Ireland’s hotel sector continues to face challenges arising from unsustainable levels of overhanging debt according to a new report by economist Professor Alan Ahearne.
Speaking in advance of a major investment conference hosted by the Irish Hotels Federation (IHF) today, Prof. Ahearne said that, despite substantial progress being made over the last two years, indebtedness remains a pressing issue for many hotels outside large urban areas such as Dublin.
The conference, which takes place in Dublin’s Clyde Court Hotel examines the progress being made in restoring financial sustainability to Ireland’s hotel sector and explores investment opportunities as the sector enters the next phase in addressing the high level of overhanging debt.
With total hotel debt estimated at €5.3bn (down from €6.7bn at the end of 2011), Prof. Ahearne’s report reveals that a further reduction of €1.4bn is required to bring hotel debt to a sustainable level. This would return hotels to a financial position where they could operate on a long-term sustainable basis and commit to investment in ongoing maintenance, refurbishment, renovation and innovation – and thereby grow employment.
The report shows that, while debt per hotel bedroom decreased from €113,250 to €92,750 over the last two years, progress has been uneven. Advances have been made in urban areas, especially Dublin city, which have been successful in attracting international investors. However, many medium-sized and smaller hotels, especially outside of urban areas still require investment and debt restructuring.
Prof. Ahearne calls for a focus on restructuring balance sheets to restore financial strength to the industry. He states that part of the solution should involve making funds in the recently announced Ireland Strategic Investment Fund available for investment in hotels that are viable but undercapitalised.
Stephen McNally, president of the IHF states: “A financially sustainable hotel industry is crucial if Irish tourism is to live up to its full potential in terms of growth and employment. Since 2011, tourism has created more than 23,000 additional jobs and it has the potential to create 40,000 more jobs by 2020 based on conservative estimates. However, this can only be achieved by bringing overhanging debt down to manageable levels and making investment funds more accessible to hoteliers.
“It is in everyone’s interest to ensure that hotels have strong balance sheets and access to equity finance – allowing hotels to invest in product development, maintain and upgrade hotel room stock and take advantage of anticipated growth in overseas visitors to Ireland over the coming years.”
McNally states that the hotel sector has a critical role to play in contributing to recovery in Ireland’s tourism sector and in the wider economy. Tourism supports almost 200,000 jobs, equivalent to 11% of total employment in the country of which some 54,000 are directly employed by hotels and guesthouses. In 2013, tourism accounted for 4% of GNP with €5.7bn in tourism revenue, of which, €4.3bn was attributed to foreign exchange earnings (overseas visitors).