Will tourism sector pay the price in Tuesday’s budget for aggressive pricing strategies of hoteliers?

The hotel sector is relearning the value of an old truism: short-term gain can lead to long-term pain. Alarm bells are ringing in the sector that the Government in next week’s budget will confirm that tourism’s VAT rate is to rise from 9 per cent back up to 13.5 per cent. Rampant profiteering by hotels that charged astronomical rates during the summer after Covid-19 restrictions were lifted is being blamed.

Certainly, the frothy prices charged by hoteliers in Dublin, Galway and other hot spots have given the Government a ready-made excuse to allow the rate to revert to 13.5 per cent at the end of February, as it always planned before the recent energy price crisis turned hotels from cash cows into money pits.

The Irish Hotels Federation (IHF) says demand for hotel rooms is now “cooling rapidly”. This is a sharp turnaround from the summer, when average occupancy in many areas topped 90 per cent.

[ Hoteliers hint boom time is over as they call for extension of 9% VAT rate ]

Hotels are suddenly being squeezed from two sides. They are huge users of electricity and gas for heating rooms and vast public areas, cooking and also for powering saunas and heating swimming pools. Bills are now a multiple of what they were before the pandemic. Meanwhile, people’s disposable incomes are being trashed, leaving them less cash to splurge on hotel breaks.

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When representatives of the sector were first accosted in late May and early June by politicians over the rates being charged to the public who had bailed the sector out during the worst of the pandemic, bodies such as the IHF became defensive and made weak arguments about the juiced-up prices being only for the last few available rooms.

These are precisely the rooms most likely to be booked by locals, attending weddings, visiting relatives or taking the chance of a quick weekend break. Hotels charged these rates because they felt could get away with it. But the “last few rooms” argument had another flaw: it was an admission that hoteliers were simply not prepared to offer those people value for money, based on a power imbalance fuelled by the emotionless laws of supply and demand.

It was warned in this title almost four months ago that the hotel sector’s antics could cost tourism its 9 per cent VAT rate. Now the power lies with the Government in next Tuesday’s budget.