Ms Denyse Campbell:

The Irish Hotels Federation welcomes this opportunity to address the committee to discuss the challenges facing our sector. Our industry, which experienced an exceptionally difficult period over the past several years, has come a long way since the lifting of Covid restrictions last year. We have made significant strides in restoring employment and stabilising tourism businesses the length and breadth of the country. In large part, this has been achieved thanks to vital supports provided by the Government, including, more recently, the extension of the 9% tourism VAT rate, significant reforms of the temporary business energy support scheme, TBESS, and, of course, tax-debt warehousing. These measures have provided tourism businesses with greater certainty and go a long way in helping to sustain the recovery in tourism at a time when businesses and consumers are facing significant economic and financial headwinds. The Government recognises the important role the tourism and hospitality sector plays as Ireland's largest indigenous employer, currently supporting over 250,000 livelihoods throughout the country, including 60,000 employed directly by Irish hotels and guesthouses. The decision to extend the 9% VAT rate means we remain in line with our European competitors, in particular those countries where tourism plays a key role economically. An increase in the rate to 13.5% would have seen us with the third-highest VAT rate on tourism accommodation in all of Europe.

Looking ahead, we are now seeing renewed – though it must be said, cautious – optimism throughout our sector. Early indications for this year suggest our industry will continue to build on the uplift in tourism activity seen during the second half of 2022. Needless to say, this is essential for the long-term prospects of our industry. Hotels are now seeking to invest in their businesses and product development, with particular emphasis on investing in our people, sustainability and growth, which is where we want to be.

While we are more optimistic, we are still very alert to the significant challenges and uncertainties that persist in the global economy given the difficulties around the cost of doing business, high levels of inflation, increasing interest rates, an ongoing cost-of-living crisis across key overseas source markets, and the backdrop of the continued war in Ukraine, including its impact on tourism capacity.

As borne out by recent wholesale price figures from the Central Statistics Office, cost inputs for hospitality businesses continue to rise, including for food and beverage supplies. While reforms to the TBESS will provide some welcome relief, we continue to face exceptionally high energy costs. Insurance costs are also an enormous challenge given the severe lack of insurers in the market currently underwriting cover for hospitality businesses.

On the consumer side, a major concern for us is the level of financial pressure being experienced as a result of persistently high inflation. This may prove stickier than previously thought. In recent days, for example, we have seen unexpected increases announced in inflation for both Ireland, rising to 8.5%, and the UK, rising to 10.4%, while inflation across the EU barely changed, at 8.5%. Consumers are also being hit by soaring interest rates, with more increases to come.

These factors have a knock-on effect on decisions people make when spending on discretionary items such as holidays and breaks away. Tourism and hospitality are particularly vulnerable and are invariably the first to take the hit. A case in point is the outlook for bookings from Great Britain, given the very challenging economic environment this market is facing. This is a pressing concern for hotels, guesthouses and the wider tourism industry. Great Britain, traditionally Ireland's largest source of overseas visitors, continues to face significant economic headwinds, and this is having an impact on the outlook and levels of forward bookings.

According to recent industry research carried out by the Irish Hotels Federation, 60% of hoteliers report that forward bookings from Great Britain are still down on the pre-Covid level. The rest of Europe is also challenging, while the prospects for North America are brighter this year.

In essence, as we look to the year ahead we are currently grappling with two questions as an industry: how robust is the upturn in tourism activity, and how may we best ensure the right conditions are in place to secure a long-term, sustainable recovery? We look forward to exploring this further with members today.