Profits at Irish hotels are rising at a “remarkable” pace due to high occupancy and near record room rates, more tourists, a strong domestic market and lack of pay rises in the sector, according to a detailed new study.
The 21st annual hotel industry survey by accounting and advisory firm Crowe Horwath, based on 2015 figures, found that profits per hotel room were up by almost 30 per cent across the country.
Due to higher occupancy and a proliferation of luxury properties in the city, Dublin hotels are by far the most profitable, earning operators an average of €16,913 in profits for every room, compared to €13,797 the previous year.
Hotel rooms in the southwest and western seaboard each earn hoteliers more than €8,000 in profits, although the rise was less than the national average.
The Midlands and east of the country (excluding Dublin) saw the sharpest spike in profits per room – up more than 40 per cent to €10,628 – due to a strong increase in non-accommodation revenues for hotels such as food and banqueting, Crowe Horwath said.
VAT rate
Confirmation that Irish hotels are hiking rates to boost profits is likely to fuel the debate over whether the Government should retain the special 9 per cent tourism VAT rate in the upcoming budget.
The special VAT rate was introduced during the recession to boost a then-desperately flagging sector. Hoteliers have argued it should be retained to help them remain price competitive. The data seems to suggest that the benefit of the taxpayer-subsidised VAT rate is now flowing straight to hoteliers’ bottom lines.
The Crowe Horwath study shows that the standard industry metric of revenue per available room (RevPar) was €65.52 on a national basis last year. It was €90.25 in Dublin, up from €75, proving that the city’s hoteliers are capitalising on the dearth of supply to hike rates in a competitive market.
RevPar in the Midlands is €54.73, €56.59 in the southwest and less than €50 on the western seaboard. Bigger hotels and luxury hotels are performing best, due in part to more visitors from the US.
Lack of supply
Aiden Murphy, Crowe Horwath partner, said demand for hotel rooms in Ireland is now back at pre-recession levels. He said Dublin's average room rates were still slightly below their 2006 peak of more than €120, but this record is expected to be surpassed in 2016.
“More supply is needed for the Dublin market. Dublin occupancy is at a natural high,” he said.
Mr Murphy said Dublin rates were €102 in March, when occupancy was 75 per cent. In the September peak, the average Dublin rate was €123 with occupancy at 92 per cent. He said this suggests that the required increase in supply could see rates drop by 20 per cent.
He said the effects of Brexit were not captured by the study, but Dublin could replace any lost British business easily. He warned, however, that the west could not so easily do so.
Despite the booming profits, Mr Murphy also warned against restoring VAT to its previous rate of 13.5 per cent, as it might stymie the investment and building needed to boost supply.
