IN the 2022 edition of the ASM Northern Ireland hotel survey, we reported that while the industry had secured very welcome financial support from the Treasury and the Stormont Assembly during the two years of the Covid pandemic, the aggregated earnings for that period were still less than for the single year of 2019.
As we entered 2022, the end of the long dark tunnel seemed to be in sight with strong bookings, the return of international travellers and events, but Russia’s ‘special military operation’ in Ukraine has wreaked havoc on fuel supplies, food supplies and costs and this has helped to undermine confidence globally. The consequences are that input prices and staff costs are rising at unprecedented levels and the spectre of recession looms large. Another mountain for the tourism industry to climb.
If a deep recession does take hold, then to remain competitive, many hotels will be forced to reduce prices to generate demand and this coupled with a higher cost base will put recovery under severe pressure. A look at our competitors across the border shows that the Irish Government has already committed an extra €67.6 million in its 2022 budget to help tourism in the post pandemic period and it has retained the reduced rate of VAT. As cost pressures grow, do not be surprised if Ireland introduces further measures to support tourism.
As of summer 2022, wholesale gas costs have quadrupled and will rise again before winter. Hotels are heavy users of energy. Staff shortages mean that further pay rises, even to retain staff, are inevitable and of course, national insurance costs have increased during the year. Raw material costs have also increased markedly.
These inflationary pressures are spiralling out of control and while some cost increases may be passed onto consumers, we must remember that tourism and leisure is mostly discretionary spend. When family budgets are challenged then tourism is seen as a luxury and it is an easy cost saving. Business visitors too will face similar challenges and may choose not to travel as often.
Clearly, the local industry is going to require additional support to get through the next 12 to 18 months and it must again stand united. Business rates, VAT, national insurance, taxation, funds for tourism marketing and some form of energy cost cap must be achievable goals to aim for, otherwise we risk undermining tourism’s future potential when the economy returns to some level of normality.
But that call for support must be made in tandem with positive action by operators to mitigate their own spiralling costs. Take a close look at your working practices – are you setting strict daily staff cost targets? Are your menu items properly costed (many are not)? Are you pricing with a target margin in mind, or can you add lower cost dishes to your menu? Do you need to offer food throughout the day? Are you closely managing energy consumption? Can you, for instance, close off floors and cut energy where low demand levels permit?
Individually, these actions may appear impotent against the wall of rising costs, but the truth is that when business is good, cost controls often get ignored and this may be the case after a strong summer season and high achieved room rates. Collectively, these small actions could have a noticeable impact, but there will of course be a limit to how much cost cutting you can achieve.
Therefore, a unified representation to government to support the industry is critical. As nearly every other industry body will be doing likewise, that representation must be supported by robust information, facts and evidence that the industry is doing all that it can to manage the challenges that it faces.
:: Michael Williamson, consultant to ASM Chartered Accountants, is a speaker at Hospitality Exchange 2022. Organised by Northern Ireland Hotels Federation, the conference (www.hospitalityexchange.org.uk) will take place on October 11 & 12 in Crowne Plaza Belfast
