End of Tourism or End of Year?

2024 has been a relatively poor year for tourism, generally speaking. Although hotel groups have reported a brisk year in terms of occupancy, the margins are getting tighter for all in the industry.

As always, there are exterior factors about which we can do little. But as always, there are multiple factors that the Government showed very little interest in getting involved with.

First and foremost is their illogical and wilful battery of the sector in the form of the raising of the 9% VAT rate to 13.5%. The FG/FF administration leaned heavily on the narrative that the 9% rate was a temporary one and that the 13.5% rate constituted a reinstatement of normality.

It is, of course, simply a narrative that allows them to apply logic in a wholly illogical move. In the run-up to this year’s election, Fine Gael leader Simon Harris continued to play fast and loose with definitions of ‘permanent’ and ‘temporary’ VAT rates, promising a new 11% rate that would somehow become a permanent one by his very decree.

“The USC was also defined as temporary and here we are over a decade later and it’s still with us,” says Michael Magner, Irish Hotels Federation President. “If you were to use that argument, then ‘temporary’ is, in fact, ‘permanent’. We’ve done our research and we not only believe that the 9% VAT rate is the correct one; we know it is. And not just for food, but also for accommodation. The IHF took a very pragmatic approach to this in terms of Budget 2025: hotel rooms can vary in cost and there’s wider elasticity of demand. With food, that’s not the case. Preparing and serving food is so labour-intensive, there are so many variable inputs that go into arriving at your selling price that we need to ensure that the VAT rate is reduced permanently.”

“It’s kind-of ironic that Fine Gael came out with a manifested commitment of 11% for the VAT rate when the Budget was only two months ago and the VAT rate was untouched,” says Eoghan O’Mara Walsh, CEO of the Irish Tourism Industry Confederation, “so we’ll have to wait to see what’s in the next programme for government because that will determine where the VAT rate goes to. Ironically, Sinn Féin – the party with traditionally the least strong business credentials – have been committing to a 9% VAT rate. Fianna Fáil seem committed to the 13.5% rate, so there’s a variety of approaches out there and we’ll only know after the new government is formed.”

“If 11% VAT was applied to food services, it would be helpful,” says Seán O’Driscoll, Chief Executive of hotel group iNua. “The concern is that it wasn’t done in the Budget so will it be done in the future? I also made the suggestion that, for businesses with an annual turnover of less than €2 million, they should be paying a much lower multiple on local authority rates. And even though that would imply hotels paying a higher rate than restaurants and bars, I think that’s the right example. I think that we need to incentivise small entrepreneurs to open businesses in retail and I don’t think that we’re doing so at the moment.

“I’d like to give more supports around PRSI and training grants – things like that. Even the 11% on VAT would help those businesses, but I think that there are number of measures – not just the VAT – that we need to look at if we want to support small businesses in this country.”

Government Failing Tourism on Various Battlegrounds

Another battleground where the Government have placed themselves in a position where they’re fighting against the interests of the tourism industry is with the cap on visitors to Dublin Airport. In spite of the fact that this measure was brought in during a very different era, the outgoing administration’s reaction to it has been one of hand-wringing.

Within this vacuum of decision-making, it was the combined forces of the airline industry and the judiciary that stepped in to provide some clarity and sanity. Government ministers welcomed the recent High Court decision that finally offered some clarity to a situation that surely should have been already dealt with by any self-respecting national government. It beggars’ belief that such a vital issue for an island nation should be fudged in such a strange manner.

The parting shot from Deputy Catherine Martin – who presided over a Frankenstein’s monster of a ministry that also included tourism – was a particularly pointless and cynical exercise in cut-and-paste policy production. Entitled “A New Framework to Shape Irish Tourism”, she spoke of a Quixotic dream plan to take tourism as far as 2030. This vision was framed by five bullet points setting out vague principals of making tourism extremely sustainable using buzzword metrics about “protecting and enhancing Ireland’s natural assets” and supporting “balanced economic development”.

The production of this masterclass in gobbledegook marked, she said, “a very important day for Irish tourism”. Most ironically of all, the Tourism Policy Framework wanted to ensure “that a sufficient number of people have year-round, quality jobs in the tourism sector and that these jobs are located throughout the country.” Such words ring hollow and far removed from reality in the light of a government that presided over more than 600 closures of restaurants in Ireland in 2024.

“It just shows what a shambles the tourism industry was in, in terms of a lack of cohesion and joined-up thinking,” says CEO of the RAI Adrian Cummins. “One of the first lines in coalition partner Fianna Fáil’s manifesto is that they want a ‘new tourism policy’ to be developed. And yet, you have their coalition partners delivering this policy document in the dying days of the Government.”

Industry Players Underline Difficulties in Tepid Year for Tourism

“It’s been a mixed year,” says Eoghan O’Mara Walsh, CEO of the Irish Hospitality Industry Confederation. “It was positive from the all-important North American market. That’s really encouraging because they spend a lot of money and stay quite a long time in Ireland and tour the regions. But other markets have been soft – notably Britain and Continental Europe.

“All businesses have been really concerned with costs; from labour to insurance, food inflation and energy… it’s really put a lot of pressure on profit margins and on bottom lines, so businesses are hopeful that the incoming government will take tourism seriously and give due attention to such an important indigenous sector. 

“We’d like to see some relief on the costs of business, so we’d like to see the VAT rate come back down to 9%, we’d like to see some of the other taxations on employers being reduced – just to make sure that the SME’s in our sector that make up the bulk of Irish tourism have a bit of a buffer there next year if demand softens from North America, for example. None of us know what’s going to happen in the world of Trump.

“The other big thing for the incoming government is the lifting of the Dublin Airport passenger cap. That’s very important. The bulk of Irish tourism is made up of international visitors coming through Dublin. We’d obviously like to see Cork and Shannon grow but they’re never going to grow at a quick enough pace to compensate for lost business from Dublin – it’s vital not only for tourism but for the broader economy.”

“Occupancy-wise, it was a good year for us,” says Seán O’Driscoll, CEO of hotel group iNua. “The north American market into Ireland was extremely good. But there have been challenges because of the huge inflation in costs. So, while the business that hotels have done has been good, it is recognising that we’ve had a 30% increase in the Minimum Wage in a 2½-year period, that VAT went up by 50% and that our energy costs are 50% higher than they were pre-Covid, even though they’ve come down from their highest level. The Government put up the tariffs on energy by about 30%. They put up water charges for businesses recently as well, so it’s been a perfect storm of Government putting costs onto businesses for a two-year period. These are all government decisions and the reality is that because hotel business has been good, they have been able to sustain it and just about keep their heads above water. But our colleagues in the restaurant, bar and café sector haven’t been able to do the same.”

The smaller businesses across the country that comprise our individual café and restaurant sector have suffered appallingly during the course of 2024, after a series of rising costs swamped many of them.

“It’s been a horrendous year,” says RAI Chief Executive Adrian Cummins. “If I could quote the late Queen Elizabeth II, it was an annus horribilis… First of all, we have had nearly 700 closures for the calendar year to date.

“That’s largely down to the cost increases and Government policy. Government policy is responsible for factors such as wage inflation, extra sick days, energy costs and the VAT increase.”

Despite this, Adrian says that the they are optimistic that there will be a VAT reduction in 2025 from the next government.

“It’s gone out in Fine Gael’s statement that they’ll deliver 11% VAT, plus a reduction in PRSI contributions, which is important. People tend to forget that they’re including that in the overall package, and that equates to bringing the VAT rate back down to 9%. It would be a welcome move but it must be implemented.”

But can a political party really be trusted with decreeing a new VAT rate as ‘permanent’?

“His (Simon Harris’) conversation with me was that it would be permanent at 11%… So, we’ll take ‘permanent’!”

Topline Tourism Data Positive but Bed-Nights Metrics Point to More Nuanced Reality 

“It has been a mixed year,” says Caeman Wall, Head of Economic and Industry Analysis at Fáilte Ireland. “If you look at the topline data from the Central Statistics Office on, say, on domestic tourism or inbound tourism, that would be telling you that things are going great guns – what you would see is double-digit growth on the overseas trips to Ireland and on domestic trips.

“The real thing to keep an eye is the bed-nights data. On the international side, the bed-nights are broadly flat – they’re marginally down on 2023 figures for the year to September. Bed-nights for the overseas market were down by 2% in fact. Bed-nights is an important metric and it doesn’t get enough commentary or it doesn’t get understood enough, because that’s what drives performance particularly in the accommodation sector. But it’s also (an indicator of) length of stay. So, tourists are coming to Ireland in good numbers but the actual length of stay has come down quite a bit.”

Overseas tourists are now staying one day less than before. It isn’t a characteristic peculiar to Ireland, Caeman says. It’s a Europe-wide phenomenon and it may well be a consequence of improved access, the effects of inflation or a combination of factors. 

“We have fantastic air and sea access now, so it’s never been easier to get here but it’s never been easier to leave as well… European Commission data indicates that people have the same budget as last year but prices have gone up.”

Moreover, that lower bed-night figure is being spread over a wider number of beds. The number of beds contracted by the Government to temporarily house asylum seekers and refugees has fallen.

“There’s also an underlying growth in accommodation stock anyway,” says Caeman. “There was a lack of growth for a good few years and Dublin in particular is seeing more bed stock – including the Air BnB-type accommodation, which is still growing right now.”

In short, Caeman says that the double-digit growth in tourist numbers is not translating on the ground because accommodation capacity is also opening up – probably at an even faster rate.

“The pie might be growing, as it were, but people’s slice of the pie isn’t.”

Barometer readings by Fáilte Ireland during the course of the year also get under the skin of the industry to assess what players in the sector are feeling on the ground. All the recent readings, Caeman says, have been increasingly dominated by the issue of rising costs.

“It’s the costs of labour, costs of labour and other costs of doing business,” says Caeman, “and another top concern is the cost of living because it’s affecting the spending power of the consumer; there’s more and more price resistance and the profit margins are therefore coming down.”

In previous barometer reports published on Fáilte Ireland’s website, the weather had figured prominently on the list of concerns but that has now been replaced by concerns over costs. And then there’s the issue of connectivity…

“We’ve been growing over the last number of years,” adds Caeman. “Over 80% of our overseas visitors come through Dublin Airport so if there’s a constraint put on that, it’s very hard to see how we could grow in 2025 and beyond.”

Where Next for Ireland’s Tourism Industry?

The next few weeks should reveal what kind of government will be formed. Presuming that the next administration will deliver a serious-minded ministry to the tourism sector, there are plenty of areas to work on:

Seán O’Driscoll, CEO of hotel group iNua, doesn’t see any of the parties vying for election having much of a grasp of the importance of the country’s largest indigenous industry:

“I don’t see any political party (with a grasp of tourism and on what it means),” says Seán. “To be honest, I think that we’ve had about 8 years of really weak representation in cabinet – first with Shane Ross and then with Catherine Martin. I had to bite my tongue when I saw Catherine Martin release her tourism strategy on the week that the election was being announced. What was the point? She didn’t get a strategy done early in her ministerial term and it’s a document which is essentially going to go in the bin now, with nothing achieved. We’ve been really badly served as neither Shane Ross nor Catherine Martin had a vision or strategy for the tourism industry.

“I would really like to tourism moved into an economic department – that would be my Number One request. I think tourism belongs in the enterprise department and it needs to be looked at as one of the economic engines of the country… There’s a lot of anger out there – particularly from the smaller tourism businesses.”

“The other big area of controversy for us is the segregation of hospitality away from tourism in overall national tourism policy,” says Adrian Cummins. “It is disgraceful that, over the last five years, pubs and restaurants were not recognised as an important component of the tourism industry in terms of policy. That needs to be returned to its natural home. That will be one of the first items on the agenda when we meet the new cabinet minister, who will hopefully be supportive of the tourism industry – unlike the previous cabinet minister.”

“There must be a moving away from the 13.5% rate of VAT on food when the new government formation talks happen. It’s crucial for the survival and the sustainability of our industry. We’re tired of having language used that talks of ‘supports’ for our sector. Yes, there was an argument for supports during the Pandemic, which was a once-in-a-generation event. What we’re talking about is implementing a proper framework – a framework for what is the largest indigenous industry in this country. We are players and serious contributors to the economy and that must be part of any government formation. They must acknowledge that this spike in the cost of doing business for so many in the industry. Tourism needs to have its own government department dedicated to recognising the importance of hospitality in the overall economy. We’ve seen a shift in European governance in this regard… since the European elections in June this year, for the first time in the history of the European Commission, there is a Tourism Commissioner. So, if Europe is recognising the importance of tourism, well it’s certainly time for us to do the same.”

Accommodation Capacity Going Slowly in the Right Direction

There are slightly differing opinions when it comes to hotel room capacity, with some industry leaders feeling that more bed nights are needed. In the eyes of the Irish Hotel Federation, however, its members feel that apart from certain ‘compression’ dates (where one or more large-scale events happen on the same weekend, drawing a large crowd), hotel capacity is at a manageable level.

“The Irish Hotel Federation doesn’t have a problem with capacity in Ireland, as a rule,” says IHIC President Michael Magner. “There are 52 weeks and 365 days in the year and for the most part, when demand is there, there tends to be enough accommodation. There can be difficulties around compression dates and that was highlighted in the research carried out by Fáilte Ireland and commissioned by the Minister for Tourism Catherine Martin on the issue of hotel pricing.

“The reality is that there is plenty of capacity in the country and maybe if there was better synchronization between event planners, those compression dates might not be so bad… there is also the fact that with the Irish mindset, people want to stay where the event is happening, so they’re less inclined to travel to the event as they do in many other European countries. That also contributes the pressure on accommodation at such compression dates.”

“We do still have a problem with accommodation in the country in that about  15% of our hotel rooms are contracted to the state for humanitarian purposes,” points out Eoghan O’Mara Walsh. “It varies around the country so 33% was the latest corresponding statistic in County Clare… So, there’s a capacity issue still – both in terms of air passengers and in terms of beds available. We’d love to see some of those blockages resolved to allow the sector to grow.”

Could Trump-Inspired Withdrawal of Corporate America to Push Tourism Back up the National Agenda?

Finally, there is the issue of the USA. Our industry has become very reliant on the North American market over the years, with a strong US-focused bias over many other nationalities. The same could be said for the tech sector, where a number of large American companies form a significant presence. With another Trump presidency about to begin, there is the distinct possibility that many of these companies will move their substantial bandwagons back home. With even the spectre of such a phenomenon spark some renewed interest for the tourism sector in the new government?

“Obviously, the foreign investment sector is worried because of the potential tariffs that the new American administration might impose,” says Seán O’Driscoll. “Any moves like that would have potentially a very big effect on that sector… I think that the only time that the benefits of tourism were recognised was when we were coming out of the last recession. Then, there was a lot of good government policy around tourism. I’d like to see tourism getting back up there – not because the multinational sector is going badly but as a positive to have as well as a multinational sector; something that provides regional employment in places where the multinational sector will never go.”

“I certainly wouldn’t see endorse Trump’s policy as us benefitting from that,” says Adrian Cummins. “I think that we need to look at it in parallel with foreign direct investment. All those multinationals from North America are more than welcome in Ireland and we need to encourage them to remain here. In parallel to that, we need to encourage tourism development, particularly in those regional areas where you may not have any foreign direct investment.”

“Unlike American multinationals, our members can’t lift up our hotels and put them in another part of the world where the costs are cheaper,” says IHF President Michael Magner. “We’re stuck with what we have, so government must have a property functioning department to support and underpin a framework for an industry that’s viable and sustainable into the future.”

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