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Hotel Sector Growth Slows as Industry Faces Increasing Costs

2018 marked a turning point for the Irish hotel sector in terms of its growth trajectory, according to the latest Crowe Ireland Annual Hotel Survey.

The 24th edition of the annual sector analysis, compiled by accountancy practice and advisors Crowe, shows that the sector experienced a positive year in 2018 with an eight-consecutive year of growth in turnover. Increased profit levels and average room rates have been recorded across all regions during the year.

Notwithstanding the strong performance by the sector, the analysis by the report’s author Aiden Murphy finds that 2018 marked a turning point for the industry as growth slows amid increased costs, threats of domestic slowdown, weakened sterling and Brexit uncertainty. The report concludes that the sector recorded the lowest level of profit growth in seven years at a rate of 7%, a significant decline from the 12.5% growth achieved in 2017.

The report also highlights that revenue from rooms and food sales grew at the lowest levels in five years, at 5.9% and 2.6% respectively, highlighting the slowdown in revenue growth as a result of increased competition for restaurant and events customers from non-hotel outlets and no increase in occupancy levels attained in 2018.

These findings indicate that it is becoming harder for Irish hotels to increase profit levels despite reasonable revenue growth, as many costs are now increasing faster than the underlying growth in revenues.

The report shows the industry’s scale of reliance on the domestic, Great Britain and Northern Ireland markets- with two thirds (68%) of Irish hotel business dependent on these markets. This kind of exposure to these markets poses a potential risk for the industry when the possible economic impacts of a hard Brexit, weakening sterling and knock on implications on the Irish economy, including a possible fall in disposable income are considered.

Commenting on this year’s survey, partner at Crowe, Aiden Murphy, said: “The growth in the Irish hotel sector improved again in 2018, with increases in average room rates and profitability not just in the capital, but across all regions. However, 2018 has marked a turning point for the industry as the sector recorded the lowest level of profit growth in seven years, impacted by increased costs especially across payroll, utilities and insurance.”

Speaking about the outlook for 2019, Aiden Murphy added: “Looking ahead to 2019, the 50% hike in VAT to 13.5% on rooms and food sales will make it a challenging year if the cost increases experienced in 2018 continue at a similar pace, making it difficult to pass on both the VAT increase and cost inflation to customers in terms of price increases. Rising costs such as insurance, payroll and utilities combined with the potential impact of a hard Brexit will make 2019 and future years more challenging for the sector.”

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