OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
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OUTLOOK AIB’s Series of Sectoral Research Reports ISSUE 2. MAY 2013 HOTELS in association with
OUTLOOK
X CONTENTS
Foreword
04 Ken Burke, Head of AIB Business Banking.
Executive Summary
05 The future looks bright as the Irish hotel
industry looks forward to a period of
renewed growth after a number of
difficult years.
Optimism & Resilience
06 An in-depth look at the Amárach Research
report into the Irish hotel sector and its key
findings. Case Studies
Challenges & Opportunities 19 Two of Ireland’s top hoteliers share their
views on the importance of a good
banking relationship.
13 Four of Ireland’s leading tourism and
hotel experts outline their views on the
challenges and opportunities that lie ahead Hotel Trends
for the sector.
22 Anne Walsh of Crowe Horwath outlines
some key Irish and international market
Back on Track trends.
16 The worst may be over for the Irish hotel
sector and while there are some challenges Electronic Payments
to overcome, a degree of stability has
returned to the market and that’s good 24 For many hotels in Ireland, online banking
offers many efficiencies and greater
certainty.
for the tourism industry and the wider
economy, writes Owen Travers.
Investment
25 The Employment and Investment Incentive
Scheme (EIIS) offers hotels the opportunity
to raise additional equity that can be used
to upgrade and refurbish their premises.
Tourism & Hotel Statistics
26 A brief look through the latest CSO
tourism numbers.
OUTLOOK O HOTEL INDUSTRY 2013 3
OUTLOOK
X FO R E WO R D
Supporting the
Irish Hotel Sector
W
elcome to the second in our
series of reports covering key
sectors within the Irish economy.
This second report focuses on the Irish
hotel industry and the role it plays in
the country’s tourism industry, one
which is vitally important to the overall
economy.
The aim of these reports is to analyse
key components of the Irish economic
landscape and provide expert opinion,
guidance and advice from some of the
stakeholders within each sector. They
also provide some important insights
into how AIB is working to support the
growth of these sectors.
An important dimension is specially
commissioned in-depth research HEAD OF AIB BUSINESS BANKING, KEN BURKE AND IRISH HOTELS FEDERATION CEO,
TIM FENN PICTURED AT THE LAUNCH OF THE HOTELS REPORT.
which has been carried out by
Amárach Research. The research
findings highlight the key issues that in Ireland’s economic recovery. visiting these shores is on the increase
are impacting on each sector and the and hoteliers are keen to invest in
measures that companies are taking to AIB recognises that since the upgrading and refurbishing their
deal with these issues. downturn, the Irish hotel sector has properties.
experienced difficulties. The bank is
Figures compiled by the Central wholeheartedly committed to the The Irish hotel sector has also
Statistics Office (CSO) for 2012 show growth and development of the Irish proved to be quite resilient down
that 6.51m tourists, from around the tourism industry and it has enjoyed a through the years and this is testimony
world, visited Ireland during 2012. long relationship with the hotel sector to the great wealth of expertise and
In the first quarter of 2013, tourism for many years. Indeed AIB is the only knowledge within the sector and the
numbers are up by 7.4% according Irish bank that has a dedicated hotels tourism product that Ireland has to
to the CSO and anecdotal reports team operating within its corporate offer both international and domestic
suggest that 2013 could be one of banking division and it has been to tourists. This bodes well for the future
the best years for the sector since the the fore in developing a wide range of of the sector.
downturn. solutions for the sector.
As a banking partner to many
Tourism-related enterprises provide an AIB has collaborated closely with hotels around the country, we
estimated 180,000 jobs throughout the Irish Hotels Federation (IHF) on a fully understand the nature of the
the country. Preliminary estimates for number of key initiatives all of which day-to-day pressures hotels face
2012 suggest that tourism accounted are aimed at strengthening the sector and AIB looks forward to delivering
for &5.7bn in spending, &1.4bn in and the human talent that is driving simple, effective and innovative
taxes and represents approximately it forward. In this regard, we are solutions that will contribute towards
4.7% of GNP. delighted to have the opportunity to the recovery and growth of the sector.
partner with the IHF on this report.
At the core of this vitally important I hope that you find this report
industry is the Irish hotel sector which As this report shows, there is evidence interesting and useful.
employs 54,000 people. With over 850 that the worst may be over for the
hotels around the country, they will Irish hotel industry. Asset values are a KEN BURKE
play an important and significant role lot more stable, the number of tourists HEAD OF AIB BUSINESS BANKING
4 OUTLOOK O HOTEL INDUSTRY 2013
OUTLOOK
X E X E C U T I V E S U M M A RY
The Future’s Bright
The Irish hotel industry is looking forward to a period of renewed growth after a number of difficult years, according
to research which has been commissioned by AIB, in association with the Irish Hotels Federation and carried out
by Amárach Research. The research also points to new levels of optimism, resilience and innovation within the Irish
hotel sector.
Despite a few difficult years for the Irish tourism industry, Irish hotels have seen their turnover increase in 2012. This
has been driven by growth in the number of overseas tourists as well as demand from the domestic market, much of
which is being driven by value-breaks as well as growth in the couples/over 55s market.
Many hotels throughout the country are planning to invest in upgrading and refurbishing their properties within the
next three years. The bulk of this investment will be funded by hoteliers themselves with the majority of them planning
to reinvest retained profits to fund this investment.
Hoteliers are also a lot more optimistic about the medium term outlook for the sector with a majority of hotels,
67%, saying that the tourism sector will improve within the next three years while 71% believe that the financial
performance of their own properties will improve within the same time-frame.
Not surprisingly, the research also reveals that amongst the main concerns facing Irish hotels are local authority rates
and rising wage costs with the latter accounting for a significant percentage of a hotel’s annual turnover. Potential
increases in utility costs and any reduction in visitor numbers are viewed as perceived threats amongst those hotels
surveyed. Other concerns to feature included competition from rival hotels, over-supply in the sector and reduced
profit margins. And finally, access to finance, where 5% of respondents said it was their top concern.
The research also shows that Irish hotels were quick to respond to the downturn by introducing special deals, reducing
costs while embracing digital marketing by better utilisation of their websites, the internet and social media platforms.
In addition many hotels have been busy up-skilling in all areas of digital marketing over the last 12 months.
Some of the key highlights of the AIB/Amárach Research survey include:
O54% of hotels saw turnover O55% of hotels say they will OGuest profiles are changing
increase in 2012 with only improve and grow their with hoteliers reporting
26% saying it had decreased. businesses over the next an increase in the number
three years. of couples, over 55s and
O 67% of Irish hotels expect domestic tourists.
the tourism industry to OThe average capital and
improve within the next three refurbishment spend equates OOnline bookings now account
years. to around 14% of turnover. for 56% of all bookings with
just 31% of bookings made
O71% of hotels also expect O54% of hoteliers do not over the phone.
their own business to currently have a succession
improve within the same plan in place for their
time frame. business.
OUTLOOK O HOTEL INDUSTRY 2013 5
OUTLOOK
X A I B / A M Á R A C H R E S E A RC H S U RV E Y
OPTIMISM AND
RESILIENCE
AFTER A FEW DIFFICULT YEARS, THE IRISH HOTEL INDUSTRY IS
LOOKING FORWARD TO SOME STEADY GROWTH ON THE BACK THE ECONOMIC
OF AN INCREASE IN THE NUMBER OF OVERSEAS TOURISTS CONTEXT
ACCORDING TO SPECIALLY COMMISSIONED RESEARCH BY AIB,
The Irish tourism industry is a good economic
IN ASSOCIATION WITH THE IRISH HOTELS FEDERATION. THE barometer when it comes to seeing what’s
RESEARCH, WHICH WAS CARRIED OUT BY AMÁRACH RESEARCH, happening in the economy, or not, as the case
ALSO PAINTS A PICTURE OF RESILIENCE, INCREASED OPTIMISM may be. So how do Ireland’s hoteliers see our
prospects at the start of Q2 2013? The good
AND INNOVATION WITHIN THE SECTOR. GERARD O’NEILL OF news is they are actually very positive. Some
AMÁRACH RESEARCH SETS THE SCENE. 28% expect the economic situation in their
own business to improve in the next year –
F
igures published by the Central Statistics A combination of factors – including twice the level expecting improvement in the
Office (CSO) for Q1 2013 show that geographical proximity, language, historical/ economy overall. However, a sizeable minority,
the number of overseas tourists visiting cultural ties – has traditionally made the 43%, are taking a medium term view, and
Ireland in the first three months of the year UK market an important source of tourism don’t expect recovery for up to three years
increased by 7.4% when compared to the revenue. However, this market has been (Table 1).
same period for 2012. This is indeed good depressed in recent years and continues to
Nevertheless, improved confidence is
news for the hotels sector as this growth pose a challenge for Irish hoteliers with the
feeding through into a renewed focus
has largely been driven by visitors from number of trips to Ireland increasing by a
on growth and investment in upgrading/
North America and a number of European modest 1.4% in Q1 of this year.
refurbishing Ireland’s hotels stock. In
Countries, excluding the UK.
this report, we set out the basis for such
confidence and its consequences for
Ireland’s hotel sector.
TABLE 1: WHEN WILL THINGS IMPROVE?
METHODOLOGY
Amárach Research worked
with AIB and the Irish Hotel
Federation to conduct a
telephone survey of Irish
hoteliers in March and
April 2013. A total of 111
key decision makers in
Irish hotels participated
in a confidential survey.
We would like to thank all
those who gave of their
time to share their opinions
and plans with us in
preparation of this report
6 OUTLOOK O HOTEL INDUSTRY 2013
PROFILE AND
PERFORMANCE
TABLE 2: SURVEY PARTICIPANTS Table 2 shows the profile of the respondents
to our survey. We secured answers from a
good cross section of hoteliers, including
independent operators right through to the
international chains.
We also ensured that our sample captured
a cross section of Irish hotels in terms of
location, rating and turnover – broadly in line
with the known profile of the sector.
Hotels are large employers in the communities
in which they operate. Therefore their
economic performance has very real, very
local consequences for employees throughout
Ireland. In keeping with the positive economic
outlook of hoteliers, we find that over 50%
have seen an increase in their turnover in
the past 12 months, while 26% have seen
a decrease.
This is not to imply that things are markedly
TABLE 3: CONCERNS easier for hotels than they were a few years
ago, far from it. In fact, hotels continue
to face considerable cost and operational
pressures even as the majority experience
some growth in turnover – with labour costs
and local authority rates topping the list of
concerns for Irish hotels. Other issues included
the cost of utilities, over-capactity in the hotel
sector and competition from larger hotels.
Access to finance, however, was down the list
of concerns (Table 3).
Labour costs account for 30-40% of annual
turnover for most hotels – higher again
for 4/5 star hotels. The implication is that
an expanding hotel sector is good for job
creation, but significant increases in labour
costs (and local authority costs) are bad for
the hotel sector.
OUTLOOK O HOTEL INDUSTRY 2013 7
OUTLOOK
X A I B / A M Á R A C H R E S E A RC H S U RV E Y
HOTEL INSIGHTS
Recovery in Ireland’s hotel sector will play a survey are experiencing growth is very
key part in reducing unemployment simply encouraging indeed, and bodes well for
because of the uniquely labour-intensive employment levels in the sector.
nature of the business. Therefore reducing
barriers to employment and incentives to Nevertheless, continuing cost pressures
take on those who are unemployed will be from rates and other sources will inevitably
especially relevant to hotels. constrain the ability of hotels to increase
employment numbers if recovery is delayed
The fact that the majority of hotels in our or weak.
TABLE 4
TABLE 5: BOOKING SOURCES
8 OUTLOOK O HOTEL INDUSTRY 2013
Among third party websites that drive a
quarter of total bookings, the main ones
RESILIENCE AND mentioned are Booking.com and Expedia
GROWTH (Table 6).
The hotel sector has had to adjust rapidly The research also shows that not only has
to both value-for-money hungry consumers and customer behaviour changed – so also has
the impact of the digital revolution. No wonder the customer profile. Over the past 12
then that the majority of hoteliers in our survey months, hoteliers have seen a net increase
agree strongly that visitors are more interested in the number of couples, domestic tourists
in value breaks/special offers and visitors are and over 55s visiting their hotels (Table 7).
making more bookings online (Table 4).
The online channel, however, is not the
Online bookings now account for 56% of all only driver of growth for hoteliers. The
bookings, with just under one third of bookings vast majority of those we surveyed had >>
made over the phone (Table 5).
TABLE 6: THIRD PARTY An expanding hotel
BOOKING SITES
sector is good for
job creation, but
significant increases
in labour costs (and
local authority
costs) are bad for
the hotel sector.
TABLE 7: CUSTOMER PROFILE %
OUTLOOK O HOTEL INDUSTRY 2013 9
OUTLOOK
X A I B / A M Á R A C H R E S E A RC H S U RV E Y
introduced special offers to meet value for
money demands, as well as sourcing cheaper
suppliers where feasible. Since the economic
downturn, unfortunately, profit margins have
been sacrificed and staff levels reduced by
most respondents in order to sustain their
businesses through a period of falling demand
and intense competition (Table 8).
Of course, cutting costs is a necessary but
not sufficient response to weak demand. The
hotel sector is about providing service, so
the service offering cannot be compromised
unduly – otherwise it becomes self-defeating.
For that reason, hoteliers recognise the need
to maintain and upgrade their hotels through
ongoing refurbishment and capital investment
(Table 9).
TABLE 8: COST In our survey, Irish hoteliers reported an
average capital and refurbishment spend
SAVING MEASURES equal to just under 14% of turnover which
is a sizeable commitment in a tough market.
Some spend considerably more, others spend
none at all. There has been a shift in the
past year to the amount spent, increasing on
balance, though it was falling over the past
three years.
GROWTH
PLANS
Despite the uncertainties still facing Irish
hotel operators, the majority plan to grow
and/or improve their hotels over the next 3
years through investment in upgrading and
refurbishing their properties – putting their
money where their optimism is.
TABLE 9: CAPITAL EXPENDITURE
Moreover, hoteliers see a number of major
opportunities for growth emerging that justify
their optimism, including the marketing
potential of online enhancements such as
apps, and better profit margins on services
(Table 10).
For those expecting to grow their business
over the next three years, the focus for now
is on reinvesting the profits that come from
continued trading and improving sales,
followed by bank finance (Table 11).
Given the capital intensive nature of the hotel
sector – and the need to refurbish the offering
in order to sustain repeat business – the
fact that most hoteliers expect to effectively
finance this investment is an encouraging sign
10 OUTLOOK O HOTEL INDUSTRY 2013
TABLE 10: OPPORTUNITIES FOR GROWTH
of their optimism and their ability to manage
recovery effectively.
However, there remain considerable hurdles
in the way of survival let alone expansion for
many hotels. Most view the prospect of rising
costs and changes to VAT as major threats,
while many would view a lack of investment
finance also as a major threat (Table 12). TABLE 11: SOURCE OF
FUNDING EXPANSION
Hoteliers are not waiting to see what %
the future might bring. In just the past
twelve months, half of those surveyed had
undertaken training in online development, >>
HOTEL INSIGHTS
Ireland’s hoteliers are focused
on improving and growing
their businesses, but face
continuing challenges in
fulfilling their ambitions. The
online booking channel has
become a key force for sales
growth, although at a price in
terms of profitability.
They are responding to
shifting customer profiles
with better offers and other TABLE 12: MAIN THREATS
innovations. But special offers
can only sustain a business for
so long, and so our findings
in relation to capital and
refurbishment expenditure are
encouraging. The fact that
a minority of hoteliers have
spent nothing in the past
year, or have reduced spend,
indicates continuing pressures
in the sector.
Initiatives such as the
Employment and Investment
Incentive scheme will
play a part in enabling
some of these hotels to
change course.
OUTLOOK O HOTEL INDUSTRY 2013 11OUTLOOK
X A I B / A M Á R A C H R E S E A RC H S U RV E Y
TABLE 13:
STAFF TRAINING twelve months (rising to 53% of a profitable share of the larger
those who sought finance in the market they anticipate in the
past twelve months). years ahead.
Looking to the medium term, Finally, in terms of our survey
many hotels have the wrong findings, a key question for
financial structure to meet the future relates to the exit
future market needs, mainly strategy of the large number of
as a legacy of debts built up independent hoteliers in Ireland.
during the boom. A third of those The majority, 54%, simply don’t
we surveyed would be interested know, but one in ten expect to sell
in accessing private investors their business (perhaps as part of
to help refinance their debt a refinancing deal), while a third
overhang – which may, for some, expect other family members to
be a way of ensuring they secure take over the business. O
and a third had received changing market landscape in TABLE 15: BANKING
mentoring or coaching. Ireland. A minority of hotels have RELATIONSHIP
(Table 13). sought different financial services %
from their banks in the past
Nor has their appetite for training twelve months, though a large
and self-development been minority, 42%, have not sought
sated – the majority would be finance (Table 14).
interested in future training in
relation to online skills, business In terms of what makes for a
and financial planning skills and successful banking relationship,
others as required. flexibility and understanding of
their business tops the list of
preferences for hotels. Especially
in relation to seasonality and its
BANKING impact on finance needs.
(Table 15).
RELATIONS
Looking ahead, a minority of
The banks play a crucial part hotels expect to look for finance
in helping hotels navigate the from their banks in the next
TABLE 14:
FINANCIAL SUPPORT HOTEL INSIGHTS
(PAST 12 MONTHS) Relations between banks and hotels have undergone a sea-
change in recent years. The banks have shifted from a focus on
asset values to a focus on business performance. Nearly four
in ten hoteliers expect to look for financial support from their
banks in the next twelve months. Support that sustains a positive
cash flow, that can accommodate operational and debt servicing
requirements, will be vital.
The sector is potentially very attractive to investors. The fact that
a third of hoteliers in our survey are interested in exploring the
potential for new investors points to a renewed appetite for
investment opportunities that can generate good returns over
the long run against a background of low returns from many
alternative investment channels.
12 OUTLOOK O HOTEL INDUSTRY 2013OUTLOOK
X E X P E RT V I E W S
CHALLENGES
AND OPPORTUNITIES
FOUR OF IRELAND’S LEADING HOTEL AND TOURISM EXPERTS SHARE
THEIR VIEWS ON THE HOTEL SECTOR AND OUTLINE THE CHALLENGES
AND OPPORTUNITIES THAT LIE AHEAD.
TIM FENN it was clear from the analyses calculating rates does not
CHIEF EXECUTIVE and discussions that there are take receipts and expenditure
IRISH HOTELS FEDERATION emerging opportunities for the into account and imposes a
banks to support the refinancing disproportionate burden on
The Irish hotels sector has and restructuring of viable hotels. hotels and guesthouses. While
experienced a positive start This goes hand in hand with hoteliers have cut costs across
to 2013 with overseas visitor initiatives now underway to every aspect of their business,
numbers up over 7% in the first improve access to equity finance local authorities have been
quarter following a stabilisation and support owners committed unwilling to adjust to the new
in the industry last year. However, to running viable hotels for the realities in the economy and
while performance is particularly long term. have kept rates at pre-2007
strong for North America and TIM FENN
levels, even though turnover is
continental Europe, much more A measure introduced by the significantly down.
needs to be done to recover experiences for our visitors when
Government this year is the
the UK - our most important they come. Strong community
extension of the Employment Similarly wage costs remain
tourism market - which has lost involvement brings the ‘Irish
and Investment Incentive high, standing at about 40%
significant ground since 2007. welcome’ to life and we believe
Scheme to include hotel and of average hotel turnover
this will be the lasting effect of
guesthouse businesses, thereby according to the most recent
As we approach this year’s the Gathering that we can build
providing incentives to private industry report. The hotels
peak holiday season, hoteliers upon into the future.
investors to invest equity. This sector views current attempts
are more optimistic about the
Our industry also continues will enable qualifying hotels to to reintroduce sectoral wage-
outlook for Irish tourism with
to benefit from a number of restructure their balance sheets, setting mechanisms as anti-
most hotels and guesthouses
significant pro-tourism policy bring debt down to sustainable business and out of touch with
having a positive outlook
initiatives by the Government levels and enable operators to the issues confronting tourism
for trading conditions. City
such as the reduction in VAT on reinvest in and refurbish existing businesses across the country.
destinations such as Dublin,
food and accommodation from accommodation stock. With 54,000 employees working
Cork and Galway continue to
benefit significantly from event 13.5% to 9%. This has acted in hotels and guesthouses,
and business-related tourism as a vital stimulus for hotels and It is vital that debt servicing does the overriding objective must
while lower levels of growth are guesthouses at a difficult time, not compromise the ability of be to safeguard current levels
evident outside the key urban providing a key competitive hotels to deliver good customer of employment and create an
areas where hotels are more advantage when marketing service and to continue to environment that supports
reliant on domestic demand. Ireland as a tourism destination – maintain appropriate quality further job creation.
both at home and abroad. Given service standards. Indeed, banks
As a sector, we are actively the tremendous benefit the and investors are now valuing As we look ahead, there are
working on initiatives to help the reduction has provided in terms hotels based on enterprise value real opportunities for growth in
industry grow by re-energising of growth and employment, it is (7-10 times free cash-flow as the sector and across the wider
our marketing message and important that the Government measured by EBITDA or similar tourism industry. Initiatives such
giving holidaymakers new and retains this measure to secure a measures) rather than the asset as the Wild Atlantic Way touring
compelling reasons to visit sustained recovery. value (building and site) alone. route will tap into a global
Ireland. The Gathering is an market hungry to re-engage
obvious example with tourism A key challenge our sector faces Beyond financial restructuring, with nature. Already, we are
businesses, industry bodies and is the level of overhanging debt, the hotels sector continues to seeing Dublin make significant
locals communities working which stands at approximately face very high operating costs strides with venues such as the
together to create thousands &6.7 billion. The Irish Hotels arising from a range of factors Convention Centre Dublin (CCD),
of initiatives throughout the Federation held an investment – most notably local authority the O2 and the Bord Gáis Energy
country that provide engaging conference last October, and rates. The current system of Theatre. Though city destinations
OUTLOOK O HOTEL INDUSTRY 2013 13are seeing the strongest growth, acumen in this cohort is not
the rest of the country can make developed enough and is a
significant gains if we get the constraint. One possible way
industry back into good financial for smaller hotels to grow is the
shape, redouble efforts to attract development of consortiums
a greater spread of visitors to (particularly in the areas of
the regions and promote specific purchasing and marketing) to
reasons to visit – whether leverage purchasing power.
activity-based or focusing on This is already happening in
heritage and culture. a small way but there may be
some reluctance for individual TOM BARRETT
PAT MCCANN
hotels to get involved in such
initiatives.
in the mix of visitors to hotels Dublin has benefited most from
but what has changed is how In terms of banking relations with this turnaround, representing
PAT MCCANN visitors find us – greater use of the sector, they’re no different about a third of all hotel beds in
CHIEF EXECUTIVE technology/digital channels – from other industries in terms of the country, though Galway and
DALATA HOTEL GROUP rural/smaller hotels lag behind in business banking relationships. Cork also recorded some
the use of this technology. This Hotels need to get into a improvement. One measure of
We see a strong recovery in means that hoteliers need to position where they can generate Dublin’s better circumstances
urban hotels – Dublin, Cork & understand customer behaviour sufficient working capital. This is that some hotels are now
Galway – with other areas flat or when visiting sites and how to can be very difficult for some as enjoying 80-85% occupancy
showing marginal improvement. exploit these sales channels by revenues and margins continue rates thanks in part to ‘crowd-
The urban recovery is hopefully distributing their site to a third to decline. pulling’ attractions like the CCD
a precursor to recovery in other party and the use of Google along with improved transport
regions. However, hotels outside analytics to measure/track As many as 300 out of the 800 infrastructure.
Dublin have become over-reliant performance. hotels in Ireland are in some
on the domestic market since the kind of financial difficulty. The Nevertheless, we are still
decline of UK visitors. In terms of performance, inevitable disposal of assets will suffering from an over-supply
beverage sales have declined suppress the market value of of bedrooms in Ireland. Back in
The three Irish tourism bodies across the board and this decline hotels in the short/medium term. 1995 there were about 25,000
are doing a good job and the is most marked for domestic There is a need for banks to beds, which rose steadily to
Gathering is believed to be a visitors. Food sales are holding provide reinvestment capital as 45,000 by 2005. Unfortunately
good initiative for the US market, – mainly because of value for hotels have become over reliant it didn’t stop there: by 2008
which seems to be holding. money improvements – as a on self-funding. Those with a there were 60,000 beds, a peak
UK visitors are critical for Irish consequence, the hotel food high level of debt are finding it that coincided with the start of
tourism but the weakened UK offering has become more difficult to access finance. the recession.
economy is a contributing factor attractive for foreign visitors.
to reduced visitor numbers. In addition, there is a need for It wasn’t just the number of
Ireland seems to have lost its There has been a demise of hoteliers to up-skill their finance beds that was the problem,
sparkle. We punched above our international hotel brands – skills – many still do not produce despite growing revenues
weight during the Celtic Tiger era Marriott, Sheraton, Hilton – due regular P&L reports. Training during the boom, costs
and we really need to recapture to reduced demand for this and upskilling doesn’t stop rose even faster, harming
some of the sparkle that has offering in the Irish market. there, hoteliers’ need to upskill profitability. The irony is now,
been lost since then. Although this should provide in HR, IT, energy management, thanks to more efficient and
an opportunity for small/ procurement. professional management,
There is no perceived change independent hotels, the business some hotels are now more
profitable than they were
“We punched above our before the recession!
However, in some cases that
TOM BARRETT
weight during the Celtic Tiger HEAD OF HOTELS AND LEISURE
improvement in profitability
has been bought at a price.
SAVILLS A number of hotels have
era and we really need to A key measure of the business
performance of hotels is RevPAR,
secured false economies in
the form of cutbacks in
or revenue per available room. training, excessive reductions
recapture some of the sparkle The good news is that RevPAR
has been growing over the past
in staffing levels, and under-
investment in refurbishment.
few years, after a steep fall, Such savings are not sustainable
that has been lost since then” with double-digit growth not
uncommon for city hotels.
and are ultimately harmful to
the business.
14 OUTLOOK O HOTEL INDUSTRY 2013OUTLOOK
X E X P E RT V I E W S
But we need to be realistic: a sector, particularly evident in the business as that’s where the
lot of hotels were built at the prime sector in Dublin. A lot of growth will come from for
wrong time in the wrong places. this investment is international the foreseeable future. This
The pain isn’t gone, though the money, but Irish investors are means a focus on online, but
excess of rooms is declining by also playing a part. The simple not necessarily on online travel
about 1,000 rooms a year, so the fact that hotels are selling, agencies like Expedia.com and
pace is slow and will take many giving more confidence about Lastminute.com. The online
years to unfold at this pace. valuations, will encourage banks travel agents (OTAs) take a
to actively support buyers in large slice (up to 40%) of the
We are beginning to see the the future. sale value. Too great an over-
banks more engaged with reliance on OTAs can diminish
hotel owners, for example in CAEMAN WALL
revenues. It may make more
lending money for acquisitions sense for hoteliers to sell
and necessary refurbishment. on average. Dublin is closer to a
directly online, if the savings
Those hotels that are operating fifty/fifty split between domestic
from doing so free up money
profitably with a positive cash CAEMAN WALL and foreign tourists.
that can be spent on developing
flow are being considered by the HEAD OF RESEARCH
and promoting their own
banks when it comes to lending. FÁILTE IRELAND This over-reliance is holding
websites for bookings etc.
The real financial problem for back recovery in the hotel sector
But OTAs will continue to play
many hotels is no longer in the There is growing evidence that to a certain extent, simply
a crucial role in generating
P&L; it’s in the balance sheet. the tourism market has bottomed because of the continuing fall
demand from foreign tourists
The key challenge – for banks as out in Ireland. Although British in Irish consumer spending. The
tourist numbers are still down, given the importance of the web
well as for the hotel sector – is domestic market is an important
those for North America look for tourist information, planning
to establish a realistic sense of source of volume for hotels, but
like being the best ever this year. and purchasing.
the debt levels (and repayments) it isn’t as profitable as the foreign
that individual hotels can The Gathering has clearly played tourist market.
Traditionally, financial skills have
sustain while continuing to a role in this regard, and a lot
Hotels in the traditional not been strong in the hotel
run a business with long term of hotels around the country
tourism destinations around industry, simply because people
potential. The bottom line is that have worked with their local
Ireland are benefiting from any skills matter more in terms of
you can’t just take 100% of the communities to create events
improvements, but too many customer experiences. This has
cash flow surplus out in the form that really appeal.
hotels are located in the wrong been a challenge for the banks
of debt repayments and expect
Nevertheless, the Irish hotel place, which simply means there that are much more focused on
to have a hotel that will survive,
sector is still over-reliant on the is over-capacity in such locations. the financial performance of
let alone thrive.
domestic tourism market, with In reality, such hotels are in the hotels these days rather than the
about two thirds of their business domestic leisure market rather value of the asset or the land
There is now an emerging
appetite for investment in the coming from domestic tourism than the tourism business. it’s sitting on. Failte Ireland and
Nevertheless, the quality of the others have been focused on up-
Irish hotel stock is very good and skilling the sector in relation to
we are ‘over-stocked’ with 5-star business planning and financial
hotels by comparison to other management. But there is still
European markets. some way to go.
In the past, there was the Failte Ireland is also interested
mistaken belief that ‘if it’s good in seeing initiatives such as
for hotels it’s good for tourism’. Shared Ownership for hotels
Now we realise that ‘what’s good – something already working
for tourists is good for tourism’. around the world, including
It’s what’s outside the hotel that Scotland. It effectively lets
attracts tourists, so hoteliers millions of tourists from
have to sell the experience of around the world benefit from
staying in the location. It’s all a ‘time-share’ type arrangement
about showing an interest in why featuring hotel rooms, not just
the tourist is visiting your hotel, apartments and villas. There
which usually isn’t just about the are about 30 hotels in Ireland
hotel no matter how nice the that would benefit from Shared
pictures of the bedrooms and Ownership. Part of the hotel
reception area! sector’s recovery will require
greater experimentation with
A key challenge for hotels is new ways of funding, owning
to grow their foreign tourist and running hotels. O
OUTLOOK O HOTEL INDUSTRY 2013 15OUTLOOK
X LO O K I N G FO R WA R D
BACK ON TRACK
THE WORST MAY BE OVER been one of the country’s most past eighteen months, some of
important industries and its which are existing AIB customers
FOR THE IRISH HOTEL SECTOR impact is felt in every village, while others are former customers
AND WHILE THERE ARE SOME town and city in Ireland. It of overseas banks that have
CHALLENGES TO OVERCOME, contributes in the order of exited the market. Through our
&5.7 billion a year to the market leading internet based
A DEGREE OF STABILITY HAS economy and employs around banking platform (AIB’s internet
RETURNED TO THE MARKET AND 180,000 people both directly Business Banking) we also offer
and indirectly. A vibrant our customers an efficient cost
THAT’S GOOD FOR THE TOURISM INDUSTRY
tourism industry, and indeed effective and secure cash flow
AND THE WIDER ECONOMY, WRITES OWEN a vibrant hotel sector, will play management tool giving them
TRAVERS, AIB’S HOTEL SECTOR EXPERT. an important role in Ireland’s greater control and certainty over
expected and long-awaited their cash flow.
economic recovery.
T
here is no denying that the There are of course many For the last 10 years, the reality
past few years have been opportunities for the Irish hotel AIB understands the Irish hotel was that business was so good
very difficult for the Irish sector and the medium term sector. We have dedicated hotel for most hotels that the numbers
hotel industry. Like many other outlook is more bullish than it sector Relationship Managers spoke for themselves and
sectors, the economic downturn across our Corporate, Business information required by banks
was three years ago. Revenue
has created numerous challenges Centre and Branch Banking in support of an application was
per available room (RevPAR)
although in the case of the operations which provide full, limited and finance functions did
has continued to improve,
hotel industry, some of these efficient and expert coverage not have to be as strong as they
particularly in Dublin, Cork and
challenges are quite unique. of the sector. AIB is fortunate are now. When the downturn
Galway. While demand outside
to have built up very strong kicked in, however, many hotels
these centres is weaker, RevPAR
A substantial debt overhang relationships with many of were quickly faced with the task
has increased marginally, as the
within the sector, the withdrawal the key stakeholders within of better margin management
more value-conscious domestic
of a number of overseas the sector while we have also and business planning. AIB
market appears to have stabilised
banks from the market and accumulated a considerable has also taken a knowledge-
and the number of tourists from amount of expertise, knowledge
an oversupply of property in leadership position in the hotel
certain areas of the country has overseas increases. As evidenced and insights into the issues and sector. Through a series of road
ensured that conditions in the by the Amárach Research opportunities that lie ahead. shows, which the bank organised
market have been trying. Add to findings, over 50% of hoteliers AIB has a significant market in association with the Irish Hotels
this mix a drop in international have seen turnover increase share and it is a sector that we Federation, we have assisted
tourists visiting Ireland between during 2012 while 55% of understand well and its impact hotels around the country to
2007 and 2011, increased them intend to improve or grow on the economy. understand what a bank expects
competition from other tourism their business over the next to see in important areas like
markets within the EU as well three years. At a time when other banks financial management, budgeting
as rising overhead costs in areas have been withdrawing from the and business forecasting when
like wages, local authority rates AIB recognises the importance market, AIB has been actively assessing a request for credit.
and utilities and it is clear that of the sector, not just to the involved in providing existing
conditions in the market remain bank but to the wider economy. customers and indeed new ones An overall improvement in
challenging. Tourism has for many years with a wide range of financing financial management has
solutions from working capital played an important part in the
facilities (overdrafts, insurance recovery of room rates over the
“A key focus for hotels at the premium financing, etc) to
funding acquisitions, business
past two years. Unfortunately
when the downturn struck,
expansion and CAPEX investment many hotels cut their rates
moment is the management of (term debt, leasing and asset
financing). AIB has played a
just to keep customers coming
through their doors and as a
significant role by providing result margins were materially
revenue and margin growth.” finance solutions to many
leading hotel groups over the
impacted or non-existent in
certain cases. Now, many hotels
16 OUTLOOK O HOTEL INDUSTRY 2013have a stronger grounding in asset. For AIB the focus is not the sector is central to achieving this an over-supply of hotels in
margin management and are value of the asset but rather the growth. Indeed it is clear from certain counties outside of
better equipped when it comes free cash-flow that it generates the Amárach Research findings Dublin. Some of these hotels are
to forecasting and preparing and the quality of the business that many hoteliers consider this relatively new and have been
business plans. plan that underpins that cash as one of their top priorities with developed in the past by property
flow. Repayment capacity is some 55% of those surveyed developers, often with little
They also have a greater paramount in all the bank’s indicating that they intend to knowledge of the industry. In
understanding of the importance dealings with customers and we grow or improve their properties many cases they also happen to
cash-flow plays, particularly in rigorously assess whether or not with another 84% of these be the best product in the area
relation to servicing any credit the business can repay the loan saying that the investment and this presents difficulties for
facilities they may have in place. without hampering its growth will come from retained some of AIB’s existing customers
One of the key reasons why there potential and its future viability. profits. This is testimony to the who find themselves in a
is a substantial debt-overhang optimism, professionalism and difficult position of competing
in the market is that during the A key focus for hotels at the determination that exists within against such properties. Where
boom times, the amount a hotel moment is the management of the sector. it can, AIB has been supportive
could borrow was linked to revenue and margin growth. AIB of these customers and has
the valuation of the underlying believes that investment in the Unfortunately, there still remains provided finance for upgrades >>
OUTLOOK O HOTEL INDUSTRY 2013 17OUTLOOK
X LO O K I N G FO R WA R D
For the sector, it’s about
feel that this “temporary” including friends and family
competitiveness and the reduction VAT rate of 9% should be will see it as an opportunity to
maintained, at least until the invest in a local business that
country’s economic recovery is they see has potential or might
in the VAT rate has helped it firmly back on track. For the not be understood by outside
sector, it’s about competitiveness investors. We are outlining
and the reduction in the VAT rate to prospective customers
compete with other markets. has helped it compete with other how much sustainable debt
markets. This is clear from the they can currently put on to
growth in the number of tourists a particular structure based
and refurbishments so that they particular – have been overdone. coming to these shores and on their repayment capacity
can compete head-to-head with This is likely to lead to further the perception in international and sometimes there is a
these hotels. acquisition activity in the sector markets that the Irish tourist gap between that and their
although demand for properties product is a value for money expectations. So we take the
The exit of developers from outside of Dublin is expected to proposition. The importance of view that it is a great addition
the market has also meant be more select with cash-flow this can’t be overstated enough. to the options available when
that asset values are now more and repayment capacity a key More importantly, as far as the it comes to bridging the
meaningful and stable. Recent consideration in any deals. VAT rate is concerned any loss in funding gap.
market activity in the sector
revenue to the exchequer arising
involving properties like The Clare There are of course other issues Another welcome development
out of its reduction in VAT, has
Inn, the Fleet Street Hotel, The at play within the sector. Any for the sector and which was
more than likely been offset by
Morrison, The Marker and The change to the VAT regime, also contained in the Finance
the gains the economy has made
Burlington Hotel have all helped for example, is likely to have Bill 2013 was the final
directly and indirectly by the
set a realistic value base in the a negative effect, particularly
increase in tourists. So it’s a big confirmation that the Real
industry. on those businesses where
issue for the industry. Estate Investment Trust (REITs)
ground floor activities like food
regime announced in last
In addition, there is an appetite and beverages, account for In addition, the inclusion of December’s Budget will allow
from overseas investors, many of a sizeable proportion of their
the tourism-related enterprises, hotels and other tourism
whom believe that asset value overall turnover. Many of the key
including hotels, within the accommodation be held as
declines – in the Dublin market in stakeholders within the industry
Employment & Investment rental investment assets by these
Incentive Scheme (EIIS) is a REITs. As outlined in the Finance
welcome development for the Bill, REITs may therefore be
hotel sector (see page 25 for attractive to holding structures
more information). In the recent where, for example, a hotel
Finance Bill, the Minister for premises is owned as a rental
Finance announced that the EIIS investment asset by investors,
was being extended until 2020 and leased to a separate
and as part of this extension, operating company that would
hotels, guesthouses and self engage in the taxable trade of
-catering accommodation will hotel-keeping. This is likely to
be allowed to qualify on a lead to further interest in the
temporary basis where they sector from investors and a
meet the conditions of the reduction in the debt overhang
incentive. The inclusion of as distressed properties emerge
tourism accommodation in the from insolvency.
EIIS will be reviewed after a
period of two years. Here at AIB, we firmly believe
that the Irish hotel sector has a
The rationale for its inclusion bright future, notwithstanding
was that the debt overhang was the immediate challenges it
leading to an underinvestment faces. The bank will continue to
in the repair, maintenance and support this vital sector and its
refurbishment of hotels and future growth potential with a
guesthouses. Equity funding from range of innovative solutions and
the EIIS willl hopefully provide a our team of sectoral experts. O
key piece of the missing liquidity
for the sector, particularly outside Owen Travers is Business Unit
the main centres. The hope is Head, AIB Corporate Banking
that groups of local investors, and Specialist in the Hotel Sector.
18 OUTLOOK O HOTEL INDUSTRY 2013OUTLOOK
X CASE STUDIES
A GRAND
RELATIONSHIP Germany need to be ‘re-
EFFECTIVE COMMUNICATION HAS PROVED VITAL TO THE GRAND
introduced’ to Ireland.”
HOTEL MALAHIDE, BOTH IN TERMS OF INFORMING POTENTIAL
CUSTOMERS OF ITS OFFERINGS AND SHARING KNOWLEDGE WITH Other aspects of the Grand
Hotel Malahide’s business that
LONG-TERM BANKING PARTNER AIB.
have been revamped include
its menus, which have been
T
he Grand Hotel was built in updated to make eating out
1835 and officially reopened more affordable and accessible.
in 1955 following a major
reconstruction and modernisation Matt has banked with AIB since
programme. In 1974 Matt Ryan he took over the hotel and
became the new owner of the describes it as a bank that listens
hotel and during the present to its customers. “Sometimes
ownership of the Ryan family it you have to invest in products
has expanded from having 12 in one area of the business that
staff to nearly 200. Development will generate revenue in other
and improvement work areas – for example, investing
continues to this day. In 1982 a in our restaurants increases
large conference centre was built bedroom sales. AIB has a good
and in subsequent years 100 understanding of the hotel
bedrooms, the Coast restaurant, industry in terms of costs, where
a new reception area, Ryan’s Bar business is generated and what
and a top-class business meeting you have to do to generate
centre were added. business.”
Matt Ryan says investment in Matt also points out that online
bedroom stock is just one of banking has been very helpful
the key areas where AIB has in enabling the Grand Hotel
supported the business. “Over Malahide to continually review
the last five years in particular the its accounts and take advantage
quality of bedrooms has become of better interest rates where
absolutely critical. Rooms must available. All payments are made
be refurbished regularly and the electronically, which reduces
‘lifecycle’ of a hotel room has MATT RYAN administrative costs such as
shortened. AIB is a vital partner in postage and statement printing.
this regard in terms of providing sales to see where revenue is forward – conferences are “Our suppliers love this because
finance since they understand generated and how customers typically booked about a year in they know they will be paid
that we need this type of funding want to purchase the various advance.” directly on a specific date and it
for refurbishment to maintain the services.
enables end-of-month accounts
volume of business we are doing. When he explains that the
to be compiled in an efficient
Business will fall and customers “Because domestic spending average spend per international
manner.”
will go elsewhere without this power is reduced, we have delegate is about F1,500,
continuous investment,” he says. increased our focus on attracting it is easy to see why business
Quarterly meetings with AIB
conferencing business from tourism is now recognised as a
enable Matt and his team
All the business areas within the outside Ireland,” Matt adds. vital contributor to the
to benchmark the hotel’s
hotel (bars, conferencing facilities “As well as helping the local Irish economy. “There is
performance against the industry,
etc.) are also regularly reviewed economy, such events give us considerable unrealised potential
which gives him a picture of how
at all stages from purchasing to a firm base of business going in this sector and markets like
the business is performing.
OUTLOOK O HOTEL INDUSTRY 2013 19OUTLOOK
X CASE STUDIES
“Banks and businesses are an industry. “We have been in
partners in the process of reviving the hotel business for almost
the economy. It is vital to be four decades and AIB knows
able to talk ‘business language’ that we don’t take massive risks
to your banking partner. For and that we follow through on
example, our wage levels our plans. We also understand
are high compared to other their requirements in terms of
industries, but AIB understands information and vice versa - if
that this is a feature of the they say ‘no’ there is always
service sector.” a good reason that is well-
communicated. Determination to
According to Matt, a true protect an industry is a valuable
banking partner recognises the characteristic for a bank, as is
importance of understanding an a willingness to be fair to all
individual business rather than customers in a particular sector.”
With four hotels in Ireland and two in sunny
Malaga, David Kelly, CEO of FBD Property &
Leisure knows the value of a strong banking
relationship
FBD Property & Leisure is owned by the
publicly quoted FBD Group and AIB is sole
banker to the company. The company’s well-
known hotels in Ireland include The Tower
Hotel and Faithlegg House, both of which
are in Waterford and the Castleknock Hotel
and Temple Bar Hotel in Dublin. In Spain,
meanwhile, it owns the popular Sunset
Beach Club in Malaga as well as the upscale
La Cala Golf Resort, outside Marbella.
In June 2012, AIB worked with the
hotel operator to refinance its bank debt and
has worked very closely and constructively
with the company ever since, according to
David Kelly.
“By understanding our business very well
and by adopting an open and commercial Michael Holland, the owner of the also the sole lender to the hotel.
approach, we found that AIB was able popular Fitzwilliam Hotel Dublin agrees
to engage with us very quickly and with David Kelly. “The professionalism of In addition to the FBD Property and
constructively and agree with a re-financing AIB’s Hotel sector team enabled us to Fitzwilliam Hotel deals, some of the other
of our facilities to match our business needs complete a complex refinancing in a very recent financing initiatives in which AIB has
into the future. The bank’s knowledge of efficient manner. Over a 6 month period been involved with over the last 12 months
our business and the open and trusting from initial engagement to drawdown of include the following:
relationship that we have with them was the funds we found that AIB adopted a “can
do” attitude while their knowledge and Doyle Hotels (Holdings) Ltd: &220m, 4 year
cornerstone on which our re-financing was
understanding of the industry was very refinance of term debt facilities in addition
completed,” says David.
evident to all involved.” to working capital and FX facilities. AIB is
AIB provided the company with a 3 year also the sole lender to the company.
refinancing of its existing banking facilities AIB provided the hotel with &21m, 3 year
term debt facility in addition to working Dromoland Castle: Acquisition and
including term finance, working capital and
capital and leasing facilities and the bank is refurbishment financing.
leasing facilities amounting to &45.9m
20 OUTLOOK O HOTEL INDUSTRY 2013FROM STRENGTH
TO STRENGTH
T
he Coyle family, owners of Current owner John Coyle especially vital in light of recent
Renvyle House, one of the recalls that his father opened an uncertainty in the banking sector.
country’s oldest and top account with the Munster and We have also secured some long
hotels, can trace their banking Leinster Bank in 1918 (which term finance for investment in
relationship back to 1918 when became AIB in 1966 after a our accommodation.”
they first opened an account merger with the Provincial Bank
with old Munster and Leinster of Ireland and the Royal Bank of This investment has enabled
Bank, which later became part of Ireland) and that they have been Renvyle House Hotel to win
AIB in 1966. banking there ever since. numerous industry accolades,
most recently the Gold Award at
Located on 200 acres on the Given the sheer length of this this year’s Irish Accommodation
shores of the Atlantic Ocean in relationship, his views on the Services Institute (IASI) awards.
Connemara, the historic Renvyle most important qualities for
JOHN COYLE
House is celebrating its 130th a banking partner carry more AIB has also enabled Renvyle
birthday in 2013. It is also 60 weight than most. House Hotel to streamline its
years since Dr Donny Coyle to have local managers who can banking processes, says John.
bought the property back in “The bank needs to understand make decisions and fight your “We have started paying staff
1953 and the Coyle family have the business, especially in tough corner, as well as being willing to wages and salaries electronically.
been successfully running the economic times. There needs to challenge you if they think you This has been very beneficial
business ever since. be someone in the branch who are making a wrong call.” for our employees because we
gets to know you personally and are located in a beautiful (but
One thing that hasn’t changed is prepared to take the time to The state of the economy and remote) part of Connemara
down through the years is its have a cup of coffee and a chat. oversupply in the hotel sector and the nearest bank is 30-40
banking partner. In an era where Many of these relationships were mean the current focus is on minutes drive away. As well as
relationships between customers lost during the boom years, but maintaining business, John being useful for staff, electronic
and banks have come under AIB has been working hard to re- explains. “AIB has assisted us payments have saved us money
severe pressure, the loyalty of establish the connection between in this process by continuing and we will be looking to pay
the family behind Renvyle House the branch manager and local to provide access to seasonal suppliers the same way in the
Hotel is truly astonishing. businesses. It is absolutely vital working capital, which is near future”. O
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