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Irish Hotel Sector at turning point with ‘No Deal’ Brexit uncertainty

Written by Robert McHugh, on 17th Jul 2019. Posted in General

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Crowe, the Irish accountancy practice and advisors to the Irish hotel sector, launched the 24th edition of Ireland’s most comprehensive annual analysis of the Irish hotel sector today.

The Crowe Ireland Annual Hotel Survey, compiled from an analysis of Irish hotels’ 2018 accounts, shows that the sector experienced a positive year in 2018 with an eight-consecutive year of growth in turnover. Increased profit levels and average room rates have been recorded across all regions.

Notwithstanding the strong performance by the sector, the report analysis by the report’s author Aiden Murphy, finds that 2018 marked a turning point for the industry as growth slows amid increased costs, threats of domestic slowdown, weakened sterling and Brexit uncertainty. The report concludes that the sector recorded the lowest level of profit growth in seven years at a rate of 7%, a significant decline from the 12.5% growth achieved in 2017.

The report also highlights that revenue from rooms and food sales grew at the lowest levels in five years, at 5.9% and 2.6% respectively, highlighting the slowdown in revenue growth as a result of increased competition for restaurant and events customers from non-hotel outlets and no increase in occupancy levels attained in 2018. Crowe say these findings indicate that it is becoming harder for Irish hotels to increase profit levels despite reasonable revenue growth, as many costs are now increasing faster than the underlying growth in revenues.

With demand levels in 2018 remaining strong, the average nightly room rate nationally rose to €118.27, an increase of 6.3% or €7 from 2017. Rooms in Dublin hotels had an average rate of €145.82 some 6.5% higher than the price achieved in 2017, up almost €9. Outside of Dublin, hotel rooms in the Midlands and East and South West regions were both up over €7, rising to €105.51 and €107.80 respectively.

This is the first time that hotels in the Midlands and East region broke the €100 mark. The average room rate of hotels in the Western Seaboard area achieved an increase of over €6 to €93.83 last year. The Western Seaboard area now remains the only region with an average nightly room rate below €100. Last year's occupancy levels of 75.1% were consistent with the previous year at 75.4%.

The 2018 report highlighted the importance of the Irish Domestic market to the sector overall which accounted for 55% of all guests last year, as domestic trips were up 13.4% year on year to 10.9 million trips. This increase is driven by strong employment and high levels of disposable income currently being experienced. 

However, the report shows the industry’s scale of reliance on the domestic, Great Britain and Northern Ireland markets- with two thirds (68%) of Irish hotel business dependent on these markets. This kind of exposure to these markets poses a potential risk for the industry when the possible economic impacts of a hard Brexit, weakening sterling and knock on implications on the Irish economy, including a possible fall in disposable income are considered.

The report shows that Brexit has already created a dampening of demand from sterling-source visitors. Since 2013, the market share of hotel guests from Northern Ireland and the UK has dropped by 25%, but to-date the surge in demand from US visitors has balanced this out. Since 2013, the North American market has doubled in its significance for Irish hotels as a source of business. In 2018, this market was critical in generating demand across the sector with 17% of all Irish hotel rooms now sold to North American guests. Visitor numbers to Ireland from North America in 2018 were over 2.38 million compared to 1.16 million in 2013, highlighting the growing importance of this market for the sector and the potential for this market to continue to grow steadily. 

Commenting on this year’s survey, Partner at Crowe, Aiden Murphy said, "2018 has marked a turning point for the industry as the sector recorded the lowest level of profit growth in seven years, impacted by increased costs especially across payroll, utilities and insurance. Looking ahead to 2019, the 50% hike in VAT to 13.5% on rooms and food sales will make it a challenging year if the cost increases experienced in 2018 continue at a similar pace, making it difficult to pass on both the VAT increase and cost inflation to customers in terms of price increases."

He concluded, "Rising costs such as insurance, payroll and utilities combined with the potential impact of a hard Brexit will make 2019 and future years more challenging for the sector."

Source: www.businessworld.ie

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