maintaining our level of customer satisfaction will allow the hotel sector to emerge as a stronger, more sustainable industry.”

Mr Ryan maintains that, due to the inability of hotels to recover through price increases or additional sales, the cost of legally binding wage increases awarded in 2007 and 2008, it is now fundamental that there is a pay pause until at least the end of the 2009 season. The legally binding nature of the JLC system which can increase the  legal minimum wage rates based on a chairman’s casting vote places labour intensive industries such as hotels in a vulnerable position  in a period of economic challenge such as we are currently experiencing.  

“While discussions are presently ongoing among the social partners on national wage rates, labour intensive sectors, such as the hospitality sector, cannot afford any further wage increases until there is a return to a solid and sustainable cost basis coupled with a substantial increase in domestic demand. National understandings and social partnership have served the country well over the last two decades. However the approach to national pay bargaining must take fully into account the competitive challenges in sectors of high labour intensity, such as Hospitality where the net profit margins are low."

Mr Ryan states, “Many of the issues facing us are outside of our control, such as the strength of the Euro in international markets, the high price of oil and, in the domestic economy, the slowdown in private housing construction. This year, the absence of strong domestic demand will probably result in increased pressure on hotel prices. This places an onus on hotel managers to reduce costs in areas over which they have some control.”

“Care must always be taken to ensure that a reduction in costs is not at the expense of customer satisfaction – that would ultimately jeopardise the long term business proposition. Wage costs in hotels are now 41–42% of turnover. This level of wage costs is not sustainable; therefore, every effort must be made to reduce this figure through efficiencies and increased productivity, even in the face of a difficult economic climate. In tandem, both the industry and Government will have to sustain a strong marketing effort to generate business in the tougher international market.”

The recent Quarterly Economic Commentary from the Economic and Social Research Institute (ESRI) predicts that the Irish economy will contract by 0.4% in 2008, with a modest GNP upturn of 1.9% to follow in 2009, representing a major turnaround from a GNP growth of 4.5% in 2007 and 6.4% in 2006. This economic recession is not a result of a global economic decline or increases in commodities but primarily as a result of a very weak performance in domestic consumer demand and a large decline in construction activity. Domestic consumer demand is expected to rise by just 1% in volume in 2008, compared with 5.4% in 2007 and 6% in 2006. The 2009 consumer demand prediction is for a modest volumegrowth of 2%.

Internationally, the strengthening of the Euro against Sterling and the US Dollar and the knock-on effects of the record high oil prices set against a background of tightening of credit availability and concern about the value of pension funds, have all undermined the confidence of potential customers from the US and Britain. These factors, together with major increases in the cost of food supplies and threatened increases of up to 30% in fuel costs point toward 2008 and 2009 being very challenging years.

-ENDS-

For information:

Siobhan Molloy / Eoin Quinn Tel: 01 6760168
Weber Shandwick Mobile: 086 8175066 / 087 2332191