2011: The ouTlook forThe irish hoTel secTor Audit Tax Advisory
2 2011: The Outlook for the Irish Hotel Sector conTenTs – Research methodology 3 – Foreword 4 1 Growth expectations 6 2 Recent historic performance 8 3 Factors impacting on performance 12 4 Improving performance 13 5 Market awareness 14
2011: The Outlook for the Irish Hotel Sector 3reseArch MeThoDoloGYn At the end of the first quarter of 2011, 100 interviews were carried out with n The breakdown of hotels by grade is demonstrated as follows: hoteliers throughout Ireland. The objective of the research was to gain an Five star 14% understanding of their financial performance in the first quarter of 2011, compared to the corresponding period in 2010. The research also aimed Four star 31% to gain some insights into hoteliers’ expectations of performance for the Three star 40% remainder of 2011 and the challenges currently facing the sector. Two star 13%n The findings presented in this report are based on a sample population of One star 2% 100 hotels across the island of Ireland. The sample was subdivided by grade and province and included a 79:21 split between the Republic of Ireland and Northern Ireland. n Both BDO clients and non-clients were approached to take part in the research. The survey was managed by BDO with the fieldwork conducted by Marketing Advisors from the UCD Smurfit Marketing Developmentn The location of hotels included in the research was distributed as follows: Programme. Connaught 28% Leinster 27% Munster 24% Northern Ireland 21%For the purpose of the research, Donegal, Cavan and Monaghan hotels wereincluded in the Connaught sample.
4 2011: The Outlook for the Irish Hotel Sector foreworD followinG A DecADe of unpreceDenTeD GrowTh AnD expAnsion, The irish hoTel secTor cAMe To A sTuTTerinG hAlT in 2008. since Then, The secTor hAs reTrencheD, wiTh hoTel owners AnD MAnAGers GrApplinG wiTh The AssociATeD effecTs of A GlobAl econoMic DownTurn, increAseD coMpeTiTion, fAllinG DeMAnD AnD low levels of consuMer confiDence. respondents, for an overall increase in average room rates and occupancy Derry Gray levels for the remainder of the year augurs well for the hotel sector as a Managing Partner and Head of Consulting whole. email@example.com + 353 1 470 0350 Importantly, the majority of hoteliers surveyed are confident that they are in a stronger position to move their business forward having taken the time to identify and address the key forces impacting on their business. Interestingly, a significant number of respondents (32%) indicated that With economic conditions remaining challenging, it is encouraging to see they actively engage professional advisers with the aim of improving hotel that, in this survey of 100 hoteliers carried out by BDO, a real sense of performance. Price competition has been identified, by respondents, as the optimism is now emerging with 87% of hotels indicating that they were main factor likely to impact on hotel performance during 2011. either confident or very confident that their hotel’s performance would improve during 2011. Hoteliers did not highlight over supply as a significant factor impacting on or likely to impact on performance during 2011. With government This is not to suggest that an immediate return to historic strong levels agencies/bodies acknowledging that it is unlikely that there will be any of performance is on the horizon, with 43% of respondents stating State intervention to address the issue of “over supply”, hoteliers appear that revenues earned in the first quarter of 2011 were less than that of to be taking charge of their own destiny with the majority of operators the same period in 2010. However, clear evidence of increasing levels stating that they plan to increase their sales and marketing efforts as a of demand, combined with a shared optimism amongst a number of means of improving hotel performance.
2011: The Outlook for the Irish Hotel Sector 5It is our view that the outlook for the sector for 2011 and into early 2012 May I extend my thanks to those who gave their time to participate inwill continue to prove challenging. There is strong evidence to suggest that this survey.a large percentage of business is “last minute” meaning that businessesthat are equipped to anticipate and respond to shorter booking patterns I hope you find this survey useful and welcome your feedback.will be best positioned to exploit current market opportunities. If you would like to contribute to future surveys, please let us know.With rising costs and cashflow pressures also identified as key factorslikely to impact on individual hotel performance, careful management andmonitoring of these and the overall financial affairs of the business will bekey to on-going viability.We would share the view of other industry stakeholders, that the recentvisits of Her Majesty Queen Elizabeth II and US President Barack Obamawill provide a much needed boost for Irish tourism and in doing so play avital role in Ireland achieving its targeted growth of 4% in visitor numbersset for 2011.
6 2011: The Outlook for the Irish Hotel Sector GrowTh A siGnificAnT MAjoriTY of hoTeliers Are eiTher confiDenT or expecTATions verY confiDenT AbouT The prospecTs for iMproveD business perforMAnce DurinG 2011. we AskeD How confident are you for an improvement in your business during 2011? (Base: 100) Very conﬁdent 44% Conﬁdent 43% 87% Not conﬁdent 13% 1 of hoteliers are either confident or very confident that their hotel performance will improve during 2011 iMproveMenT will be DeMAnD Driven. we AskeD Do you expect average room occupancy to increase, decrease or stay the same in 2011? (Base: 100) Increase 75% Stay the same 19% 75% Decrease 6% DeMAnD Driven: 75% of respondents expect average room occupancy to increase during 2011
2011: The Outlook for the Irish Hotel Sector 7hoTeliers Are Also opTiMisTic AbouT increAsinG AverAGe rooM rATes DurinG 2011.we AskeD Do you expect average room rates to increase, decrease or stay the same? (Base: 100) Increase 56% Stay the same 36% 56% Decrease 8% of hoteliers expect average room rates to increase, with only 8% of respondents expecting average room rates to decrease in 2011overAll expecTATions of hoTel perforMAnce.we AskeD How do you expect overall performance to be in 2011 relative to 2010? (Base: 100) Better 55% In line 29% Worse 16% 55% More than half of hoteliers expect that overall performance for 2011 will be better than 2010
8 2011: The Outlook for the Irish Hotel Sector recenT hisToric AverAGe rooM rATes. perforMAnce The average room rate for hotels in the Republic of Ireland for the first quarter of 2011 was reported as falling within the range of €70 to €79, with approximately 19% of respondents offering this range as being indicative of their own hotel’s performance. 48% of hotels indicated that their average room rate was below €70, with approximately 33% of respondents indicating that their average room rate was in excess of €80. Approximately 12% of respondents indicated that their average room rate was in 2 excess of €150. €30–€39 6% €40–€49 10% €50–€59 16% €60–€69 16% €70–€79 19% €80–€89 5% €90–€99 4% €100–€119 3% €120–€129 4% €130–€149 5% €150–€400 12%
2011: The Outlook for the Irish Hotel Sector 9 £40-£69The average room rates for hotels in Northern Ireland are summarised in the following table:£40–£59 20%£60–£69 20%£70–£79 15%£80–£89 20% 40% of hotels in northern ireland reported an average rate of between £40 and £69 per night£90–£119 15%£120–£169 10% when converted to euro, these rates are on a par with rates in the republic of ireland where almost 50% of rooms are priced between €45 to €79 18%we AskeD How do average room rates for the first quarter of 2011 compare to the corresponding period in 2010? (Base: 100) Unchanged rates 39% Increased rates 18% Reduced rates 43% of hoteliers indicated that average rates for the first quarter of 2011 to be up on the corresponding period in 2010
10 2011: The Outlook for the Irish Hotel Sector 70%–80%AverAGe rooM occupAncY for quArTer one 2011.30% 2%35% 3%40% 9%45% 6% There were notable variations in average room occupancy for the first three months of 2011. Approximately one third of hotels indicated an50% 16% average occupancy of between 70% to 80%. conversely one in five55% 10% respondents reported average occupancy of less than 45%60% 14%65% 10%70% 24%80% 5%90% 1% 36%hoTel rooM occupAncY in coMpArison To quArTer one 2010. Higher occupancy 36% Same occupancy 29% Lower occupancy 35% of hoteliers stated that occupancy levels had increased in comparison to those levels experienced in 2010 This would be consistent with wider tourism sector trends that indicate that the number of overseas visitors to ireland increased by 8.6% in the first three months of 2011, compared with the same period in 2010
2011: The Outlook for the Irish Hotel Sector 11ToTAl revenue quArTer one 2011 in coMpArison To quArTer one 2010. Increase in revenue Unchanged revenue Decreased revenue 28% 29% 43% >40% of hotels stated that revenue earned in the first quarter of 2011 was less than revenue earned in the same period in 2010. Despite increases in occupancy in the period, it is clear that downward pressure on room rates continues to affect turnover and, one would assume profitability while previous sections have demonstrated a general air of confidence for the remainder of 2011, it could be argued that this optimism is based more on expectations of performance rather than actual performance for the first quarter of 2011
12 2011: The Outlook for the Irish Hotel Sector fAcTors iMpAcTinG The followinG TAble illusTrATes The MAin fAcTors on perforMAnce currenTlY iMpAcTinG on hoTel perforMAnce. Price Competition 42% 57% Consumer Conﬁdence 29% 38% Falling Demand 22% 38% Over Supply 10% 39% Rising Costs 6% 47% Currency Fluctuations 21% Cashﬂow 36% 3 Other* 39% * Weather; Events; American tourists; Increased wedding business; Government regulations; Less corporate. Un-prompted Prompted Price competition remains the greatest threat for the majority of respondents. It was noted that the adverse weather during December and January, combined with the Icelandic ash cloud in 2010 had a serious negative impact on business. Despite the issue of excess hotel capacity receiving much attention and consideration, only 10% of hoteliers indicated it as an issue when asked (un- prompted) to identify the factors impacting on current performance. When prompted however, 32% of respondents cited it as an issue. A similar trend in responses was noted in respect of the issue of rising costs. While this research was conducted prior to the arrivals of Her Majesty Queen Elizabeth II and US President Barack Obama a large majority of respondents highlighted the extent to which events play a positive role in attracting business and influencing occupancy levels. It will be interesting to see over the coming months the impact of both these events on hotel performance.
2011: The Outlook for the Irish Hotel Sector 13iMprovinG hoTeliers TAkinG chArGe of Their own DesTinY.perforMAnce Increase sales and marketing effort Discount rates/prices 35% 48% 51% 55% Reducing operating costs 22% 47% Engage professional advisors 8% 32% Scale back operations 12% 26% Other 11% 36% Un-prompted Prompted4 When asked, both un-prompted and prompted, over 50% of hoteliers indicated that they plan to increase their sales and marketing effort as a means of improving hotel performance. A significant number of respondents also indicated that they intend to discount prices/reduce rates as a means of generating business. This would further raise concerns regarding the extent to which average room rates are likely to increase during 2011. Interestingly, 32% of respondents, when prompted, indicated that they now use professional advisors as a means of helping address some of the issues facing their business. Increased staff training and improved customer care were identified under "Other" as other popular means of improving performance. Based on prompted and unprompted responses, evidence would suggest that most hoteliers do not believe that scaling back operations is an appropriate response to the issues currently facing their business.
14 2011: The Outlook for the Irish Hotel Sector MArkeT The followiinG TAble iDenTifies how AwAre hoTeliers Are AwAreness AbouT The keY fAcTors ThAT cAn iMpAcT on Their business. Hotel can meet its targets for revenue and proﬁt this year 67% 23% 10% Key micro and macro economic factors 71% 18% 11% Relationship with the bank is positive 71% 25% Aware of the range of business supports and assistance that are available in the hotel sector 85% 13% 2% Finance team can support the companys growth 87% 6% 7% 6%7% Can easily access key ﬁnancial information 87% 7% 6% 5 that you need to run your business Hotel is well prepared to respond to ﬂuctuations in the market 93% 6% Agree Disagree Neither A significant percentage of respondents (93%) believe that their hotel is well prepared to respond to fluctuations in the market. At the same time, they were less confident about their ability to meet targets for revenue and profit in the year. Reasonably high levels of respondents indicated that they can access the key financial information and have the right finance team in place to support and run their business. However there is still some room for improvement. High numbers of respondents indicated that they are aware of the range of business supports and assistance available to the hotel sector, with current Failte Ireland initiatives coming in for particular mention and positive comment. Finally 71% of respondents felt that their relationship with their bank is positive, with only 4% disagreeing with the statement, although this question did receive the largest number of “neither agree or disagree” responses.
2011: The Outlook for the Irish Hotel Sector 15 noTeshospiTAliTY TeAMWith over 20 years experience and a client base of over 10% of Ireland’stotal hotel accommodation supply, BDO are leading advisers to the hotelsector in Ireland. Combining extensive strategic planning, specialist hoteloperations, corporate finance & recovery and taxation expertise, BDO havesignificant expertise in assisting and guiding hotels owners, financiers andother stakeholders to: – Plan a strategy for hotels in troubled times – Review operational and financial performance – Effectively manage weak and underperforming hotel assets – Critically appraise an investment – Secure third party funding, and – Negotiate with operations partners.Dealing with us is different. Our approach is pragmatic and hands-on whichensures timely, straightforward advice. Our assignments are led by seniorpersonnel with an in-depth understanding and knowledge of the hotelmarket. This delivers high value for all our clients and practical solutions thatare based on unrivalled sectoral experience and expertise.For more information please contact:Derry Gray, Managing Partner and Head of Consulting,on 01 4700 350, or firstname.lastname@example.org