Irish hotel industry's impressive renaissance complicated by ‘distorted’ market

Data this week from hospitality research agency STR painted a picture of the Irish hotel industry that seemed remarkably rosy, considering how hard it was hammered in the pandemic.

Irish hotels say they lost €5 billion in revenues because of anti-virus restrictions, while a total of 19 million bednights disappeared across 2020 and 2021. Yet STR told a conference in Berlin that Irish hotels now were back above 81 per cent of 2019 business levels over four weeks to mid-April. Only British and Polish hotels are performing better in Europe, according to STR’s data.

Other evidence is emerging to suggest that Irish hotels may be about to stage a Lazarus-like comeback having looked dead and buried barely a year ago. Air capacity to the island is predicted to be above 90 per cent of pre-pandemic levels this summer, suggesting international visitor numbers may easily top the 60-70 per cent of 2019 business planned for by State tourism officials.

The Irish Hotels Federation (IHF) will also this month release survey results that will show a rapid recovery in bookings and occupancy, which had lingered below 40 per cent of normal levels nationally for the first two months of 2022. It is expected to confirm that, for the first time since the pandemic hit landed, Dublin properties recently outperformed hotels in other parts of the State.

Irish hotel business bounces back to over 80% of pre-Covid levels

---

Joanne Dillon becomes first female general manager of Westin Hotel

---

Inclusion of Offaly, Westmeath and Cavan in Ancient East ‘stretched credibility’

---

If the capital’s hotels are purring again, the sector nationally surely will have better-than-expected occupancy in 2022. Dalata, which is by far Ireland’s largest hotel operator, told its agm last week that bookings for April were almost 10 per cent up on 2019 levels.

The leisure market is said to be strong, the corporate and conference market is once again showing signs of life, a flurry of delayed weddings and other family celebrations are filling function rooms, and room rates are said to be high and rising fast.

‘True recovery rate’

Yet some hoteliers believe the true picture across the industry, while still positive, may be a little more nuanced than some of the figures suggest. The impact of inflation is wreaking havoc on hotel cost bases and customer pricing. Meanwhile, the impact of accommodating thousands of Ukrainian war refugees in Irish hotels is “distorting” occupancy levels and room rates.

"I don't believe some of the statistics out there at the moment," said Lorraine Sweeney, who owns four hotels in Wicklow. "Nobody knows what the true recovery rate is in the Irish hotel market right now."

Even before the war in Ukraine, the State was hungry for deals with hoteliers to house an increasing flow of refugees from elsewhere. In February, the Department of Children’s International Protection Accommodation Service (Ipas) was already finalising a new panel of hotels to accommodate refugees when Russia invaded its neighbour, turning an accommodation squeeze into a full-blown crisis.

The two newest hotels in the capital, the 421-bedroom Holiday Inn at Dublin Airport and the 393-bed Travelodge Plus in the city centre, were hired by Ipas for refugees early in the year, when it said the total number of hotels rooms in the State set aside for this purpose neared 5,500. Since then, more than 4,000 hotel rooms are said to have been hired on short-term contracts for Ukrainian refugees.

Sweeney, a former chair of Ibec's Small Firms Association, owns the Wilton and Esplanade hotels in the seafront town of Bray and the Summerhill country house hotel in nearby Enniskerry. In partnership with her daughter, Adrienne Stewart, she also owns the Powerscourt Springs wellness hotel near Enniskerry, which reopened in between periods of restriction in 2020, after a €2.5 million investment. After the difficulties of the pandemic, the group appears to be performing strongly.

‘Sustainable’ fears

The Wilton, on the outskirts of Bray, has entered a contract with the State to give over one-third of its 105 rooms for Ukrainian refugees. Sweeney says she is happy to be able to provide some shelter for those fleeing war.

But she believes much of the current buoyancy in room rates is a “distortion” caused by the impact of taking capacity out of the hotel market to house refugees. One of the Wilton’s main rivals, the Royal hotel on Bray Main Street, is currently exclusively housing refugees.

“The market is buoyant right now. There is no doubt about that. There are also a lot of weddings happening, which really helps hotels like Summerhill,” says Sweeney. But she is unsure whether current growth rates are “sustainable”.

Prior to the Ukrainian invasion, Ipas was doing deals to hire entire hotels at up to 100 per cent occupancy, often at nightly room rates of €100 and above. Such agreements seemed attractive to some hoteliers in the dead of winter because they eliminated any future risk to revenues of closure from virus resurgences.

However, as tourism recovers and high season approaches, such deals now appear less attractive. In some locations traditionally reliant on tourism, local businesses are uneasy at the bulk of capacity going to refugees instead of tourists who will spend heavily in the local economy. Some hoteliers are also beginning to hint that Ipas may need to increase its rates this summer when many short-term contracts run out.

The Irish Times recently reported from Rosslare in Wexford, where the manager of the Darby hotel said it would be “difficult” to extend its contract with Ipas this summer unless rates went up, because it was depressing its bar and restaurants sales and displacing tourists who would pay higher rates.

Meanwhile, unease among local traders is also growing in tourist towns such as Youghal in Cork, where two of the town's three hotels are completely set aside for refugees. A recent meeting of local councillors in Wicklow also aired concerns about a shortage of hotel rooms this year. Fáilte Ireland's chief executive, Paul Kelly, recently said the long-term housing of refugees in hotels was "not good" for the refugees or the industry.

‘Exceptionally busy’

Yet even in luxury parts of the market that are not at the centre of refugee efforts, hotels in the last four to six weeks have come back strongly as the impact of the latest Omicron variant waned. Nicky Logue, the general manager of the five-star Intercontinental hotel in Dublin, this week told the Irish Tourism Industry Confederation that the Dublin 4 property is "exceptionally busy".

Logue suggested that occupancy was still down on 2019 levels but rates were well ahead. With the two factors combined, he said the hotel’s performance was now even “slightly ahead” of 2019. He told Itic it was the same right across its sister hotels in the MHL Hotel Collection, which also includes top hotels such as the Westin in Dublin and Glenlo Abbey in Galway.

Away from the capital, hotels are also performing strongly thanks to a release of pent-up demand for functions and breaks, while foreign tourists have also made a welcome return. Elaina Fitzgerald Kane, a director of her family's Woodlands hotel in Adare in Limerick, says many family celebrations that were cancelled in the pandemic are taking place now, providing a revenue fillip for the sector.

“It could be something as insignificant as a child’s second birthday party. But because they never had a birthday party before, there might be 50 or 60 people at it,” she says. Woodlands would normally do 130 weddings annually but this year it expects to do 180. Sweeney’s Summerhill in Wicklow, meanwhile, did 15 weddings in April, well ahead of its normal run rate.

Hotels in areas linked to leisure tourism are coming back stronger than properties focused on the corporate market, says Fitzgerald Kane, who will take over as chair of Itic this summer. “There is an abundance of Americans around. We are also seeing Nordic and UK tour groups again, although still not as many as before.”

The Woodlands in 2019 achieved occupancy rates close to the national average of about 72 or 73 per cent. “We are pacing ahead of that at the moment. But we won’t take it for granted,” she says.

Away from the more traditional tourist areas, there is also optimism. Matt O’Connor, the managing director of the four-star Mullingar Park hotel on the edge of the Westmeath town, says it is performing “better than anticipated” as the recovery has accelerated in recent weeks.

Supply chain

The hotel normally focuses on corporate business during the week and leisure sector at weekends – the 95-bed hotel has a full leisure centre. Local family celebrations are boosting the leisure side of the operation. But even corporate bookings have started to improve in the past few weeks, he says.

O’Connor warns, however, that the levels of price inflation in its supply chain are “frightening”.

“Maintaining competitiveness is the biggest challenge we have,” he says

Mullingar Park’s restaurant is known in the locality for its steaks – it serves only Hereford beef. O’Connor says it was paying €19.37 per kilo for beef in August last year. By December, it had risen to €21.07 per kilo. Now, it has increased to €25.71 per kilo, a 32 per cent increase on the price it was paying last summer. It would be a struggle for any hotel to absorb such price increases without passing them on to consumers. O’Connor says Mullingar Park’s linen charges have also risen by 16 per cent.

Tim Fenn, the chief executive of the Irish Hotels Federation, said he could not comment on the business levels suggested by the STR figures as he hadn't seen the detail, but the IHF's own figures, due out in the next week, will show a pick-up in recovery rates to show it is now "a bit better than expected".

Fenn said the hotel sector used to employ 65,000 people. It fell to a low of 26,000 last April but has now risen back to 54,000, he says. The IHF is still predicting a return to roughly 70 per cent of 2019 business levels for the whole year.

“There are plenty of green shoots but there is still a long way to bring the sector back to where it was,” he says.

The last of the State’s financial supports for the sector are about to run out. The wage subsidy scheme finishes at the end of May, while there are also still some legacy payments due under the State’s business continuity scheme for some hoteliers.

Beyond that, the battle moves to the industry's hopes for the retention of its preferential 9 per cent VAT rate, which is due to run out this year unless it is further extended in October's budget. The Government hasn't yet indicated its intentions but Catherine Martin, the Minister for Tourism, has said she will push for retaining the rate in budget discussions.

“Hotels have come through a horrendous period. There are still a huge amount of challenges,” says Fenn. “The impact of housing Ukrainian refugees is going to be temporary. It will eventually go back to normal after that. But the cost of doing business is a massive problem now, too. Everything has to be recalibrated. Hotels are basically operating off new business models.”