OPINION:PEOPLE ARE quite right to question the proposed curtailment of required trading for a number of recently opened hotels availing of capital allowances schemes. In today's world, every decision needs to be analysed completely, writes JOHN BRENNAN
In world tourism terms, the millennium year, 2000, was a record year in all destinations around the world. Ireland was no different, with an occupancy level of 65 per cent with a bedroom stock of 40,000 rooms.
By 2007 the bedroom stock had increased to 62,000, a growth rate only mirrored by Las Vegas and Dubai. In 2007 the industry also achieved a phenomenal occupancy level of 64 per cent considering the room stock versus the island population of 4.5 million people.
However, if you analyse the figures you will see the dependency on the domestic market in 2007 was 73 per cent compared to 45 per cent in 2000, and the alarm bells should have been ringing in the ears of the decision-makers.
The reason for such an increase in domestic business was, of course, the maturity of the SSIA saving schemes, a one-off event with only a snapshot impact on occupancy.
Myself and my colleagues feel that if a successful business person wants to open a hotel they are quite entitled to.
If that business, which may or may not have any hope of ever trading successfully, loses money and they willingly invest annually to keep it open, that is also their own business. That is business and we must all live and adapt our own businesses to deal with the reality of the day.
However, it is an entirely different matter when the loss-making business closes and a bank reopens it with a management team to protect their – the bank’s – reckless lending exposure.
The same banks have not reopened any factory, shop, office or any other business that I am aware of, but they have reopened and taken over the management responsibility for many hotels throughout the country.
Those properties have re-entered the marketplace with rates far below their break-even level and have caused untold damage to the industry.
That is where the problem is in the hotel sector at the moment. The banks, backed by us, the taxpayers, are in competition with the industry, while at the same time not providing facilities for many of our colleagues to trade successfully.
In essence, they have the ability, thanks to a Government guarantee scheme, to strangle the industry while at the same time benefiting from it by protecting the ridiculous and totally unrealistic loans they made to “vanity investors” without realistic business plans.
However, one must get on with life. The question is: “have we too many bedrooms or too few tourists, ie: overseas visitors coming to Ireland on holiday”?
The answer lies somewhere in the middle and the suggestion last week from the Irish Hotels Federation to freeze the clawback on capital allowances was an attempt to offer an exit strategy without penalty to those properties that wish to close but must keep trading for tax reasons.
In reality, the revenue and taxpayer have got their reward as the VAT and PRSI of the construction and trading to date in most cases have refunded the level of allowances given.
The most visible loss would be in jobs, but most of these would be absorbed by the industry in busier properties elsewhere.
What we have at the moment are 62,000 bedrooms when the market only requires 40,000.
The additional 22,000 bedrooms were never market driven, but became reality by a combination of uncontrolled tax incentive, reckless lending by the banks and vanity investors oblivious to the intricacies of the industry.
Profitability from the bedroom sector of hotels is derived from a combination of occupancy versus bedroom rate, both of which have fallen to below a sustainable level.
The real challenge for the future is marketing and placing Ireland in a desirable position for non-Irish people overseas.
That is where the business will come from to sustain 40,000 bedrooms, 200,000 jobs and an unquantifiable commercial spin-off to local communities throughout the entire country.
The future is bright as Ireland has a very saleable hospitality product, has good access both by air and sea and an enviable reputation as a good experience destination, but we need to ensure the industry can survive.
Survival is the new profit, and the banks need to stop subsidising operations, to level the playing field and let the industry prosper in a tangible way.
We, as operators, need to get out and sell Ireland in conjunction with Tourism Ireland to overseas markets.
The days of depending on 75 per cent of our business coming from the domestic market at a sustainable occupancy level are well and truly over.
In addition to a reduction in the bed stock, we need a vibrant and robust marketing strategy based on the proven attributes of the Irish hospitality industry, its people.
It is about selling, not marketing, and it is time to leave the desks and hit the streets for all involved. It is shoe-leather marketing and not e-zines. Ireland is about an experience, not a cold introduction so easily eliminated by the delete button.
It will be harder and costlier but more rewarding in the long-term.
The real question is can the Minister, and the Department of Tourism, and industry representatives get the industry back on track?
It is not an issue just facing hotels, it is about the survival of a robust tourism sector with a far-reaching impact on all aspects of life in Ireland for many years to come.
John Brennan is managing director of the Park Hotel in Kenmare, Co Kerry, and was co-presenter, with his brother Francis, of RTÉ television's At your Serviceseries which gave business makeovers to a selection of B&Bs and small hotels.