Horwath Bastow Charleton Hotel Industry Survey
Reveals the Market Retrenches in 2007

- Occupancy Levels in Dublin Drop for First Time Since 2002 / Profit Levels Down 8.2% YOY -

Hospitality Experts Issue Stern Warning but say Business Tourism Represents Greatest Opportunity in an Uncertain Market

Dublin, July 31st, 2008 - Horwath Bastow Charleton, one of Ireland’s leading Chartered Accountancy and Business Advisory practices, specialising in the hospitality sector, today announced the results of the annual Ireland and Northern Ireland Hotel Industry Survey, one of the most comprehensive industry-wide surveys of its kind. The Horwath Bastow Charleton survey has uncovered mixed results for the hotel industry in Ireland, with profit levels in the capital falling by 8.2%. Although occupancy levels are 10% higher than other regions across the country, hotels in Dublin are experiencing a decrease in profitability due to many properties discounting room-rates. The fear for the second half of 2008 is that further discounting is imminent in the marketplace, a factor which will continue to undermine the profitability of hotels in Dublin.

While overall results for the industry in 2007 were good, Horwath Bastow Charleton are adamant that the sector must keep rising costs in check if they are to protect future profitability and have issued a stern warning to hoteliers.

“We are now entering a period where room revenues may continue to fall due to lower demand or lower rates as discounting becomes the norm,” said Aiden Murphy, Partner, Horwath Bastow Charleton. “While business in 2007 was consistent with previous years, the challenge for the industry is to minimise further falls in profitability as we continue into the next 12 months.”

Continued Murphy: “We may see a steeper fall in the profitability of Irish hotels as lower rooms sales impact the bottom line in a more pronounced way. Many hotels, whether recent acquisitions, new entrants, refurbished or extended properties carry significant borrowings. The impact of higher costs (operating and interest) and the slowing economy needs to be factored into hotel budgeted cashflows, to ensure required sales targets and their importance in sustaining business are well understood by all stakeholders.”

Horwath Bastow Charleton outlines the challenges to the industry over the next two years and indicates areas for opportunity:

2008 and 2009 will be a challenging period for the sector. The fall off in economic growth and the reduction in consumer confidence will have a negative impact on demand by the domestic market, who now represent over 60% of all hotel guestnights. With a slowing hotel sector, higher hotel categories will tend to chase business from lower categories. Any reduction in visitor numbers from the USA or the United Kingdom will lead to higher end hotels seeking a greater share of the domestic market with special promotions they offer having a knock on effect on the lower end market. The hotel sector relies heavily on its physical product and its staff in providing a quality experience. While customer service should not be sacrificed, it is essential that management find a happy medium between devoting sufficient time and resources to understanding the financial implications that a slowdown in the economy implies.

Aiden Murphy continued: “As always, well located, more established hotels and stronger management teams will help shield properties from the impact of a changing operating environment. Hoteliers must maintain a tight reign on the financials underpinning their business. Astute financial and operating information are the key building blocks for understanding likely changes to the financial performance of a property and will assist hotels in dealing with the new reality of tougher times ahead.”

Revenue from Business Tourism Sector Could Reach €1billion by 2012

While the industry is in for a marked change in operating conditions over the next two years Horwath Bastow Charleton have said that effectively targeting business tourism will assist in alleviating some of the difficulties that the industry is facing.

Continued Murphy: “The introduction of the National Conference Centre to Dublin in 2010 is eagerly anticipated and expected to create up to €50m per annum for the economy. It is expected that revenue from the sector could double to €1billion by 2012. By introducing deductibility on VAT on conference related accommodation expenses, Ireland is becoming a more attractive conference destination. Business tourism is a high yielding sector and represents a major opportunity in potential growth. “

The National Conference Centre will further boost the ability of Dublin hotels to attract business/meeting related markets. It is estimated that over 30% of an international association attending a 3 day conference in Ireland will stay on as tourists either pre or post conference. Therefore the international bias of conference delegates to host events at the National Conference Centre will have a positive ripple effect on hotels in Dublin and throughout the entire country.

Eco-Friendly Hotels:

The green agenda remains a prominent issue and one that can benefit hotels and assist them in reaping financial benefits. Horwath Bastow Charleton have revealed that 73% of hotels surveyed currently implement an environmental policy. Eco-friendly businesses can achieve substantial financial benefits in terms of operating costs through sustainable actions, such as water re-use, energy saving, waste management and environmentally conscious purchasing.

The Horwath Bastow Charleton survey also recommends tangible initiatives that will help hotels reduce their energy bills. As energy costs continue to rise and with the widespread introduction of leisure centres and spas to many properties across the country, implementing energy efficient strategies is essential. Management must encourage a culture of energy efficiency in order to curb rising energy costs which have doubled in the last ten years.

Trends Impacting the Sector:

The continued growth in rooms demand in Irish hotels, particularly from the domestic market
The significant increase in hotel stock due to expiry of tax write-off building allowance for hotels
Increasing payroll costs – 76% of respondents indicate that payroll costs were their number one issue in 2007.
Payroll costs are now over 40% of turnover at Irish hotels

2008 and Beyond:

Overall the backdrop of the Irish economy in 2007 was a positive environment where Irish hotels benefited from growing demand and increased spend from higher levels of business from the domestic and overseas market. The equivalent climate in 2008 indicates a recessionary attitude by the domestic market, where spending is being curtailed in a major way. To overcome the fall off in demand and create activity, Irish hotels have adopted a sales approach which is discount led.

Concluded Murphy: “It is likely that average room rates in 2008 will be down by at least €5.00 which could reduce profits by 15% and market intelligence indicates that trend is set to continue. Hotel owners must become aware of the level to which their profits are under threat.”

The Horwath Bastow Charleton Ireland and Northern Ireland Hotel Industry Survey is carried out on an annual basis. Information contained in this report is drawn from the financial year ending 2007. Leading hotels throughout the island of Ireland are surveyed on a number of topics including: room occupancy average; average daily room rate; revenue per room and profit before tax per available room.

ENDS

About Horwath Bastow Charleton

Horwath Bastow Charleton is one of Ireland’s leading Chartered Accountancy and Business Advisory practices. Horwath Bastow Charleton is the representative firm in Ireland of Horwath International, a worldwide group of independent accountancy firms with over 400 offices in 370 cities and 16,000 staff.