Hotel profits set to plunge 70%

PROFITS generated by Irish hotels are set to plunge 70% this year as occupancy levels hit a 15-year low.

The hotels will also have to face repaying €7 billion owed to banks as they battle against falling sales and engage in heavy discounting.

It is also expected that 10% of hotels will close over the coming two years, resulting in 2,800 job losses in an industry that employs 90,000 people.

A survey by accountants Horwath Bastow Charleton found that although overall occupancy levels were down 6% last year, domestic tourism was up.

It said this year is proving to be even more difficult with turnover so far down 30%, leaving many hotels in survival mode.

Last year, turnover dropped by 8%, leading to profit levels being down almost 25% in the industry.

Dublin hotels suffered a turnover drop of 11.6% in 2008, luxury hotels a fall of 12.3% and larger hotels of 100 rooms or more were down 10.7%.

Horwath Bastow Charleton partner Aiden Murphy said: “The real concern is that these much reduced sales and profit levels are reflective of the slowdown for the sector that accelerated in pace as 2008 ended. As the Irish economy is in recession, unemployment levels are increasing and as curtailment of government agency expenditure continues, this will result in the hotel sector remaining under pressure for quite some time.”

The survey notes that, despite discounting by hotels, Ireland is an expensive place to visit for overseas tourists.

It said the sterling/euro currency exchange rate on average for the year weakened by 17%, meaning the 3.87m British visitors did not see the benefit from the reduced prices. Also it notes that this makes the North a more attractive proposition for leisure breaks both internationally and domestically.

Mr Murphy said many hotels will be left with cash flow difficulties this year and next particularly when bank loans “estimated to be €7 billion” are considered.

The domestic market accounted for 65% of hotel bed-nights in 2008, up from 53% in 2004, and the survey said the resilience of this sector will be a “key factor” in how the hotel industry performs going forward.

The accountancy firm, which specialises in the hospitality sector expects to see hotels change their operating style over the next year having more seasonal closures and being used for alternative purposes.

It said Dublin is likely to benefit going forward from the opening of the O2 arena and the Aviva Stadium and National Convention Centre which will also boost demand levels.