Budget day will be crucial if tourism businesses are to make it through winter

There was an awkwardly funny moment at Tuesday's Fáilte Ireland conference in the Convention Centre Dublin (CCD), the first major event in the city in 18 months. It reflected the giddiness among those who work in inbound tourism at being back in the thick of it. It was like the first day back at school.

Paul Mockler, the agency's head of commercial development, was giving an uplifting and informative presentation. An impressive speaker, he was laying out in granular detail to 450 trade-starved industry leaders how State tourism officials are chasing almost €1 billion of corporate tourism for the Republic.

Mockler explained that some international conference organisers want to book sunny locations, presumably so delegates can relax with a cocktail on the beach after a hard day’s networking. For obvious reasons, Irish officials rarely waste time pitching for such events where balmy climes are a requirement. Ireland’s weather is hardly a selling point.

“Perhaps climate change will help us with that in future,” quipped Mockler.

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Not so long ago, before the planet’s bleak environmental future came to dominate almost every political issue, most people would have laughed at that. Most of those present probably wanted to laugh at it on Tuesday – I chuckled heartily at it myself, under my breath.

But everyone else in the room at once seemed to remember that the Minister for Tourism, and the Green Party's deputy leader, Catherine Martin, was sitting in the front row. The hall stayed silent.

Before Martin was elected a TD for a party whose main aim is to make us take climate change more seriously, she was a teacher. I do not know if she was a stern one – perhaps she might have been – but the giddy first day back at school vibes at the CCD seemed apt.

Edgy jokes aside, the job facing Martin, Mockler and everyone else connected to tourism is far more stark and serious: survival. That may sound hyberbolic but it is not. The minutiae of policy decisions over the next 18 days until Budget 2022 could mean life or death for many operators.

Businesses across the rest of the economy can more quickly fill their lungs with air as the heaviest weight of the pandemic is lifted off our chests. As soon as shops reopened, people could go back in. Once lockdowns ended, builders were immediately back on site. The day the work-from-home advisory ended this week, the streets became fuller with traffic as commerce returned to its desk.

But for tourism it is a little different. It was the first sector to hit the buffers when the pandemic arrived and it may well be the last to recover.

There were no planeloads of foreign tourists waiting to touch down in Dublin the moment restrictions were eased. It will take a long time to build the numbers back up again, as well as plenty of aviation subsidies, marketing splurges and good old-fashioned hustling. Every other tourist destination is facing the same issues and competition will be fierce.

Scrawny

The most immediate danger facing many tourism businesses is that they are scrawny going into the winter. The majority of businesses in the sector fatten themselves like livestock over summer and the month or two either side of it so that they can survive the lean months from November until March. They are the ultimate binge/fast yo-yo dieters of the commercial world.

The sector had a solid six to eight weeks of trading over the summer months due to domestic tourists, but that sort of fodder won’t stretch far into the dark days ahead.

A major liquidity trap is on the way for pure tourism businesses, and it will probably bite sometime in January, when revenues will be at their trough and domestic tourists start to think about booking holidays abroad instead of another one at home. Banks will not plug this gap. The State has already provided businesses in the sector about €100 million worth of grants, on top of the wage subsidies. More will be needed. That much is certain.

Also, the summer mini-binge wasn’t spread evenly across the sector, so they are not equally prepared for what lies ahead. Tourism businesses in cities and large urban areas barely had a meal at all over summer; Dublin hotels, in particular, had a torrid time.

The capital has most to gain, however, from a renewed push by tourism officials to attract business travellers for incentive trips and conferences. That €1 billion push by officials will be critical. Dublin should also do better with locals over winter.

Sectoral lobbying will be fierce for budget supports in the final stretch before all is revealed on October 12th. But tourism has a better case than most, and Martin is already dropping hints that she is prepared to mither the Minister for Finance. What will Paschal (Donohoe) do? (Or WWPD – the most appropriate acronym for the next three weeks.)

VAT rate

An obvious issue for tourism businesses in the budget will be to seek a medium-term commitment to extending the special 9 per cent VAT rate. It is due to expire at the end of this year but it would be sadistic for the Government to decide against extending it for at least another year or possibly longer to stimulate investment.

If it comes to the crunch, WWPD? He will likely send a strong signal that the VAT rate won’t revert anytime soon.

Businesses did not get the full benefit of the VAT measure that was reintroduced in last year’s budget, because the sector was effectively shut down for close to eight of the following 12 months, due to lockdowns and other restrictions on travel. With no trade, there were no revenues from which to take a VAT bounty.

The nourishing capabilities of that particular policy instrument will only truly become apparent if it gets a good run for a busy year or two. But it will also put the onus on operators to control price inflation.

In addition to stretching out the timeline for tapering the painkiller of wage subsidies, and other obvious topics such as greater marketing supports, the big issue facing the sector is the crippling labour and skills shortage that the pandemic has exacerbated.

It will be a heavy constraint on growth in the critical months and years ahead. Fáilte Ireland's chief executive, Paul Kelly, told the audience at CCD on Tuesday that two-thirds of tourism businesses are currently forgoing revenue because they can't operate at full capacity due to staff shortages.

Martin dropped a heavy hint on Tuesday that there will be cash in the pot on budget day to help address this issue. Perhaps there will be funding for an expansion of training places, topped up with measures from the Department of Enterprise to ease the hiring of workers of outside the European Union.

But whatever happens on October 12th, most of the hard yards for the tourism sector still lie ahead. The next six months could be crucial.