A THIRD of Irish hotels are in difficulty at a time when room rates have plunged to lows last seen a decade ago.
At the end of 2009 Irish hotels had outstanding debts of €6.4 million and figures from a Horwath Bastow Charleton hotel survey found that profits have fallen 50% since 2007.
Over a third of hotels are in difficulty and experiencing “severe cash-flow problems” according to the survey. It also said that many hotels are in a “very unstable position” with profit levels insufficient to meet their bank loan commitments.
The survey shows that just over 40% of Irish room stock or 25,000 rooms were developed over the last 10 years and it is estimated that there is an average debt at these hotels of €135,000 per room.
The four and five star market have been hardest hit with profit before finance costs per room at luxury hotels down sharply from a high of €13,954 in 2007 to just €3,092 per room in 2009.
In the lucrative wedding market, hotels are offering better deals to couples to claw back some losses as the lead-in time for booking weddings shortens considerably.
Consumers now have the bargaining power. They research the various packages available and approach the hotel with the competitor’s prices either asking the hotel to match them or select a price and ask the hotel what is available for that price point.
Partner with Horwath Bastow Charleton, Aiden Murphy said: “We are entering a period where profit levels in the hotel sector have reached an all-time low, with many hotels seeing their profit levels plummet by 50% over the past two years.”
The average room rate at hotels has fallen from €97.69 in 2007 to €77.81 in 2009, a €20 reduction in every room sold.
Dublin seems to have fared better than the rest of the country with hotels in the capital achieving an average room rate that is €16 higher than the regional room rates and 10% higher room occupancy levels. It is also expected that the Dublin market will rebound quicker than the rest of the country.
It said food and beverage sales account for 60% of revenue for hotels located in the midlands and east.
“While our economy was growing we had a need for more hotels to meet growing demand but the exuberance of the Irish property development sector provided 16,000 extra rooms between 2005 and 2008, when 6,000 rooms would have been sufficient.
“The impact of this overcapacity also means that occupancy levels have fallen from 63.5% in 2008 to 59.4% in 2009,” said Mr Murphy.
There is also a worrying acceleration in the number of hotels going into receivership and liquidation and it is estimated that there are over 30 hotels in the hands of administrators.
The survey said that the market is just 10% of the way through the fallout. Horwath Bastow Charleton believes that the future of many hotels in Ireland rests on the decisions of the bank’s credit committees and NAMA.
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