Hotels to be hit by fall in tourism revenue

TOURISM REVENUE is on course to drop for the first time in four years this year, with an oversupply of hotel rooms set to create further difficulties for the Irish banking sector, according to a new report by Davy Research.

After a decade of strong growth, the tourism industry is now falling victim to the global economic downturn and an unfavourably strong euro, leaving a "mismatch" between supply and demand for hotel accommodation that will exacerbate problems for the wider economy, the author of the research report, Davy economist Rossa White, said.

As well as reducing employment and hurting consumer spending, fading tourism revenues will put pressure on hotel profitability, creating "another headache" for banks who have lent money to hotel developers, the report notes.

An "almost certain" fall in hotel occupancy will leave hotel developers, many of whom are already exposed to the new homes and commercial property markets, with dwindling cash flow, Mr White said.

The latest Fáilte Ireland tourism barometer for June showed that 53 per cent of hotels reported a decline in activity, with just 27 per cent reporting an increase.

"If that trend continued into the summer, which anecdotal evidence suggests it has, then we are likely to see the first drop in tourist revenue for four years," he said.

Under generous tax incentives for hotel development, investors were able to claw back income tax at their marginal rate at the end of a seven-year period. The building boom over the past decade means many investors are now coming to the end of these lock-up periods, potentially increasing the supply of hotels for sale. But hotel sales will prove "problematic" in the current property market, Davy notes.

The Irish tourism industry benefited from a decision to maintain overseas marketing budgets in the wake of the September 11th terrorist attacks at a time when other countries reduced their marketing spend. This resulted in the Irish industry bouncing back faster than other typical destinations for US visitors.

Although figures for the full peak 2008 season won't be published for a few months, the average sum spent by tourists fell 3.6 per cent in the first quarter of the year. But as visitor numbers continued to rise, the total expenditure still increased 0.6 per cent year-on-year.

Currency movements have undermined the industry's efforts to keep spending by tourists afloat during the current downturn. Hoteliers have been forced to discount their prices as the sliding value of the dollar and pound against the euro left visitors from the US and the UK with reduced purchasing power.

The price of hotel accommodation fell 0.3 per cent in July, according to Central Statistics Office (CSO) data published last week. This was the first time that the price of hotel rooms fell in the peak month of July. Even before the global economic slowdown took hold, some parts of the upper end of the hotel market were suffering. Dublin's Merrion Hotel slipped into the red last year with pretax losses of €1.21 million, reversing three years of profit growth, according to figures that emerged last week.

Revenues from tourism were worth €6.5 billion to the Irish economy last year.