Talking Trade

Tim Fenn — “Hotel industry remains in survival & recovery mode”

Now just over a year into the job, the Irish Hotels Federation’s Chief Executive Tim Fenn gives Pat Nolan a health bulletin on the country’s hotel and guest house industry in these tough times for the hospitality trade.

The Irish Hotels Federation’s long-established Dublin HQ on Northbrook Rd, Ranelagh, is so well-known by members that it’s referred to as ‘Northbrook Road’ in much the same way VFI stalwarts recall ‘Mount Street’, their former head office.

In a fine old red-brick building with carpeted Georgian rooms housing Federation staff, the Chief Executive’s office and a Board Room I meet IHF Chief Executive Tim Fenn, now just over a year into the job having taken over from John Power who served the Federation for 14 years.

At around 900 members the IHF has suffered “some attrition” in the current climate but runs an ongoing recruitment drive to compensate.

“We dropped prices last year by five per cent in recognition of the difficult times people have,” Tim explains, “In 2004, we had 48,000 bedrooms but by 2008 we’d 64,000 – a 34 per cent increase in capacity to match a demand up by just 12 or 13 per cent. Occupancy levels in 2008 were on average 64 per cent around the country but with the collapse, this dropped to 56 per cent in 2009/2010. When occupancy levels drop below 60 per cent on average, prices tend to drop significantly.”

While hotels may not be subject to same level of exposure as pubs with drink-driving pressures and lifestyle change, “Hotel expenditure per head for food and beverage is challenged,” he says, “People going to weddings, for example, are not spending as much on beverages”.

The difficulties the industry has at the moment centre around its sustainability and Tim’s first 12 months in office witnessed significant developments.

“The country had to be bailed out, for a start,” he states, “We have until 2014 to reduce our deficit to three per cent. This has taken €6 billion from the economy this year and will take €3-4 billion next year – a massive amount of cash to take out of people’s pockets. It affects all aspects of retail and hospitality.”

But the change in Government and a new impetus to address the structural problems in our economy represent important recent developments. He’s pleased that this government puts tourism as an export sector at the centre of its policy.
“It’s highly labour-intensive and there are great opportunities here given the right support to recover lost ground.”

This recognition has delivered a welcome reduction in VAT for tourism-related services, providing a much-needed shot in the arm. Employers PRSI at the lower rate was also reduced by half for those earning less than €356 per week.

“Cost competitiveness is an enormously important factor for us and a real issue for our economy,” explains Tim, “We’ve been lobbying Government to fix this enormous problem and the inequity in local authority rates to hotels as part of the cost of doing business in Ireland.

“It’s causing great angst to members who pay around €90 million a year in rates – that’s about €1,500 per bedroom.
“In the context of the collapse over the last four years, the cost of rates has not reduced. I know of some properties paying €500,000 a year at the height of the boom – they’re still paying that now!”

Earnings from tourism dropped 21 per cent, from €6 billion in 2007 to €4.7 billion last year.

“The drop in revenue has had a big impact on the profitability of the industry. We must look at this in the context of where the industry is in terms of overhanging debt which is somewhere between €5 billion to €7 billion, equating to €100,000 per bedroom on average.

“The latest Howarth Bastow Charleton report suggests that a sustainable level of debt would be around €67,000 per room but earnings are only about half of what’s necessary, so we’re only about half-capitalised. We’ll also be concentrating on the issue of overhanging debt and seeking to achieve appropriate levels of support from the banking industry.

“From our point-of-view, we must recover our international tourism visitor numbers,” he stresses.

In advance of the latest Quarterly Barometer the Federation has some preliminary indications on current year performance.

“The tourism hotspots of Dublin, Cork, Killarney, Galway, Westport and Kilkenny have had a reasonably good year overall so far,” he states, “A lot of hotels concentrate on weddings which have held up in a very competitive price market. But traditional Summer resorts have had a difficult time as have non-tourist areas due to the weather. Other areas without a big population have had a difficult time. We’ve seen a recovery in the North American, German and French markets but the GB market still represents a major challenge. Ultimately all recovery will be determined by Ireland’s international competitiveness. People love to come to Ireland and we have to ensure we’re competitive with other destinations. There’s great value in Ireland at the moment in relation to hotel bedrooms and we have to get that message out to our international markets.”

Food and drink constitute around 51 per cent of his members’ income varying from 41 per cent in Dublin to 58 per cent in parts of the country. But anecdotally, spend per head on food and beverage is not growing, he reports.

“Some of our members have reported an increase in room rates etc but this is coming from a very low base now, so it’s only a marginal increase.”

To Tim, the industry remains in survival and recovery mode.

“Everything hinges on the effective marketing of Ireland by working with Tourism Ireland and Fáilte Ireland to restore our image abroad” he believes, “but we’re cautiously optimistic that if we can restore overseas visitor numbers we can contribute to national recovery. The hotel sector has a very important part to play in this. In the meantime we have to deal with the structural problems of the economy, overhanging debt and the cost base.”

The IHF also advocates abolition of the JLC system, struck down by the High Court earlier this Summer.
“We’re hoping the Government doesn’t restore it under a different name,” he adds.

The best scenario he can hope for, given the current outlook, is for tourism figures and incomes to recover back to 2008 levels.

“If that’s achieved, we’ll still have excess capacity of around 10 per cent of stock – that’s around 7,000 bedrooms, so it would be fantastic in that situation if we were able to find a next-best use for this excess capacity. In so doing, we’d bring our industry back to sustainability.”

At worst, a failure to recover tourism numbers, to address overhanging debt or excess capacity will lead to a “very challenged industry in terms of maintaining quality of service and quality of stock”.

Then here’s hoping for the all the best…

“In the context of the collapse over the last four years, the cost of rates has not reduced. I know of some properties paying €500,000 a year at the height of the boom – they’re still paying that now!” - Tim Fenn

“In the context of the collapse over the last four years, the cost of rates has not reduced. I know of some properties paying €500,000 a year at the height of the boom – they’re still paying that now!” – Tim Fenn

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