Dáil debates

Thursday, 17 December 2009

4:00 pm

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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Question 3: To ask the Minister for Arts, Sport and Tourism his views on the report by Dr. Peter Bacon on the unsustainability of many hotels here; his views on the implications of this report for future tourism infrastructure; and if he will make a statement on the matter. [47910/09]

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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I have noted the report, Overcapacity in the Irish Hotel Industry and Required Elements of a Recovery Programme, by Peter Bacon & Associates, which was published very recently. Its main conclusion is that between 12,300 and 15,300 hotel rooms need to be removed from the market if an appropriate balance is to be achieved that would allow the sector to recover to a stage where it can provide adequate returns and regain overall solvency.

I note the report's analysis that the overcapacity in the system at present has been caused by additional hotel development and investment in recent years and reduced demand and that in order to restore the financial health of the sector, there will in all likelihood be less rooms in future years. Many of the recommendations in what is a complex and wide-ranging report are for the industry itself to address, while others relate to the availability of credit, local authority rates and amendments to the accelerated capital allowances scheme. These issues are matters for consideration primarily by my colleagues, the Tánaiste and Minister for Enterprise, Trade and Employment, the Minister for the Environment, Heritage and Local Government and the Minister for Finance.

With regard to my response to the report, I continue to support the development of Irish tourism and, through the international and domestic marketing effort of the tourism State agencies, seek to increase visitor numbers for hotels and others accommodation providers. My input to the 2010 budget has ensured that it incorporates a range of measures and initiatives to renew Irish tourism. These include the maintenance in real terms of the funding for the tourism marketing fund, an increase in overall funding levels for tourism services and a trebling of the funds available for tourism product development. In addition, a new rail travel initiative aimed at senior citizens from abroad and a reduction in excise duty on alcohol products and VAT will assist the sector in addressing the cost of holidaying here. Key elements of the budget build on actions recommended in the report of the tourism renewal group to which I referred in my earlier response.

In commenting on the budget, the Irish Hotels Federation welcomed the decisive measures to restore the public finances and the acknowledgement by Government of the important role of tourism in the economy and specifically welcomed the measures that I have just outlined.

There is no doubt that the tourism industry as a whole had a very difficult year in 2009 and many challenges remain in the coming years. That said, there is, I believe, real potential for the industry to return to growth in 2010. The increased allocation of public resources provided in the budget – at a time of major financial retrenchment – is clear recognition by the Government of the important role that the tourism and hospitality sector will play in Ireland's economic recovery. I will continue to work closely and meet with the hotel industry to ensure that it plays its full part in that recovery.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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No matter what the Minister does, he will never fill all the hotel beds that have been built over a number of years.

On the Bacon report, which was the subject of my question, its conclusion was - I find this hard to accept - that we gave tax breaks to developers to open hotels and now we are to give them tax breaks to close them. Nevertheless, this raises a big issue and I have written to the Competition Authority in this regard, since I believe it completely distorts competition and gives rise to all types of issues regarding, I suspect, reckless trading and predatory pricing. Many of the tax incentivised hotels, as the Minister knows, were never viable from the day they opened. I am getting reports almost every day from people who genuinely know what is going on that, nonetheless, the banks are pouring working capital into these hotels. On the other hand, those hotels that are viable, with substantial debt, cannot get working capital. This is a very real issue and I raise it only to ascertain whether there is anything the Minister can do. Simply talking to the hotels and sending marketing people to the USA is not going to cut it. We are going to have to do something because the existing infrastructure will be closed down if we wait for NAMA.

The real danger is that, when NAMA takes over these loans, it will do the same thing because there is nothing in its business plan to suggest it will go after non-performing loans. What can the Minister do?

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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In the first instance, I am very much aware of the issue, as is the Government and the Minister for Finance. There is an issue here for NAMA because undoubtedly there is distortion. Some properties are clearly not viable, without mentioning any specifically, but we all know where they are. They are distorting the market and are simply being kept open to turn some money over, which is having a negative impact on the competitive pricing that good hotels have been able to produce. If we look for a silver lining, one of the effects of recession is that the cost base is reducing in Ireland. That had to happen, since there is no question but that we had priced ourselves out of the market. Clearly, what is happening now is driving down costs.

However, there is a difference between hotels where costs are being driven down to what are still commercial prices, albeit not at the same profit levels as before, and those that are clearly not viable. We must deal with that issue. There are four areas of concern: demand, costs, access to credit and over-capacity. We can deal with demand because that is our job through the tourism agencies. The Deputy will be aware that 900 German travel agents visited Ireland, which was a major success. For the first time, we are advertising on German television this year, so even with less money we are expanding what we can do. There is huge value to be obtained and that is just one example.

We are already seeing the benefit of lower costs across the spectrum, which are being received positively in other markets. Access to credit is an issue concerning working capital with the banking system as we go through the winter. I also accept that over-capacity is an issue. We are working to resolve these matters.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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Even in the best of days there was not enough business to fill those hotels, so the Minister is not going to do it now in the middle of a world recession. We must do something, however, to save the hotels that are still there. A lot of personal and State money has been invested in that infrastructure around the country. If we wait for NAMA to sort it out, half the hotels will have closed down. It is not just a personal issue for hotel owners, but also a national issue in terms of tourism. There is no point in trying to market Ireland abroad if we find that half the hotels are closing down here, or just opening some bedrooms. It is doing damage to the infrastructure network we built up around the country. What is the Minister going to do? He tells me he will create demand, but that will not do it. These are non-commercial practices and we must deal with them.

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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As the Deputy is aware, I have met regularly with the Irish Hotels Federation and other representative groups.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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They have no input.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Please allow the Minister to reply.

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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The top line message from the Irish Hotels Federation and all involved in the tourism industry in recent months is for the tourism sector and agencies to maintain their budgets.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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That is not the question I asked.

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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I am telling the Deputy what was their primary message. We have dealt with that because it is within my capacity to try to increase demand. I agree with the Deputy that we have an over-capacity and I quoted the Bacon report in that respect. I am not arguing about whether the figures are a bit high or low, but there is an over-capacity issue. There is no doubt that some of the hotels that are currently being supported by the banking system are not viable. They are only doing so to turn money and I have put that on the record. I have spoken to the Minister for Finance about this and the Government is aware of it.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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Is it legal? Has the Minister of State checked it out?

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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We will have to deal with this issue in the near future.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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We need to move on. We are almost two minutes over time on this question.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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This is predatory pricing.

Photo of Martin CullenMartin Cullen (Waterford, Fianna Fail)
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It is not even predatory pricing on the basis that these companies are going to survive, because they will not.

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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Is it regulated? Talking to the hotels will not solve the problem.