A new study has highlighted the risk of rising staffing costs for hotels as the industry faces fierce competition for staff in an economy with falling unemployment.
According to Crowe Ireland’s annual survey of Ireland’s hotel sector, the industry has seen increased turnover for the seventh consecutive year and is reaching record profitability, record occupancy and record room rates in all regions across the country. The annual Crowe Ireland survey of the country’s hotel sector said that the industry has enjoyed the seventh consecutive year of increased turnover.
The survey found that average room rates across the country rose 6.9% last year compared to 2016. In Dublin, the average room rate was 6.8% higher at €136.96. The pace of growth in average Dublin room rates last year was half that recorded in 2016, despite just 237 new rooms coming on stream. In the southwest and western seaboard, average room rates soared 8% and 9.7% respectively to €100.67 and €87.49.
Luxury hotels saw room rates rise 6.2% to €218.02, a new record. Economy hotels saw the biggest growth in average room rates, which rose 11.8% last year to €68.43.
The survey found that Dublin hotels increased their profits by 12%. Profits at hotels in the southwest jumped 17.4% on average, and by 17p% along the western seaboard. At hotels in the midlands and east, profits were 13.9% higher on average.
While this profitability is welcomed, it puts the special 9% VAT rate for the hotel industry , introduced by the Government in the depths of the financial crisis, under scrutiny as budget day approaches.
In a review of the 9% rate , the Department of Finance said it had cost the Exchequer €2.6bn since its introduction in 2011, and was now a “significant deadweight”. The Department said the reduced rate cost €490m in 2017.
Crowe Ireland partner Aiden Murphy said that payroll cost increases were the most significant threat to the hotel sector’s profitability.
The falling unemployment rate in Ireland means the premium that hotels must pay for staff above minimum wage “will have to increase”.
“There is a concern that the payroll cost for hotels, which was 34.5pc of revenue in 2017, could return to much higher levels,” he said. “Going back seven years, it would have been as high as 38pc or 39pc.”
The minimum wage currently stands at €9.55 an hour but just last month, the government agreed that the rate will rise to €9.80 from next year, following a recommendation from the Low Pay Commission. Mr Murphy said that hotels typically pay between €1 and €3 an hour above minimum wage.
Mr Murphy also said that the cost of living and accommodation in particular could push hotel workers in Dublin to move to hospitality jobs outside the capital.
“There’s a concern for certain staff in Dublin about the cost of living increasing,” he said, pointing out that workers at regional hotels would find the cost of living much lower.