Hotels that break even this year and next will be in a ‘good place’, says Fota Island chief

Five-star resort in east Cork is facing an energy bill this year of about €1m, and its general manager wants the Government to keep the special 9 per cent VAT rate for the hospitality sector

Breakeven will be the new profit for the Irish hospitality sector over the next couple of years amid soaring energy costs and rising inflation in other areas of the business, a senior hotelier in Cork has said.

“In my view, if you are in the hospitality industry and you break even this year and next year, then you’re in a good place. Breakeven is the new ‘doing very well for yourself’ over the next couple of years,” John O’Flynn, general manager of the five-star Fota Island Resort in east Cork told The Irish Times.

Mr O’Flynn said Fota’s energy bill this year will be about €1 million, up from €275,000 in 2019, its last full year of trading before the pandemic. “It’s frightening,” he said. “We’re working with a local company to hedge as much as we can and we’re reducing down the amount of usage as much as we can but it’s only a drop in the ocean. It’s definitely eating into the bottom line.”

Other costs have also risen substantially, bringing the total increase in expenses to about €1.5 million for the group. Mr O’Flynn said the hotel’s linen bill has gone up by about 25 per cent year on year, wages have risen by about 10 per cent, while waste disposal and food costs have also increased.

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“Breakeven while continuing to invest in the property would be the direction [of travel],” he said, adding that in a normal year the group would spend about €1 million on its facilities to keep them up to date.

The Fota resort reopened permanently in February of this year following stop-start Covid-19 lockdown restrictions, with Mr O’Flynn saying business has been “full-on” since then, adding that its occupancy rate will be in excess of 85 per cent for the year. “The level of activity has been good, we’d have no complaints and we’ve also seen a good mix of international travellers coming through the place.”

Its average nightly room rate will be about €190, net of VAT and breakfast costs, Mr O’Flynn said, compared with more than €200 last year. “The reason it has come down is because the mix is different. It was all summer season last year and more sleepers per room. Now, there’s more corporate and more of the shoulder season,” he said, citing a 50 per cent occupancy rate on that particular day.

Mr O’Flynn manages the hotel, the adjoining golf course, 120 self-catering lodges and its sports facilities for elite teams, which has full-sized playing pitches for GAA and soccer.

The 800-acre resort first opened in 1990, with the 131-bedroom hotel added in 2007, at the time under the Sheraton brand. It is currently owned by Chinese businesswoman Xiu Xiang Kelly (known locally as Julie Kelly), who lives on the site and also owns the four-star Kingsley hotel in Cork city. Some 441 staff are employed at Fota and the resort has annual turnover of about €20 million.

Mr O’Flynn said about 75 per cent of its customers come from the domestic and British market, with the balance being international travelllers (with 75 per cent of those being Americans).

Mr O’Flynn expressed the hope that the Government might have a change of heart on removing the special 9 per cent VAT rate for the hospitality sector, which is due to expire at the end of February 2023. Minister for Finance Paschal Donohoe announced the change in his budget speech in September but there have since been reports that the Government might think again or exempt some elements of the sector from the move.

“It concerns everybody. If we don’t have the smaller coffee shops and bars being viable, then we don’t have a tourism product. It’s a mistake putting it back up. It will just add to inflation and it won’t do anything for anybody. Right now, the tourism industry needs as much help as it can get.”

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times