‘Zombie’ hotels put viable jobs in danger

TOURISM interests including Fáilte Ireland and the Irish Hotels Federation have warned that the continuing operation of so-called “zombie” hotels was placing many businesses and jobs in the sector in jeopardy.

The Joint Oireachtas Committee on Arts, Sport and Tourism yesterday heard that the oversupply of hotel rooms was threatening the future of many viable, long-established hotels.

In particular, the IHF expressed concern that banks and other financial institutions that had taken possession of hotels from developers and other investors and continued to operate them were interfering with normal market forces due to a number of factors, including the setting up of NAMA.

Hotel owners are worried the banks are reluctant torealise the losses on such investments because of the potential impact on their own balance sheets.

IHF chief executive John Power claimed the failure to address the problem of surplus hotel accommodation, estimated at up to 15,000 bedrooms, was damaging the tourism sector. There are 903 hotels in the Republic with 60,200 bedrooms – an increase of 17,200 rooms over the past seven years.

Mr Power said the current hotel occupancy rate was at its lowest level in 30 years at 55%. Average room rates have also fallen by over 20% in the past 18 months in part due to “ridiculous” pricing by hotels owned or supported by banks.

Mr Power pointed out that such hotels, which had no prospect of survival, were solely being kept open for seven years to avoid claw backs on tax breaks used for their construction.

“The result is that the burden of excess capacity is not being borne by the new entrants that have caused the problem or by the banks that have financed the bad investments,” he said.

He expressed concern that hotel owners were over-reliant on the domestic tourist market with Irish visitors accounting for 70% of all bed nights. The IHF also criticised the “unbearable” level of local authority charges and rates as well as the “archaic” systems of setting legally binding wage rates and conditions of employment under the Joint Labour Committee system.

However, SIPTU regional secretary Patricia King said it was a crucial mechanism for delivering a fair rate of pay for hotel workers. She expressed concern that official figures showed that just 27% of hotels inspected last year by the National Employment Rights Authority were complaint with such legislation on staff wages.

However, Ms King agreed with the IHF that technically insolvent hotels which are being kept open by banks were placing other successful hotels at risk.

Fáilte Ireland chairman, Redmond O’Donoghue, said heavy discounting of room rates had driven prices to historically low levels which had seen revenue and profits drop by over 20% in 2008 with a further deterioration likely to be recorded in last year’s figures.

Mr O’Donoghue said a notable aspect of manyhotels was the separation between their ownership and management. He claimed the existence of “zombie” hotels was damaging other hotels in the same region.

However, Mr O’Donoghue welcomed the recent recapitalisation of many banks which he predicted would lead to a greater readiness by them to tackle the issue of “zombie” hotels.