The study, conducted by accountancy firm Horwath Bastow Charleton (HBC), found "profit levels had plummeted up to 50 per cent since 2007" - that's right in two years!
It may be easy to say that the Irish tourism economy had it coming - and there are plenty out there saying just that - there are many parallels with our own sector in Scotland.
The Irish clearly focussed on creating new supply with less emphasis on future demand trends. Tourism numbers after all we were advised were on a permanent growth curve. Have we done much different in Scotland? Have we also not been driven almost totally by increasing supply and indeed supply side economics.
We may not have the volume of new product in problems in the way that the Irish resort hotel sector has but we undoubtedly have issues of our own.
Hotels have been severely impacted by the fall off in corporate business, a reduction in the average size of a functions and the competitive rates being offered by properties in the race to secure a booking, the report said.
In summary the report details - and when it's listed in bullet points like this it is bloody frightening.
- The average room rate has fallen from €97.69 in 2007 to €77.81 in 2009
- Average rate has fallen by a further 10 per cent in the first six months of this year
- Average debt per room of €135,000
- €6.4 billion in total loans outstanding for hotels at the end of 2009
- Profit per room at luxury hotels had fallen from a high of €13,954 in 2007 to just €3,092 in 2009.
- 30 hotels in the hands of administrators
- Restructuring will be required to reposition at least 300 of our 900 hotels where solvency issues exist.
Dublin Equals Edinburgh?
The report also indicated that whilst hotels throughout the country continue to struggle, there was a “marked difference” in the Dublin market compared with the regional hotel market. The report noted room rates were on average €16 higher in the capital, and there was a 10 per cent higher room occupancy levels in Dublin and the indicated that recent investment in infrastructure in Dublin including the Grand Canal Theatre, The Aviva Stadium and The Convention Centre Dublin (CCD) would help the Dublin market rebound quicker than elsewhere.
That cannot be dissimilar to Scotland where the regional picture remains a whole lot less rosy than in the cities.
The study cited Central Bank figures which estimated total loans outstanding for hotels in the Republic stood at €6.4 billion at the end of 2009 and that as more than 40 per cent of room stock or 25,000 rooms were developed over the last 10 years, this meant an average debt per room of these hotels to be in the region of €135,000 per room and indicated that one third of Irish hotels were experiencing difficultly in paying the interest on these loans and were experiencing severe cash flow problems.
The worst-hit sector of the industry was the newly developed four and five star resort market has been hit hardest. Not surely too dissimilar again from Scotland? In Ireland profit per room at luxury hotels had plummeted to 25% of its highs in the boom years
"The costs of developing these resorts, particularly if they included golf and spa elements, were extremely high, it said. Much of the development cost was borrowed leading to substantial interest payments."
As for a “worrying acceleration” in the number of hotels going into receivership and liquidation, can we in Scotland be complacent about what the next year is likely to bring? Horwath Bastow Charleton said it anticipated this number would increase in the coming months, and that some form of restructuring will be required to reposition at least 300 of our 900 hotels where solvency issues exist."
Scotland will clearly not need to restructure in the same sort of way but restructure we will have to face up to. We will at some stage have to look at the current imbalance between supply and demand in the hospitality sector and inject realism into what strategic response is required for our own future.
Too many rooms leads to reduced operating profits across the sector and whilst competitive rates may be a bonus to increasing demand they will impact on service levels and reinvestment in capital and fabric leading to a reduced level of facility.
This can be seen across a large swathe of hotels across Scotland who simply cannot afford to invest in infrastructure and room improvements. Scotland fortunately started from a base of having good facilities whilst Ireland just went into development mode building, building and building more. The recent case of City West about half an hour from Dublin going into administration was always likely. It was huge. Started off with one golf course and a reasonable (100 plus!) bedrooms but soon rose to have more than 1700 rooms, two golf courses and 1.2 million square feet of meeting space. Everyone saw it coming but it didn't stop it!
Aiden Murphy of Horwath Bastow Charleton said in the report : “We are entering a period where profit levels in the hotel sector have reached an all time low.” That surely could be said of Scotland too? If we haven't reached it many will soon.
Another Scottish parallel?
"The downturn has led to an increasing dependence on the price sensitive domestic market which has forced hotels to target “alternative market segments” and eat into the market share of lower classification properties, he said.
This is clearly being replicated in areas of Scotland, the aggressive pricing strategies of the higher rated hotels and resorts in certain areas is decimating the occupancy and rate achieved of some neighbouring independents. And this is not just apocryphal.
The analysis of the report is startlingly blunt "While our economy was growing we had a need for more hotels to meet growing demand but the exuberance of the Irish property development sector provided 16,000 extra rooms between 2005 and 2008, when 6,000 rooms would have been sufficient.The market now finds itself in the position of having 10,000 excess hotel rooms to fill. The impact of this over capacity also means that occupancy levels have fallen from 63.5 per cent in 2008 to 59.4 per cent in 2009,” he said.
Scotland's figures may be different but at a micro level the model is familiar. Take Ayrshire in focus. Are we really to say that there weren't too many rooms developed in and around Ayr following the book in inbound travellers in the same period. How many excess rooms does Ayrshire have? How has it impacted its room revenues and its occupancy? Or even that room development in Glasgow wasn't too ambitious? Some certainly argue so.
The Irish Times reported that Fine Gael’s spokesman on tourism Jimmy Deenihan said the survey made for “chilling reading” for everybody who worked in the sector. He said unviable hotels, which were being transferred into National Asset Management Agency (Nama), were being kept artificially afloat at the expense of more viable hotels and called on the finance and tourism ministers to summon Nama and the banks for talks in order to map out a strategy for the hotels sector.
Scotland is not even measured on the same scale as what's facing Ireland but if you took out the numbers the story reads comparably. We cannot afford to be complacent and complacent is what Scottish tourism often comes across as.
At a recent tourism event there was some "at least we're not in the same boat as the Irish" pontificating. A glee from some in the public sector that we didn't make their mistakes. For sure we are relatively fortunate but simply because you are not as badly off as your neighbour who is having his house repossessed is of cold comfort when you are struggling to repay this month's mortgage.
We would all be wise to look at what may be ahead for ourselves without the government and tourism bodies spin.
Scotland has been an affordable destination for the past couple of years. The currency swing has already made us more expensive since Easter - this helped cripple Ireland greatly in Euro/pound reverse over the same period. They became viewed as an expensive destination.
This time next year with any continuing strengthening of the pound, increased rate burden and the addition of 2.5% VAT could see Scotland what maybe 30% worst case 40% more expensive to the same European visitors that we've been relying on for growth?
What impact any real reduction in low cost travellers through our airports? Ask Ayrshire hoteliers who have lost massive chunks of Swedish and German business. Have they noticed it. Sure as hell they have.
And what if it is a double dip recession? Do we really think that we won't have hotels at the top end hitting serious financial trouble by the end of this year and small businesses simply realising that they can know longer hold things together?
Sometimes I think this blog simply makes for depressing reading. Doom and gloom.
Other times I read the press releases that come out from the usual sources simply talking everything up. Have we not learned from the past two years that talking something up is not strong enough to prevent it from falling down around us?
We can certainly be thankful that Scotland started from a position of relative strength; the Irish economy made the mistake of being seduced by the vision of ever increasing demand for their services and for sure they over heated.
Our fall may therefore not be to the same scale but the realities many Scottish tourism and hospitality businesses are facing are very similar and we should be learning lessons as they do to minimise the effect of impact.