by Frank Corr

Experience of many years has taught me to be wary of reports by consultants whose findings are identical to the agendas of their clients. So it was with some caution last November, that I leafed through the document from economist Peter Bacon which argued for the closure of 15,000 guestrooms in Irish hotels. It had been commissioned by the Irish Hotels Federation which had been arguing for exactly the same outcome for the best part of a year.

From the very beginning the suggestion that hotels should be forced by an outside agency to close down, seemed strangely odd to me. Less than a year earlier the industry had been boasting that it could offer the most modern, fit for purpose, hotel plant in Europe and this usp was also promoted in overseas markets by Tourism Ireland. The ‘plant’ had been expanded with the building of hundreds of new hotels and until 2008, average occupancies were holding up remarkably well, despite the addition of those 15,000 new rooms. Nor were all of those rooms in newly built hotels. Almost every property in the industry had engaged in some form of expansion or refurbishment  which typically comprised a block with additional guestrooms and a leisure centre/spa.

When the downturn in tourism hit us in mid 2008 and continued into 2009, it was inevitable that occupancy levels would fall, but I could not help thinking that tourism will eventually bounce back and that those new, modern, well-equipped hotel rooms will be needed. Closing the hotels or diverting them to other purposes, did not make sense to me.

The Bacon report was also short on a credible plan regarding how the hotels should be taken out of the market. The point was well made that many are existing only because of tax breaks and that if the deal under which these were granted was broken by the Government, then all would be well. In fact the problem is a lot more complex. Many interests are involved in the new hotels, including developers, operators, financiers, employees, the Revenue Commissioners and the Government. Closing the hotels would not suit the interests of some, if not all, of these parties. Developers want to preserve the value of their assets as far as is possible and an operating hotel is more attractive to them than an empty shell. Many operators have long term contracts and breaking them would be expensive and very messy. Banks share an interest with developers in optimising asset value and are more likely to favour a hotel producing some cash flow than one which sits idle. The Government and up to 8,000 employees in the affected hotels would certainly not welcome closures and job losses and finally the Revenue Commissioners are unlikely to easily agree to a tax derogation which would also have to be applied to viable hotels.

Even if all of these parties could be won over to the scheme, the task of choosing which hotels to close and which to subsidise would be Herculean. Peter Bacon seemed to suggest that some committee could choose the hotels destined for closure while allowing ‘heritage’ or ’strategically important’ hotels to remain open. Finding agreement or the political will for such a ‘Hotel Court’ appears to me to be very wishful thinking.

There had to be another approach to the problem of empty beds and low yields and it came from Professor Cathy Enz of Cornell University at the IHF Conference in Galway. The highly respected hotel industry strategist seemed to be somewhat shocked at the Bacon proposal. ‘Why close down these properties?’, she asked.

Her approach was that IHF members should concentrate on developing facilities they already control, while adding value and special interest attractions. They should not expect a State bailout. And although she did not say so, there was a clear indication that hotels should be happy enough if banks are prepared to keep them in business until the market grows again. Interestingly, there was considerable support for this approach from the delegates.

And there is every chance also that the market for Irish hotel bedrooms may have bottomed out. If Tourism Ireland meets its target of growing visitor numbers this year by 3%, it would produce a potential 500,000 bednights which would do much to raise occupancy levels above the 50% that Peter Bacon sees as the minimum level required for viability. It also appears that fewer Irish people will be travelling abroad this year and this should help grow the market for home holidays and leisure breaks. Hotels will of course need to offer good value in a depressed economy, but competition should ensure that they continue to do so while managing to keep afloat.

Nobody is saying that the Good Times are about to Roll again in the short term- but for hoteliers and indeed the country, survival is a lot more preferable to closure.

Source: hospitalityenews