Irish hotels staring bankruptcy in the face

The Irish hotel industry needs to take out 25% of its 60,000 rooms as it is facing bankruptcy, according to a new report by the commissioned by the Irish Hotels Federation (IHF).

The industry is insolvent and, the report said.

The Over Capacity in the Hotel Industry and Required Elements of a Recovery Programme Report was from economists Peter Bacon and Associates,  confirmed hoteliers’ fears that the industry would collapse unless urgent action was taken.

It said bad investments in new projects had helped create the current situation, with the number of rooms in the Irish hotel industry having grown from 21,000 in 1989 to a current 60,000. Of these, 15,000 – 32% – had opened since 2005.

This overcapacity has caused a drop in average room rates from €57 in 2000 to €38 in 2008. They have since fallen by a further 26% in 2009.

The report said: “This supply growth was driven largely by a number of factors, in particular, accelerated capital allowances for developers, the ease of obtaining finance and the wishes of planning authorities to incorporate hotels into development schemes.

“In many cases the commercial viability of the hotel business was not sufficiently prioritised, despite warnings from the IHF.”

The report said:  This is the steepest fall of any major European country, making Ireland the cheapest Western European country for hotel accommodation. Demand had dropped and hotels with no long term viability were dropping rates simply to maintain a cash flow.

It said hotels were staying open because banks were reluctant to realise losses and write down loans granted to hotels that have no prospect of recovery. Consequently, the whole sector was being affected including hotels which did have long term future. The answer, says the report, was to take 15,000 rooms out and to decommission future projects.

Matthew Ryan, IHF president, said: “This Report is possibly one of the most detailed and comprehensive analyses of the sector ever undertaken and includes very serious measures to improve the viability of the sector.

“The Report calls for the urgent active participation of the stakeholders involved including the banks and financial institutions, the Government, the tourism bodies and the hotel sector itself to seek effective solutions.”

www.ihf.ie