Irish hotel sector insights and 2021 outlook
Mairea Doyle Balfe, a director of our specialist hotel, tourism and leisure division, took part recently in an industry webinar on insights and outlook for the Irish hotel sector. The online event, organised by Bank of Ireland, featured an expert panel consisting of Gerardo Larios Rizo, Head of Hospitality Sector, Bank of Ireland, Isobel Horan, Divisional Director, Cushman & Wakefield, Jenny De Saulles, Director of Sector Development with Fáilte Ireland and Sarah Duignan, Director Client Relations at STR.
In her presentation, Mairea discussed four key areas: cashflow management, costs, sector supports, and business planning and funding. 2021 will continue to be another challenging year for the sector and one where survival will be important.
Cashflow management will continue to be critical for each hospitality business. While planning is difficult, as what restrictions are imposed and when is unknown, understanding what the real cash burn of a business is can help to plan and understand the impact that any disruption in trading can have on cashflow.
In addition, understanding what the cashflow requirements are will be important if additional funding is required. Businesses should at this stage be aware of the various government and other supports available to help with cashflow and working capital requirements.
Over the last nine months tourism businesses have been diligent in reviewing their costs and reducing these where possible. Maintaining a focus on costs into 2021, to ensure that they are at a minimum for the business levels, will help with cashflow management. However, it is important that businesses remain conscious of how cost reductions can affect quality, to ensure there is no long-term negative impact on their business.
In looking at future business planning and funding, hospitality businesses should review their cash needs for the next four/five quarters, determine what the profit or loss will be over these periods and build into the overall cashflow requirements to determine any working capital or loan needs. This should also include repairs to the balance sheet that are required, CapEx, redundancy or other working capital needs. In preparing budgets for 2021 it will be important to know the difference between the P&L and cashflow requirements, as they may be different.
Gerardo Larios Rizo, head of hospitality for Bank of Ireland, discussed the uncertainty around the sector that is still prevailing, mentioning that it is a cyclical sector and while past performance might not predict the future, it can help with future assumptions. He emphasised the importance of communicating with all stakeholders at the earliest possible opportunity.
Jenny De Saulles from Failte Ireland presented the projected tourism demand for Ireland over the next four to five years. She discussed both domestic and international business and showed different outlooks for the return to 2019 levels for 2024/2025. She suggested that domestic travel is more likely to return to 2019 levels quicker than international due to more rapidly easing of restrictions and swifter revival in tourist sentiment.
Sarah Duignan from STR gave an update on rooms performance for the hotel sector in Dublin and regional Ireland over the last year and an outlook for the next few years. She discussed how regional Ireland fared better than cities during the summer of 2020, with Dublin showing the lowest occupancy of 30% in August. The data showed that midscale and economy hotels led the recovery in the regions and in Dublin and small hotels (less than 100 rooms) also led the recovery. Occupancy is expected to plateau until Q2 2021 with some rate improvements for Dublin from Spring 2021.
Isobel Horan from Cushman and Wakefield gave an overview of hotel transaction activity for the last few years. As expected, this has been minimal in 2020. She also discussed the new supply additions for the Dublin market, showing that there are currently in the region of 18k rooms in the planning system. Cushman are projecting 3k rooms to be delivered to the Dublin market in 2021. While valuations have been difficult, Cushman have found upper upscale hotels with a 20-30% reduction in values with economy hotels holding firmer with 15-20% fall in values.
Crowe’s specialist hotel, tourism and leisure team comprises experienced accountants and hospitality consultants with practical industry expertise that enables us to provide a wide range of tax, liquidity & cash flow management, restructuring & insolvency and accounting services to the sector.
To find out more about the range of specialist hotel, tourism and leisure (HTL) services Crowe offers, visit our HTL sector webpage or contact a member of our HTL team.