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Hotel profits predicted to fall by 70%
By Conor Keane, Business Editor

Thursday, July 23, 2009

http://www.irishexaminer.com/business/hotel-profits-predicted-to-fall-by-70-97106.html

PROFITS at Irish hotels fell 25% to hit a 15-year low in 2008, and could fall by as much 70% this year, threatening the survival of many establishments, according to accountants Horwath Bastow Charleton (HBC).

HBC partner Aiden Murphy said lower demand and room stock capacity at its highest level on record will be a major challenge for the profit-generating potential of hotels here for the next few years.

"We cannot stress enough the enormity of this issue.

"So far 2009 is proving to be an even more difficult year for hotels with turnover so far down 30% for many hotels which could knock profits back a further 70%. This would leave many hotels in survival mode."

Mr Murphy said that by the end of 2008, Ireland had 58,467 hotel bedrooms in 905 hotels. Average room rate (ARR) was impacted significantly by heavy discounting to preserve volumes and attract business.

"In 2008, ARR fell €9.44 to €88.25. Not only were hotels selling rooms at an average 10% cheaper than in 2007, they were also selling fewer rooms.

"The fact that the pace of decline occurred towards the end of 2008 indicates the real impact over the closing months of 2008 showed a much greater fall-off in average room rate and occupancy.

"Again, if this is the base from which 2009 is building, the outlook for the sector for the next few years is extremely concerning."

The survey highlights that the main hit came in the second half of the year as the recession began to kick in.

Mr Murphy said the real concern is that these results reflect the slowdown that accelerated as 2008 ended.

"As the Irish economy is in recession, unemployment levels are increasing and as curtailment of government agency expenditure continues, this will result in the hotel sector under pressure for quite some time.

"If the operating results and economic climate of 2008 continue throughout 2009, and even 2010, which looks likely, this will leave many hotels with cash-flow difficulties particularly when bank loans are considered.

"As much of Ireland’s hotel stock was developed in recent years, older properties were refurbished and extended to achieve the standards set by the new entrants and as hotels were acquired for high prices, there are significant bank loans, estimated to be €7bn extended by banks in Ireland to the hotel sector."

While the number of domestic holidays increased 3% in 2008, the number of longer stays — four plus nights — fell by 11%, with expenditure declining 9.5% to €429m.

HBC estimates annual occupancy levels fell from 69.7% to 63.5%, — the lowest in 15 years. "In general, turnover for Irish hotels was down 8% on 2007 levels. Dublin hotels suffered a turnover drop of 11.6%, luxury hotels a drop of 12.3% and larger hotels of 100 rooms or more down 10.7%, as a result of the deceleration of spending as 2008 progressed."





This story appeared in the printed version of the Irish Examiner Thursday, July 23, 2009





















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