Tourism Facing Stark Headwinds in 2023
Hotel Sector Report Shows 94% of Hoteliers Concerned about Economic Outlook
- Hotel energy costs now 10-12% of total revenue – just 4% in 2019
- Forward bookings for 2023 down significantly on 2019 in key international markets
- Hoteliers urge Government to change course on tourism VAT increase
New analysis from the Irish Hotels Federation (IHF) has underlined the challenges facing hotels and guesthouses into 2023, with spiralling business costs, reduced forward bookings compared to 2019, and a planned 50% increase in the tourism VAT rate at the end of February 2023 – all piling pressure on the industry that is still in recovery following the pandemic. *
Despite an uplift in tourism during 2022 following the pandemic, overall hotel room occupancy rates are still significantly down on 2019 for the year to date. For the first ten months of the year (January to October), average room occupancy levels were 71% nationally and 75% for Dublin. Over the same period in 2019, however, room occupancy was 80% nationally and 84% for Dublin, highlighting the extent of lost ground still to be made up.
The economic outlook for the sector is now looking significantly less certain with pent-up demand quickly unwinding, overseas markets entering economic downturn and consumer confidence reaching decade-lows across key overseas markets. This is taking its toll on confidence within the sector with the overwhelming majority of hotels and guesthouses saying they are concerned about the impact of global economic uncertainty on their business over the next 12 months, with 38% saying they are concerned and 56% indicating they are very concerned.
With overseas tourism levels forecast to be down 25% this year compared to 2019, forward bookings reported by hotels for next year remain challenging particularly for the UK and parts of Europe:
- 60% report reduced bookings from GB versus 2019 (5% report an increase, 35% no change)
- 47% report reduced bookings from Northern Ireland (12% report an increase, 41% no change)
- 38% report reduced bookings from the rest of Europe (20% report an increase, 42% no change)
The US market is a cause for less concern, with 36% reporting reduced bookings largely offset by the 35% reporting an increase (29% no change).
Denyse Campbell, President of the Irish Hotel Federation said “We are now heading into very turbulent times economically with growing uncertainty in our overseas markets. This comes at a time when escalating business costs are eroding confidence among hoteliers. Energy costs are a particular worry and are now running at 10-12% of total revenue for the average hotel, up from just 4% of revenue in 2019.”
“For an average 70-bedroom hotel this means an increase of €380,000 in annual energy costs. While the Temporary Business Energy Support Scheme introduced in Budget 2023 is welcome, the qualification criteria are far too restrictive for hotels. Hotels are also seeing increases across the cost of food suppliers (up 25% this year), beverages (up 16%), linen and laundry services (up 30%) and insurance costs (up 18%).”
Ms Campbell said that compounding the challenges facing businesses was the decision to increase the Tourism VAT rate to 13.5% at the end of February 2023. Tourism VAT is currently at 9%, so the amount of VAT paid by tourists will increase by 50% – a decision that would make Ireland an outlier amongst countries in Europe who prioritise tourism.
“At a time when businesses are struggling with spiralling business and energy costs and sagging demand in many key international markets, the last thing the Government should be doing is adding to inflationary pressures.
“The looming increase of Ireland’s VAT means that consumers and overseas visitors will be paying the third highest tourism VAT rate in Europe. Countries that take tourism seriously, where it is a key part of their economy, have much lower tourism VAT rates – for example Portugal (6%), Malta (7%) and Netherlands (9%).** In these countries it is settled policy to support tourism with a lower VAT rate as its contribution to supporting jobs, businesses and the wider economy pays its way many times over.
“The 9% Tourism VAT rate is the right rate for the long-term sustainable development of Ireland’s largest indigenous industry, which in 2019 employed 270,000 people and returned over €2 billion to the exchequer in direct tourism-related taxes. We have done really well to rebuild employment levels in the tourism industry back to 90% of the pre-pandemic level. We should now be seeking to restore and grow tourism, and not undermine it with a VAT rate hike – particularly when business costs are skyrocketing, inflation is soaring and the global economy edges towards recession,” Ms Campbell concluded.