Key discussion points from 2017 IHF Hotel Investment Conference

Aiden Murphy Crowe Horwath (3)_Fotor

On Monday 29 May 2017, the Irish Hotels Federation held its 5th Hotel Investment Conference in the Ballsbridge Hotel, Dublin.

Crowe Horwath participated as a sponsor and Partner Aiden Murphy addressed the delegates on “Strategies for Growing Profits”. His full presentation can be downloaded below.

If you missed the conference here is a summary of eight key discussion points from the conference:

Strategies for Growing Profits in Hotel sector - Crowe Horwath Ireland1. Hotel room revenue
Within the Dublin market, RevPAR has doubled to €104 over the last five years as occupancy nears full capacity. Future RevPAR increases can only be attained on the back of price yielding with rooms sales growth moderating over the next 5 years. Despite lower occupancy levels outside of the Dublin market in regional Ireland, a similar effect of moderate rooms revenue growth will apply due to greater seasonality impacts.

2. Lack of hotel rooms supply
The debate on the outlook for demand also focused on the level of new room supply needed in both Dublin and the markets outside of Dublin. It was ironic that this IHF Investment Conference was held in the Ballsbridge Hotel which is to close its doors in 2018 to allow for re-development of the site. The closure of this hotel will be a reduction of c. 400 rooms at a time when Dublin needs an additional 4,000 rooms to meet both pent up demand and future needs as the City expands with new offices, tourism attractions, sporting and entertainment events and increased passenger numbers through Dublin Airport, all creating needs for additional hotel accommodation.

3. Sources of new rooms supply
The increase in room supply in Dublin will be through expansions and new builds, outside of Dublin there will be more emphasis on expanding existing hotels, where possible, to allow both revenue and profit growth. Demand for new hotels outside of the Capital City will be in key locations such as Galway and Cork.

4. Growing importance of F&B
In light of slowing rooms revenue, the opportunity will be for hotels to re-invigorate their food offerings and outlets. This is particularly relevant for regional hotels where a quality food product can be a key element in attracting business to the hotel.

5. Increased profitability
There has been a significant positive impact on profitability within the sector over the last 5 years. Costs, which were managed downwards during the recession, have been held where possible and, in combination with increases in turnover, have lead to improvement in EBITDA. Dublin hotels where turnover increased by 66% have seen a greater benefit than hotels outside of the capital city, which have had a lower (40%) increase in turnover. The reduction in the amount of discounting and promotions has also helped profitability as it has lead to higher average room rates and food and beverage gross margins across the sector.

6. Growth in overseas visitors
The game-changer for the sector has been the additional 3m overseas visitors to Ireland, from 6.5m in 2011 to 9.5m in 2016. The impact of the higher volume of demand and displacement of lower value business has been a key component of the impressive profit growth achieved over these 5 years. The development of a new runway at Dublin Airport will be important to continue the growth trajectory of international visitor numbers into the country. Dublin Airport are projecting an increase in connectivity of c. 30% with the delivery of the north runway.

7. Decline in UK visitors
Brexit is a key concern as 41% of the 9.5m visits in 2016 were from Great Britain and for the first 4 months of 2017, their year-on-year numbers were down almost 11%. While other source markets are growing, the declines in the Great Britain market is worrying, particularly for locations that have a higher dependence on this source market. The scale of the drop means that a 2% to 3% increase in overseas visitor numbers would be a successful outcome for 2017 whereas over the last 5 years the average rate of growth in overseas tourist numbers was 8%.

8. Outlook for the sector
The conference was addressed in the afternoon by a hotel insiders panel of Pat McCann of Dalata; Paul Higgins of MHL Collection; Noel Creedon of iNua; and Michael Magner of the Vienna Woods Hotel. These industry stalwarts looked forward to 2040 Ireland and to the positioning of their hotels. Some key pieces of the advice of these hotel executives shared included:

  • Due to the cyclical nature of this industry, they suggested not overburdening the balance sheet with bank debt as head room will be needed during periods of slowdown/downturn
  • When taking on private equity do not have a fixed exit date as they suggested the need for flexibility to manage through challenging times so that an owner can sell their asset at a time when the market is most supportive
  • They suggested a co-ordinated approach to retaining and growing numbers from Great Britain by supporting ITIC in their call to government with a €12m round of Brexit Emergency Funding for a focused tourism marketing campaign
  • Support initiatives for opening up new markets, such as the prospect of a direct flight from Dublin to China which may become a new route to be announced before the end of 2017
  • Need for hoteliers to increase voice on matters such as affordable housing so as to support staffing in terms of living close to their work and not being attracted away to higher paying industries due to escalating living cost issues.