25 October 2023

Hopes for a thriving hospitality industry

By John Barry Associate Director

The hospitality and leisure industries are key components of the Irish economy and one of Ireland’s most diverse and vibrant areas of employment. The industry contributes an estimated €7bn annually which is around 2% of GDP (Gross domestic product). The sector also contributes significantly to secondary businesses, like food and drinks suppliers, as well as transport and other services. It is estimated that the industry employs over 260,000 people nationwide.

According to Fáilte Ireland, air access accounts for 80% of the planned capacity with the remaining 20% provided by ferry operators[1].  Ireland has four key air access markets:

  • Great Britain has the largest seat capacity to Ireland with an average of 170,000 seats weekly across six regional airports
  • 6 out of 10 flights from the US are operated by Aer Lingus and planned seat capacity is close to 2019 levels (99%)
  • Capacity from France is up by 19% on 2019 levels with 190 weekly flights
  • Germany is mainly connected to Dublin airport (96% of capacity) and is operating at 77% of its 2019 capacity levels

In 2022, an estimated 23% of Fáilte Ireland registered accommodations were contracted for International Protection (Refugees) and Beneficiaries of Temporary Protection (Displaced Ukrainian citizens)[2]. This anomaly continues to distort key performance indicators across all
locations. Longer-term viable solutions are currently under consideration by the government to reduce the over-reliance on the sector.

The hospitality and tourism sector faced many challenges in 2022, but despite these challenges, accommodation providers reported a strong year of growth. Average room rates and a bounce-back in demand showed encouraging figures for many service providers.

However, inflation and an increase in energy expenses kept earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins at bay. As 2022 was the first full year of post-pandemic trade, hoteliers are even more optimistic about this year of trading. Businesses are reporting strong levels of bookings with sustained room rates. There are, however, a few concerns including the hospitality VAT increase from 9% to 13.5%, which will have an immediate negative effect on profit margins across many sectors. Within Ireland, Dublin has continued to lead the way in the development of new hotel bedrooms, with just under 2,000 rooms expected by the end of 2024[3].

In 2022, Bord Bia projected that food and drink sales would be at approx. 70%, although this percentage had a significant element of inflation included in its projections. Pricing and delays in supply were an issue in 2022 and early this year, as the war in Ukraine and to a lesser extent,
Covid-19 lockdowns abroad, caused operators to insulate themselves from delays. With the war in Ukraine continuing, energy prices rising and the rise in gas prices, the effect on the foodservice sector remains a challenge. However, with further price increases this year inevitable, the effect on consumer behaviour in food purchases and consumption
is still evolving. Foodservice menus have been reworked to reflect the increased costs. Bord Bia estimates that food services in the hotel and accommodation sector will return to pre-pandemic 2019 levels by the end of 2023[4].

Leisure and hospitality insurance

Insurance cover for the leisure and hospitality industry is still challenging in mid-2023, as certain insurers are still feeling the legacy of Ireland’s claims culture, which has caused some insurers to pull back from underwriting this class of business or withdrawing from Ireland altogether.

The claims culture has been allowed to gather momentum over the past decade and beyond, which almost caused the collapse of the leisure industry (between 2017-2020), as the availability of insurance for certain leisure occupations were non-existent forcing several businesses to close permanently.

Thankfully, the government took steps to address this and halted the spiralling costs of underwriting insurance with the introduction of ‘The Action Plan for Insurance Reform[5] in December 2020, and with the implementation of the Personal Injuries Resolution Board Act 2022[6].

The Minister for Justice Helen McEntee said: “Data from the Personal Injuries Assessment Board indicates that award levels have reduced by around 50% since the introduction of the Personal Injuries Guidelines last April, which is a very significant step in meeting our commitment to make insurance more affordable for consumers,
businesses, and community groups.”

The enhancement of the Act has allowed the courts to prosecute anyone who commits fraud when making or exaggerating a claim: “In addition to bringing the Guidelines into operation, the enactment of the Criminal Justice (Perjury and Related Offences) Act 2021 last June has been a key element of my department’s work on insurance reform. We have also significantly increased the resourcing provided to An Garda Síochána in 2021 and this has allowed the Insurance Fraud Coordination Office to be opened by An Garda Síochána in July. The establishment of this office will improve coordination with the Insurance Industry and aid investigations of insurance fraud by An Garda Síochána.[7]

With the Act, there are other positives to expedite the settlement of claims and reduce the costs of payments in legal fees, damages, and time.

On a positive note, the hospitality and leisure industry has demonstrated resilience and innovation, successfully overcoming many challenges that has come its way – the Covid-19 pandemic is a prime example. Additionally, it’s worth noting that there seems to be strong demand for dining out and socialising on a good night out, indicating promising prospects for the industry’s recovery and growth[8].

At Robertson Low, we have a dedicated and experienced team to deal with queries. For further information regarding our leisure product, please call Associate Director John Barry on 087 9195297 or enquire here.

1. Fáilte Ireland: Air & Sea Access, Planned Capacity for Summer 2023 (Apr-Oct)
2. Bank of Ireland: Hotel Industry 2022 Insights and 2023 Outlook
3. Bank of Ireland: Think Business – Hotel Sector 2022 Insights and 2023 Outlook
4. Bord Bia: Irish foodservice sector rebounds to pre-pandemic levels, but significant challenges are on the horizon – Bord Bia report
5. Central Bank of Ireland: Action Plan for Insurance Reform – Establishment of a Databank for new entrants to the Irish Insurance

6. Houses of the Oireachtas: Personal Injuries Resolution Board Act 2022
7. Department of Enterprise, Trade and Employment: Update on Government Insurance Reform Plan progress
8. Hospitality Ireland: CGA By NIQ Examines Consumer Demand For Pubs, Bars And Restaurant