Michael Magner has been president of the Irish Hotels Federation for ten weeks and already the dark clouds of summer are blocking out the daylight.
The first truly post pandemic president. Elaina Fitzgerald Kane was just appointed when the crisis broke, Denyse Campbell had to navigate her way out of the masked menagerie. Mr Magner’s members are agitated by the business environment that has come down the corridor in the aftermath of the affray like an axe-wielding character in a Stephen King novel.
Mr Magner, like all good interviews, wants to frame the nature of the discussion. No mention of supports, just actions. He has a wish list that includes, predictably the return of the VAT rate from 13pc to 9pc, less bureaucracy, easing of the escalating cost of doing business but also a few ideas of his own. Let’s go.
Evangelist that he has proven in the past, whether in Skal or the Munster branch of IHF, to protect the weak, and prevent the demise of the family run hotel, hub of the small town, venue for weddings and family events (it is communion season). It is a Europe wide fear, and an old rallying cry of the hotels federation.
Urban boom, rural bust
At first glance, the hotel business is proving attractive for investors, purchasers and new builds. The IHF welcomes newcomers to the business, he insists (some of the largest chains are members). But he says they also believe there is a place for the family run smaller rural Hotel who are particularly vulnerable to the rise in cost of doing business.
He fears it is already happening.
“I went to a funeral in Edenderry and while we had a choice of takeaways and Chinese restaurants there was no restaurant experience to be found in the town.”
“My overarching point is to protect the independent, owner-operated regional hotels that are smaller in size and heavily reliant on food and beverage. It is important to ensure that they have a message and a story to tell for future generations. We want to avoid them disappearing from the country as there is a place for everyone in the market. Let’s not reduce choices for consumers, both domestically and internationally, by neglecting these smaller businesses.”
Over in the galley of advocacy, Adrian Cummins of the restaurants association has been calling for the VAT rate on food to be decoupled from beds and other parts of the hotels operation, to protect his own members. Mr Magner says the membership of the IHF is seeking 9pc VAT on all their operations to align with other countries, “but, should it be reduced, we have no objection to 9pc being restricted to the food and beverage offering.” There are a few positive signs that momentum may be gathering again behind the reduction, even against the objections of department officials.
Bringing VAT back down to 9pc for F&B
Mr Magner says “this focus on the 9pc VAT on food is crucial. “In the past two years, there was a pent-up demand due to the pandemic. However, as we enter 2024, this pent-up demand has waned. There is now a cost of living crisis, resulting in less disposable income in the market, especially in the domestic market.
“Unfavourable weather conditions have also contributed to the challenges. The overseas market, while still buoyant, may not be as strong as it was in 2023. This could be connected to the pent-up demand from the pandemic.
“What sets 2024 apart from 2023 is that the costs that businesses are facing are significantly outpacing the rate of inflation. For example, potato costs have doubled in price at my hotel in the past 10 days. Passing on these increased costs to customers, such as doubling the price of a portion of chips, is not feasible as they may not be willing to pay.
“Therefore, I have to absorb some of that increase. However, by absorbing some of that increase, it means that my capacity to make a profit is reduced. This, in turn, affects the bottom line. When the bottom line is affected, it becomes necessary to explore other ways to ensure that your business remains sustainable and viable.
“While larger operations may be more focused on combinations and food and beverage may not be as significant of an issue, the reality is that in our membership, the majority of our members are in the hotel business, with food and beverage accounting for nearly two-thirds of their turnover. That’s the problem.”
Meaningful measures
The recent support (Mr Magner dislikes the term) measures to help down the line businesses was a disappointment for the IHF. A written statement from the IHF public relations advisers, Kano communications described it as “a missed opportunity.” One hotel with 29 bedrooms was outside the reach of the rates scheme by €9,000, because the threshold was set at €30k. ““Hotels pay disproportionate levels of commercial rates relative to other small businesses, which means that many small hotels that should be part of the scheme are excluded.”
His own hotel, with 120 bedroom, gets an easing of €84 per week from the realignment of PRSI rates. He said “a fundamental restructuring of employers PRSI is now essential for our sector. This is one area where today’s measures could have made a tangible difference by introducing a targeted rebate on employers PRSI. It is very disappointing that this was not forthcoming.”
But if that’s what it has to do, but that if there’s an assurance from the government that a real, comprehensive, meaningful set of measures are introduced in Budget 2025 to protect the weaker and potentially vulnerable members, or hotel and guest house operators in the country.
Challenging the narrative
“There is a battle all the time is against the narrative that hotels are doing well, prices are too high, the market is strong, people want to enter the market.”
“The hotel Federation welcomes new entrants into the market as a natural process. It’s an open market, a standard economic practice. Many of the new entrants are opening locations in densely populated areas. The type of hotel accommodation coming into the market includes smaller rooms, such as city sleeper rooms, to accommodate more guests. For example, in a typical hotel block with 100 bedrooms, a city sleeper room might fit 130 bedrooms in the same space. This trend is visible in the market.
“I think it’s also important to point out that with regard to the buoyancy of the market, the relationship between turnover and profitability has changed. While hotels and restaurants may be busy, the link between turnover and profitability is no longer as strong.
“While turnover may have increased for some businesses, the bottom line is eroding and shrinking. For some, there is potential for the bottom line to go into negative territory. Food margins are tight in the food and beverage industry. It’s important to be mindful that the perception may not always reflect the reality.
The Minister for Tourism rightly commissioned Fáilte Ireland to conduct a report, which was published by Crowe a few weeks ago and showed Dublin ‘still needs an extra 4,000 hotel beds. The report clearly states that there was no price gouging happening in Dublin hotels. However, because this kind of story gained traction and made headlines, it became the dominant narrative.
“Consequently, it has been somewhat challenging, and feedback indicates that there is a lack of sympathy for hoteliers.
“However, we must pause and consider the significant positive impact that hoteliers have on the community. In my business alone, I provide sponsorship valued at around 50,000 per year to local GAA clubs, sports clubs, fundraisers, and more.
“This contribution is often overlooked. What about all the other hundreds of members across the country who also provide sponsorships for various causes? The spotlight is rarely shone on these contributions. Instead, there is sometimes an unfair portrayal of the industry based on isolated incidents. It is essential to recognise that these incidents do not represent the reality across the country and the entire sector.”
Debt warehousing
The debt warehousing process is another source of anxiety. “At this stage, any business that has not entered into an arrangement with the Revenue Commissioners would likely be notified by them that the taxes owed to the state are now due for payment in full.
“The opportunity to enter into an arrangement with the Revenue Commissioners was available. It is my understanding that the Revenue Commissioners worked with individuals on a case-by-case basis to address their debt warehousing issues.
“The recent decision by the Minister of Finance to reduce the interest rate to zero for the debt warehousing element was a welcome and appreciated move. This demonstrates that the government is attentive to the needs of businesses. However, more needs to be done for certain operators within the sector.”
“Overall, the decision to address debt warehousing was welcomed. The Revenue Commissioners were amenable, and the zero interest rate was good. However, if you have not entered into an arrangement at this stage, you could expect to receive a notification that the money owed must be cleared in full. It is essential to recognise that the perception of the industry does not always align with reality. ”
Recruitment and visas
The other market place force to be addressed is recruitment. “We are fortunate to be included in a category that allows us to address specific skill shortages. These shortages may be in areas such as professional chefing, middle management, or supervisory roles.
We often need to look outside the European Economic Area for labour, and many applicants come from countries like Sri Lanka. These individuals are excellent ambassadors for the hotel and hospitality industry. However, there are challenges in the process. Obtaining a work permit can take several weeks, although recent efforts have aimed to shorten this timeframe. Once the work permit is issued, the Visa process must follow.
Unfortunately, there can be delays of up to three or four months in completing the Visa process. This means that by the time the potential candidate arrives and the onboarding process begins, it could take up to 9 or 10 months. Additionally, the work permit may expire only 13 months after issuance. To address this issue, it is crucial that the Visa and work permit be issued in parallel with each other run almost simultaneously to avoid delays and ensure a smoother transition for candidates.”
“The other challenge we have is that international students coming to Ireland, for example, to learn English or pursue education, are restricted from working more than 20 hours a week during school or college time. Some of the connections with colleges are limited, so many students end up working beyond the 30-hour limit. While they can work more than 20 hours during holiday periods, the restriction during term time is a barrier. Increasing the limit to 30 hours per week at a minimum would allow employers to fill job gaps and provide income to these students.
“A prime example is Brazilian nationals who come to Ireland to learn English. I have many fantastic Brazilian employees in my hotel, along with other nationalities, including Irish individuals. They make significant contributions to the overall hotel experience for our customers, and we would be lost without our Brazilian employees and the rest of our team. This restriction could be revisited, as I mentioned, in the context of the national apprenticeship programme.”
The apprenticeship scheme needs to be reformed to make it more attractive to employers.
Tourism as a Leaving Cert subject
“Probably what needs to happen as well is a robust education program that could be rolled out into our second-level schools to help inform career guidance counsellors about the career opportunities in the hotel and guest house profession.
Parents are significant influencers on second-level students. When we were in secondary school and selected our Leaving Cert curriculum, we had optional subjects during our curriculum. I had the option of choosing agricultural science at the secondary school I attended. I never used it, even though I am a farmer’s son.
“However, why isn’t tourism education and a tourism curriculum offered in our education system? In contrast, our indigenous industries such as farming and agriculture are included.
“Why isn’t tourism as an optional subject for the Leaving Cert curriculum to generate more interest in the sector?
“I recently interviewed someone who worked in the Pharma sector, and they expressed a desire to transition to the hotel and tourism sector as they believed it offered better opportunities for engagement, growth, career advancement, and more.
“They were unaware of these opportunities until we discussed it. Why is it left to us as an industry to educate people about these opportunities? Shouldn’t it be integrated into our education system as part of an open, international economy with significant levels of foreign direct investment and indigenous industries that play a pivotal role in education across our second-level system?
