Future Of Hotel Tourism Sector Report 2011 A4 Ls V1a Fl

2011: The ouTlook forThe irish hoTel secTor

Audit Tax Advisory

2011: The Outlook for the Irish Hotel Sector2

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 3

reseArch MeThoDoloGY

n At the end of the first quarter of 2011, 100 interviews were carried out with hoteliers throughout Ireland. The objective of the research was to gain an understanding of their financial performance in the first quarter of 2011, compared to the corresponding period in 2010. The research also aimed to gain some insights into hoteliers’ expectations of performance for the remainder of 2011 and the challenges currently facing the sector.

n The findings presented in this report are based on a sample population of 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 The location of hotels included in the research was distributed as follows:

Connaught 28%

Leinster 27%

Munster 24%

Northern Ireland 21%

For the purpose of the research, Donegal, Cavan and Monaghan hotels were included in the Connaught sample.

n The breakdown of hotels by grade is demonstrated as follows:

Five star 14%

Four star 31%

Three star 40%

Two star 13%

One star 2%

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 Development Programme.


With economic conditions remaining challenging, it is encouraging to see that, in this survey of 100 hoteliers carried out by BDO, a real sense of optimism is now emerging with 87% of hotels indicating that they were either confident or very confident that their hotel’s performance would improve during 2011.

This is not to suggest that an immediate return to historic strong levels of performance is on the horizon, with 43% of respondents stating that revenues earned in the first quarter of 2011 were less than that of the same period in 2010. However, clear evidence of increasing levels of demand, combined with a shared optimism amongst a number of

respondents, for an overall increase in average room rates and occupancy levels for the remainder of the year augurs well for the hotel sector as a whole.

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 they actively engage professional advisers with the aim of improving hotel performance. Price competition has been identified, by respondents, as the main factor likely to impact on hotel performance during 2011.

Hoteliers did not highlight over supply as a significant factor impacting on or likely to impact on performance during 2011. With government agencies/bodies acknowledging that it is unlikely that there will be any State intervention to address the issue of “over supply”, hoteliers appear to be taking charge of their own destiny with the majority of operators stating that they plan to increase their sales and marketing efforts as a means of improving hotel performance.

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.

foreworD

Derry Gray Managing Partner and Head of Consulting [email protected] + 353 1 470 0350


It is our view that the outlook for the sector for 2011 and into early 2012 will continue to prove challenging. There is strong evidence to suggest that a large percentage of business is “last minute” meaning that businesses that are equipped to anticipate and respond to shorter booking patterns will be best positioned to exploit current market opportunities.

With rising costs and cashflow pressures also identified as key factors likely to impact on individual hotel performance, careful management and monitoring of these and the overall financial affairs of the business will be key to on-going viability.

We would share the view of other industry stakeholders, that the recent visits of Her Majesty Queen Elizabeth II and US President Barack Obama will provide a much needed boost for Irish tourism and in doing so play a vital role in Ireland achieving it's targeted growth of 4% in visitor numbers set for 2011.

May I extend my thanks to those who gave their time to participate in this survey.

I hope you find this survey useful and welcome your feedback.

If you would like to contribute to future surveys, please let us know.


GrowTh expecTATions

1A siGnificAnT MAjoriTY of hoTeliers Are eiTher confiDenT or verY confiDenT AbouT The prospecTs for iMproveD business perforMAnce DurinG 2011.

iMproveMenT will be DeMAnD Driven.

we AskeD How confident are you for an improvement in your business during 2011? (Base: 100)

we AskeD Do you expect average room occupancy to increase, decrease or stay the same in 2011? (Base: 100)

Not confident 13%

Confident 43%

Very confident 44%

Decrease 6%

Stay the same 19%

Increase 75%

75%DeMAnD Driven: 75% of respondents expect

average room occupancy to increase during 2011

87%of hoteliers are either confident or very confident

that their hotel performance will improve during 2011


hoTeliers Are Also opTiMisTic AbouT increAsinG AverAGe rooM rATes DurinG 2011.

overAll expecTATions of hoTel perforMAnce.

Worse 16%

In line 29%

Better 55%

we AskeD How do you expect overall performance to be in 2011 relative to 2010? (Base: 100)

55%More than half of hoteliers expect that overall performance

for 2011 will be better than 2010

56%of hoteliers expect average room rates to increase, with only 8% of respondents expecting average room rates to decrease in 2011

Decrease 8%

Stay the same 36%

Increase 56%

we AskeD Do you expect average room rates to increase, decrease or stay the same? (Base: 100)


recenT hisToric perforMAnce

2AverAGe rooM rATes.

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 excess of €150.

€150–€400

€130–€149 5%

€120–€129 4%

€100–€119 3%

€90–€99 4%

€80–€89 5%

€70–€79 19%

€60–€69 16%

€50–€59 16%

€40–€49 10%

€30–€39 6%

12%


£120–£169 10%

£90–£119 15%

£80–£89 20%

£70–£79 15%

£60–£69 20%

£40–£59 20%

Reduced rates 43%

Increased rates 18%

Unchanged rates 39% 18%of hoteliers indicated that average rates

for the first quarter of 2011 to be up on the corresponding period in 2010

we AskeD How do average room rates for the first quarter of 2011 compare to the corresponding period in 2010? (Base: 100)

The average room rates for hotels in Northern Ireland are summarised in the following table: £40-£6940% of hotels in northern ireland reported an average

rate of between £40 and £69 per night

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


Lower occupancy 35%

Same occupancy 29%

Higher occupancy 36%

30%

35%

40%

45%

50%

55%

60%

65%

70%

80%

90%

2%

3%

9%

6%

16%

10%

14%

10%

24%

5%

1%

AverAGe rooM occupAncY for quArTer one 2011.

36% 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

70%–80%There were notable variations in average room occupancy for the first three months of 2011. Approximately one third of hotels indicated an

average occupancy of between 70% to 80%. conversely one in five respondents reported average occupancy of less than 45%

hoTel rooM occupAncY in coMpArison To quArTer one 2010.


Decreased revenue 43%

Unchanged revenue 29%

Increase in revenue 28%

ToTAl revenue quArTer one 2011 in coMpArison To quArTer one 2010. >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


fAcTors iMpAcTinG on perforMAnce

357%42%

29% 38%

38%22%

39%10%

6% 47%

39%Other*

Cashflow

Currency Fluctuations

Rising Costs

Over Supply

Falling Demand

Consumer Confidence

Price Competition

PromptedUn-prompted* Weather; Events; American tourists; Increased wedding business; Government regulations; Less corporate.

21%

36%

The followinG TAble illusTrATes The MAin fAcTors currenTlY iMpAcTinG on hoTel perforMAnce.

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.


iMprovinG perforMAnce

4PromptedUn-prompted

Other

Scale back operations

Engage professional advisors

Reducing operating costs

Discount rates/prices

Increase sales and marketing effort 51% 55%

35% 48%

22% 47%

32%8%

12% 26%

36%11%

hoTeliers TAkinG chArGe of Their own DesTinY.

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.


MArkeT AwAreness

5NeitherDisagreeAgree

Hotel is well prepared to respond to fluctuations in the market

Can easily access key financial information that you need to run your business

Finance team can support the company's growth

Aware of the range of business supports and assistance that are available in the hotel sector

Relationship with the bank is positive

Key micro and macro economic factors

Hotel can meet its targets for revenue and profit this year

87%6%6%7%7%

7%7%6%6%87%

93% 6%6%

85%

71%

71%

67%

13% 2%2%

25%

18% 11%

23% 10%

13%

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.

The followiinG TAble iDenTifies how AwAre hoTeliers Are AbouT The keY fAcTors ThAT cAn iMpAcT on Their business.


noTeshospiTAliTY TeAMWith over 20 years experience and a client base of over 10% of Ireland’s total hotel accommodation supply, BDO are leading advisers to the hotel sector in Ireland. Combining extensive strategic planning, specialist hotel operations, corporate finance & recovery and taxation expertise, BDO have significant expertise in assisting and guiding hotels owners, financiers and other 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 which ensures timely, straightforward advice. Our assignments are led by senior personnel with an in-depth understanding and knowledge of the hotel market. This delivers high value for all our clients and practical solutions that are 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 [email protected]

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO to discuss these matters in the context of your particular circumstances. BDO, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business.

BDO, a partnership established under Irish Law, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent members firms.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms.

Contents and Data included in this document should not be replicated without prior written consent from BDO. All rights reserved.

© BDO IRELAND 2011www.bdo.ie

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Future Of Hotel Tourism Sector Report 2011 A4 Ls V1a Fl

Travel

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