Average room rates at Irish hotels are now at 1999 levels, according to a survey of businesses in the hard-hit hospitality industry.
The study, conducted by accountancy firm Horwath Bastow Charleton (HBC), found profit levels had plummeted up to 50 per cent since 2007.
Hotels have been severely impacted by the fall off in corporate business, a reduction in the average size of a functions and the competitive rates being offered by properties in the race to secure a booking, the report said.
The average room rate has fallen from €97.69 in 2007 to €77.81 in 2009, which had had a “dramatic impact” on profit levels, according to data drawn from the financial year ending 2009.
The study said the average rate has fallen by a further 10 per cent in the first six months of this year. It said the hotel sector was in a “very unstable position”, with profit margins at many hotels insufficient to meet their loan commitments.
While hotels throughout the country continue to struggle, there was a “marked difference” in the Dublin market compared with the regional hotel market.
The report noted room rates were on average €16 higher in the capital, and there was a 10 per cent higher room occupancy levels in Dublin.
The report said recent investment in infrastructure in Dublin including the Grand Canal Theatre, The Aviva Stadium and The Convention Centre Dublin (CCD) would help the Dublin market rebound quicker than elsewhere.
The study cited Central Bank figures which estimated total loans outstanding for hotels in the Republic stood at €6.4 billion at the end of 2009.
Since more than 40 per cent of room stock or 25,000 rooms were developed over the last 10 years, this meant an average debt per room of these hotels to be in the region of €135,000 per room, or €3.375 billion of total loans outstanding.
The report said one third of Irish hotels were experiencing difficultly in paying the interest on these loans and were experiencing severe cash flow problems.
The worst-hit sector of the industry was the newly developed four and five star resort market has been hit hardest.
It said profit per room at luxury hotels had fallen dramatically from a high of €13,954 in 2007 to just €3,092 per room in 2009.
The costs of developing these resorts, particularly if they included golf and spa elements, were extremely high, it said. Much of the development cost was borrowed leading to substantial interest payments.
The report also noted a “worrying acceleration” in the number of hotels going into receivership and liquidation. It is currently estimated that there are over 30 hotels in the hands of administrators, the study said.
Horwath Bastow Charleton said it anticipated this number would increase in the coming months, and that some form of restructuring will be required to reposition at least 300 of our 900 hotels where solvency issues exist.
“Hoteliers are now trying to maintain these payments against a backdrop of declining sales and profit as a result of the economic downturn and oversupply issues,” it said,
Aiden Murphy of Horwath Bastow Charleton said: “We are entering a period where profit levels in the hotel sector have reached an all time low.”
The downturn has led to an increasing dependence on the price sensitive domestic market which has forced hotels to target “alternative market segments” and eat into the market share of lower classification properties, he said.
"While our economy was growing we had a need for more hotels to meet growing demand but the exuberance of the Irish property development sector provided 16,000 extra rooms between 2005 and 2008, when 6,000 rooms would have been sufficient.
The market now finds itself in the position of having 10,000 excess hotel rooms to fill.The impact of this over capacity also means that occupancy levels have fallen from 63.5 per cent in 2008 to 59.4 per cent in 2009,” he said.
Fine Gael’s spokesman on tourism Jimmy Deenihan said the survey made for “chilling reading” for everybody who worked in the sector.
He said unviable hotels, which were being transferred into National Asset Management Agency (Nama), were being kept artificially afloat at the expense of more viable hotels.
He called on the finance and tourism ministers to summon Nama and the banks for talks in order to map out a strategy for the hotels sector.
