OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports

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OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
OUTLOOK
AIB’s Series of Sectoral Research Reports

ISSUE 2. MAY 2013

HOTELS

in association with
OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
OUTLOOK
X   CONTENTS

          Foreword
          04    Ken Burke, Head of AIB Business Banking.

          Executive Summary
          05    The future looks bright as the Irish hotel
                industry looks forward to a period of
                renewed growth after a number of
                difficult years.

          Optimism & Resilience
          06    An in-depth look at the Amárach Research
                report into the Irish hotel sector and its key
                findings.                                         Case Studies
          Challenges & Opportunities                             19  Two of Ireland’s top hoteliers share their
                                                                     views on the importance of a good
                                                                     banking relationship.
          13   Four of Ireland’s leading tourism and
               hotel experts outline their views on the
               challenges and opportunities that lie ahead       Hotel Trends
               for the sector.
                                                                 22   Anne Walsh of Crowe Horwath outlines
                                                                      some key Irish and international market
          Back on Track                                               trends.

          16   The worst may be over for the Irish hotel
               sector and while there are some challenges        Electronic Payments
               to overcome, a degree of stability has
               returned to the market and that’s good            24   For many hotels in Ireland, online banking
                                                                      offers many efficiencies and greater
                                                                      certainty.
               for the tourism industry and the wider
               economy, writes Owen Travers.
                                                                 Investment
                                                                 25   The Employment and Investment Incentive
                                                                      Scheme (EIIS) offers hotels the opportunity
                                                                      to raise additional equity that can be used
                                                                      to upgrade and refurbish their premises.

                                                                 Tourism & Hotel Statistics
                                                                 26   A brief look through the latest CSO
                                                                      tourism numbers.

                                                                                    OUTLOOK     O   HOTEL INDUSTRY 2013   3
OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
OUTLOOK
    X   FO R E WO R D

        Supporting the
        Irish Hotel Sector
            W
                       elcome to the second in our
                       series of reports covering key
                       sectors within the Irish economy.

             This second report focuses on the Irish
             hotel industry and the role it plays in
             the country’s tourism industry, one
             which is vitally important to the overall
             economy.

             The aim of these reports is to analyse
             key components of the Irish economic
             landscape and provide expert opinion,
             guidance and advice from some of the
             stakeholders within each sector. They
             also provide some important insights
             into how AIB is working to support the
             growth of these sectors.

             An important dimension is specially
             commissioned in-depth research                HEAD OF AIB BUSINESS BANKING, KEN BURKE AND IRISH HOTELS FEDERATION CEO,
                                                           TIM FENN PICTURED AT THE LAUNCH OF THE HOTELS REPORT.
             which has been carried out by
             Amárach Research. The research
             findings highlight the key issues that         in Ireland’s economic recovery.                   visiting these shores is on the increase
             are impacting on each sector and the                                                            and hoteliers are keen to invest in
             measures that companies are taking to         AIB recognises that since the                     upgrading and refurbishing their
             deal with these issues.                       downturn, the Irish hotel sector has              properties.
                                                           experienced difficulties. The bank is
             Figures compiled by the Central               wholeheartedly committed to the                   The Irish hotel sector has also
             Statistics Office (CSO) for 2012 show          growth and development of the Irish               proved to be quite resilient down
             that 6.51m tourists, from around the          tourism industry and it has enjoyed a             through the years and this is testimony
             world, visited Ireland during 2012.           long relationship with the hotel sector           to the great wealth of expertise and
             In the first quarter of 2013, tourism          for many years. Indeed AIB is the only            knowledge within the sector and the
             numbers are up by 7.4% according              Irish bank that has a dedicated hotels            tourism product that Ireland has to
             to the CSO and anecdotal reports              team operating within its corporate               offer both international and domestic
             suggest that 2013 could be one of             banking division and it has been to               tourists. This bodes well for the future
             the best years for the sector since the       the fore in developing a wide range of            of the sector.
             downturn.                                     solutions for the sector.
                                                                                                             As a banking partner to many
             Tourism-related enterprises provide an        AIB has collaborated closely with                 hotels around the country, we
             estimated 180,000 jobs throughout             the Irish Hotels Federation (IHF) on a            fully understand the nature of the
             the country. Preliminary estimates for        number of key initiatives all of which            day-to-day pressures hotels face
             2012 suggest that tourism accounted           are aimed at strengthening the sector             and AIB looks forward to delivering
             for &5.7bn in spending, &1.4bn in             and the human talent that is driving              simple, effective and innovative
             taxes and represents approximately            it forward. In this regard, we are                solutions that will contribute towards
             4.7% of GNP.                                  delighted to have the opportunity to              the recovery and growth of the sector.
                                                           partner with the IHF on this report.
             At the core of this vitally important                                                           I hope that you find this report
             industry is the Irish hotel sector which      As this report shows, there is evidence           interesting and useful.
             employs 54,000 people. With over 850          that the worst may be over for the
             hotels around the country, they will          Irish hotel industry. Asset values are a          KEN BURKE
             play an important and significant role         lot more stable, the number of tourists           HEAD OF AIB BUSINESS BANKING

4        OUTLOOK   O   HOTEL INDUSTRY 2013
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X   E X E C U T I V E S U M M A RY

      The Future’s Bright
            The Irish hotel industry is looking forward to a period of renewed growth after a number of difficult years, according
            to research which has been commissioned by AIB, in association with the Irish Hotels Federation and carried out
            by Amárach Research. The research also points to new levels of optimism, resilience and innovation within the Irish
            hotel sector.

            Despite a few difficult years for the Irish tourism industry, Irish hotels have seen their turnover increase in 2012. This
            has been driven by growth in the number of overseas tourists as well as demand from the domestic market, much of
            which is being driven by value-breaks as well as growth in the couples/over 55s market.

            Many hotels throughout the country are planning to invest in upgrading and refurbishing their properties within the
            next three years. The bulk of this investment will be funded by hoteliers themselves with the majority of them planning
            to reinvest retained profits to fund this investment.

            Hoteliers are also a lot more optimistic about the medium term outlook for the sector with a majority of hotels,
            67%, saying that the tourism sector will improve within the next three years while 71% believe that the financial
            performance of their own properties will improve within the same time-frame.

            Not surprisingly, the research also reveals that amongst the main concerns facing Irish hotels are local authority rates
            and rising wage costs with the latter accounting for a significant percentage of a hotel’s annual turnover. Potential
            increases in utility costs and any reduction in visitor numbers are viewed as perceived threats amongst those hotels
            surveyed. Other concerns to feature included competition from rival hotels, over-supply in the sector and reduced
            profit margins. And finally, access to finance, where 5% of respondents said it was their top concern.

            The research also shows that Irish hotels were quick to respond to the downturn by introducing special deals, reducing
            costs while embracing digital marketing by better utilisation of their websites, the internet and social media platforms.
            In addition many hotels have been busy up-skilling in all areas of digital marketing over the last 12 months.

                 Some of the key highlights of the AIB/Amárach Research survey include:

                O54% of hotels saw turnover          O55% of hotels say they will         OGuest profiles are changing
                  increase in 2012 with only             improve and grow their                 with hoteliers reporting
                  26% saying it had decreased.           businesses over the next               an increase in the number
                                                         three years.                           of couples, over 55s and
                O 67% of Irish hotels expect                                                    domestic tourists.
                  the tourism industry to              OThe average capital and
                  improve within the next three          refurbishment spend equates          OOnline bookings now account
                  years.                                 to around 14% of turnover.             for 56% of all bookings with
                                                                                                just 31% of bookings made
                O71% of hotels also expect           O54% of hoteliers do not               over the phone.
                  their own business to                  currently have a succession
                  improve within the same                plan in place for their
                  time frame.                            business.

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    X   A I B / A M Á R A C H R E S E A RC H S U RV E Y

          OPTIMISM AND
          RESILIENCE
        AFTER A FEW DIFFICULT YEARS, THE IRISH HOTEL INDUSTRY IS
        LOOKING FORWARD TO SOME STEADY GROWTH ON THE BACK                                                 THE ECONOMIC
        OF AN INCREASE IN THE NUMBER OF OVERSEAS TOURISTS                                                 CONTEXT
        ACCORDING TO SPECIALLY COMMISSIONED RESEARCH BY AIB,
                                                                                                          The Irish tourism industry is a good economic
        IN ASSOCIATION WITH THE IRISH HOTELS FEDERATION. THE                                              barometer when it comes to seeing what’s
        RESEARCH, WHICH WAS CARRIED OUT BY AMÁRACH RESEARCH,                                              happening in the economy, or not, as the case
        ALSO PAINTS A PICTURE OF RESILIENCE, INCREASED OPTIMISM                                           may be. So how do Ireland’s hoteliers see our
                                                                                                          prospects at the start of Q2 2013? The good
        AND INNOVATION WITHIN THE SECTOR. GERARD O’NEILL OF                                               news is they are actually very positive. Some
        AMÁRACH RESEARCH SETS THE SCENE.                                                                  28% expect the economic situation in their
                                                                                                          own business to improve in the next year –

    F
             igures published by the Central Statistics   A combination of factors – including            twice the level expecting improvement in the
             Office (CSO) for Q1 2013 show that            geographical proximity, language, historical/   economy overall. However, a sizeable minority,
             the number of overseas tourists visiting     cultural ties – has traditionally made the      43%, are taking a medium term view, and
        Ireland in the first three months of the year      UK market an important source of tourism        don’t expect recovery for up to three years
        increased by 7.4% when compared to the            revenue. However, this market has been          (Table 1).
        same period for 2012. This is indeed good         depressed in recent years and continues to
                                                                                                          Nevertheless, improved confidence is
        news for the hotels sector as this growth         pose a challenge for Irish hoteliers with the
                                                                                                          feeding through into a renewed focus
        has largely been driven by visitors from          number of trips to Ireland increasing by a
                                                                                                          on growth and investment in upgrading/
        North America and a number of European            modest 1.4% in Q1 of this year.
                                                                                                          refurbishing Ireland’s hotels stock. In
        Countries, excluding the UK.
                                                                                                          this report, we set out the basis for such
                                                                                                          confidence and its consequences for
                                                                                                          Ireland’s hotel sector.
           TABLE 1: WHEN WILL THINGS IMPROVE?
                                                                                                             METHODOLOGY
                                                                                                             Amárach Research worked
                                                                                                             with AIB and the Irish Hotel
                                                                                                             Federation to conduct a
                                                                                                             telephone survey of Irish
                                                                                                             hoteliers in March and
                                                                                                             April 2013. A total of 111
                                                                                                             key decision makers in
                                                                                                             Irish hotels participated
                                                                                                             in a confidential survey.
                                                                                                             We would like to thank all
                                                                                                             those who gave of their
                                                                                                             time to share their opinions
                                                                                                             and plans with us in
                                                                                                             preparation of this report

6           OUTLOOK    O   HOTEL INDUSTRY 2013
OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
PROFILE AND
                               PERFORMANCE
TABLE 2: SURVEY PARTICIPANTS   Table 2 shows the profile of the respondents
                               to our survey. We secured answers from a
                               good cross section of hoteliers, including
                               independent operators right through to the
                               international chains.

                               We also ensured that our sample captured
                               a cross section of Irish hotels in terms of
                               location, rating and turnover – broadly in line
                               with the known profile of the sector.

                               Hotels are large employers in the communities
                               in which they operate. Therefore their
                               economic performance has very real, very
                               local consequences for employees throughout
                               Ireland. In keeping with the positive economic
                               outlook of hoteliers, we find that over 50%
                               have seen an increase in their turnover in
                               the past 12 months, while 26% have seen
                               a decrease.

                               This is not to imply that things are markedly
  TABLE 3: CONCERNS            easier for hotels than they were a few years
                               ago, far from it. In fact, hotels continue
                               to face considerable cost and operational
                               pressures even as the majority experience
                               some growth in turnover – with labour costs
                               and local authority rates topping the list of
                               concerns for Irish hotels. Other issues included
                               the cost of utilities, over-capactity in the hotel
                               sector and competition from larger hotels.
                               Access to finance, however, was down the list
                               of concerns (Table 3).

                               Labour costs account for 30-40% of annual
                               turnover for most hotels – higher again
                               for 4/5 star hotels. The implication is that
                               an expanding hotel sector is good for job
                               creation, but significant increases in labour
                               costs (and local authority costs) are bad for
                               the hotel sector.

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    X   A I B / A M Á R A C H R E S E A RC H S U RV E Y

          HOTEL INSIGHTS
          Recovery in Ireland’s hotel sector will play a   survey are experiencing growth is very
          key part in reducing unemployment simply         encouraging indeed, and bodes well for
          because of the uniquely labour-intensive         employment levels in the sector.
          nature of the business. Therefore reducing
          barriers to employment and incentives to         Nevertheless, continuing cost pressures
          take on those who are unemployed will be         from rates and other sources will inevitably
          especially relevant to hotels.                   constrain the ability of hotels to increase
                                                           employment numbers if recovery is delayed
          The fact that the majority of hotels in our      or weak.

            TABLE 4

          TABLE 5: BOOKING SOURCES

8         OUTLOOK     O   HOTEL INDUSTRY 2013
OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
Among third party websites that drive a
                                                    quarter of total bookings, the main ones
RESILIENCE AND                                      mentioned are Booking.com and Expedia
GROWTH                                              (Table 6).

The hotel sector has had to adjust rapidly          The research also shows that not only has
to both value-for-money hungry consumers and        customer behaviour changed – so also has
the impact of the digital revolution. No wonder     the customer profile. Over the past 12
then that the majority of hoteliers in our survey   months, hoteliers have seen a net increase
agree strongly that visitors are more interested    in the number of couples, domestic tourists
in value breaks/special offers and visitors are     and over 55s visiting their hotels (Table 7).
making more bookings online (Table 4).
                                                    The online channel, however, is not the
Online bookings now account for 56% of all          only driver of growth for hoteliers. The
bookings, with just under one third of bookings     vast majority of those we surveyed had >>
made over the phone (Table 5).

  TABLE 6:         THIRD PARTY                        An expanding hotel
                   BOOKING SITES

                                                           sector is good for
                                                            job creation, but
                                                     significant increases
                                                      in labour costs (and
                                                                 local authority
                                                          costs) are bad for
                                                             the hotel sector.

        TABLE 7: CUSTOMER PROFILE                                                   %

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     X   A I B / A M Á R A C H R E S E A RC H S U RV E Y

                                                           introduced special offers to meet value for
                                                           money demands, as well as sourcing cheaper
                                                           suppliers where feasible. Since the economic
                                                           downturn, unfortunately, profit margins have
                                                           been sacrificed and staff levels reduced by
                                                           most respondents in order to sustain their
                                                           businesses through a period of falling demand
                                                           and intense competition (Table 8).

                                                           Of course, cutting costs is a necessary but
                                                           not sufficient response to weak demand. The
                                                           hotel sector is about providing service, so
                                                           the service offering cannot be compromised
                                                           unduly – otherwise it becomes self-defeating.
                                                           For that reason, hoteliers recognise the need
                                                           to maintain and upgrade their hotels through
                                                           ongoing refurbishment and capital investment
                                                           (Table 9).

           TABLE 8: COST                                   In our survey, Irish hoteliers reported an
                                                           average capital and refurbishment spend
           SAVING MEASURES                                 equal to just under 14% of turnover which
                                                           is a sizeable commitment in a tough market.
                                                           Some spend considerably more, others spend
                                                           none at all. There has been a shift in the
                                                           past year to the amount spent, increasing on
                                                           balance, though it was falling over the past
                                                           three years.

                                                           GROWTH
                                                           PLANS
                                                           Despite the uncertainties still facing Irish
                                                           hotel operators, the majority plan to grow
                                                           and/or improve their hotels over the next 3
                                                           years through investment in upgrading and
                                                           refurbishing their properties – putting their
                                                           money where their optimism is.
          TABLE 9: CAPITAL EXPENDITURE
                                                           Moreover, hoteliers see a number of major
                                                           opportunities for growth emerging that justify
                                                           their optimism, including the marketing
                                                           potential of online enhancements such as
                                                           apps, and better profit margins on services
                                                           (Table 10).

                                                           For those expecting to grow their business
                                                           over the next three years, the focus for now
                                                           is on reinvesting the profits that come from
                                                           continued trading and improving sales,
                                                           followed by bank finance (Table 11).

                                                           Given the capital intensive nature of the hotel
                                                           sector – and the need to refurbish the offering
                                                           in order to sustain repeat business – the
                                                           fact that most hoteliers expect to effectively
                                                           finance this investment is an encouraging sign

10         OUTLOOK   O   HOTEL INDUSTRY 2013
OUTLOOK - HOTELS AIB's Series of Sectoral Research Reports
TABLE 10: OPPORTUNITIES FOR GROWTH

of their optimism and their ability to manage
recovery effectively.

However, there remain considerable hurdles
in the way of survival let alone expansion for
many hotels. Most view the prospect of rising
costs and changes to VAT as major threats,
while many would view a lack of investment
finance also as a major threat (Table 12).         TABLE 11: SOURCE OF
                                                  FUNDING EXPANSION
Hoteliers are not waiting to see what                                                     %
the future might bring. In just the past
twelve months, half of those surveyed had
undertaken training in online development, >>

  HOTEL INSIGHTS
  Ireland’s hoteliers are focused
  on improving and growing
  their businesses, but face
  continuing challenges in
  fulfilling their ambitions. The
  online booking channel has
  become a key force for sales
  growth, although at a price in
  terms of profitability.

  They are responding to
  shifting customer profiles
  with better offers and other            TABLE 12: MAIN THREATS
  innovations. But special offers
  can only sustain a business for
  so long, and so our findings
  in relation to capital and
  refurbishment expenditure are
  encouraging. The fact that
  a minority of hoteliers have
  spent nothing in the past
  year, or have reduced spend,
  indicates continuing pressures
  in the sector.

  Initiatives such as the
  Employment and Investment
  Incentive scheme will
  play a part in enabling
  some of these hotels to
  change course.

                                                                        OUTLOOK   O   HOTEL INDUSTRY 2013   11
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     X   A I B / A M Á R A C H R E S E A RC H S U RV E Y

             TABLE 13:
             STAFF TRAINING                                                         twelve months (rising to 53% of           a profitable share of the larger
                                                                                    those who sought finance in the            market they anticipate in the
                                                                                    past twelve months).                      years ahead.

                                                                                    Looking to the medium term,               Finally, in terms of our survey
                                                                                    many hotels have the wrong                findings, a key question for
                                                                                    financial structure to meet                the future relates to the exit
                                                                                    future market needs, mainly               strategy of the large number of
                                                                                    as a legacy of debts built up             independent hoteliers in Ireland.
                                                                                    during the boom. A third of those         The majority, 54%, simply don’t
                                                                                    we surveyed would be interested           know, but one in ten expect to sell
                                                                                    in accessing private investors            their business (perhaps as part of
                                                                                    to help refinance their debt               a refinancing deal), while a third
                                                                                    overhang – which may, for some,           expect other family members to
                                                                                    be a way of ensuring they secure          take over the business. O

         and a third had received              changing market landscape in             TABLE 15: BANKING
         mentoring or coaching.                Ireland. A minority of hotels have       RELATIONSHIP
         (Table 13).                           sought different financial services                                                                %
                                               from their banks in the past
         Nor has their appetite for training   twelve months, though a large
         and self-development been             minority, 42%, have not sought
         sated – the majority would be         finance (Table 14).
         interested in future training in
         relation to online skills, business   In terms of what makes for a
         and financial planning skills and      successful banking relationship,
         others as required.                   flexibility and understanding of
                                               their business tops the list of
                                               preferences for hotels. Especially
                                               in relation to seasonality and its
         BANKING                               impact on finance needs.
                                               (Table 15).
         RELATIONS
                                               Looking ahead, a minority of
         The banks play a crucial part         hotels expect to look for finance
         in helping hotels navigate the        from their banks in the next

            TABLE 14:
            FINANCIAL SUPPORT                                                           HOTEL INSIGHTS
            (PAST 12 MONTHS)                                                            Relations between banks and hotels have undergone a sea-
                                                                                        change in recent years. The banks have shifted from a focus on
                                                                                        asset values to a focus on business performance. Nearly four
                                                                                        in ten hoteliers expect to look for financial support from their
                                                                                        banks in the next twelve months. Support that sustains a positive
                                                                                        cash flow, that can accommodate operational and debt servicing
                                                                                        requirements, will be vital.

                                                                                        The sector is potentially very attractive to investors. The fact that
                                                                                        a third of hoteliers in our survey are interested in exploring the
                                                                                        potential for new investors points to a renewed appetite for
                                                                                        investment opportunities that can generate good returns over
                                                                                        the long run against a background of low returns from many
                                                                                        alternative investment channels.

12           OUTLOOK    O   HOTEL INDUSTRY 2013
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X   E X P E RT V I E W S

     CHALLENGES
     AND OPPORTUNITIES
    FOUR OF IRELAND’S LEADING HOTEL AND TOURISM EXPERTS SHARE
    THEIR VIEWS ON THE HOTEL SECTOR AND OUTLINE THE CHALLENGES
    AND OPPORTUNITIES THAT LIE AHEAD.

    TIM FENN                                                                   it was clear from the analyses          calculating rates does not
    CHIEF EXECUTIVE                                                            and discussions that there are          take receipts and expenditure
    IRISH HOTELS FEDERATION                                                    emerging opportunities for the          into account and imposes a
                                                                               banks to support the refinancing         disproportionate burden on
    The Irish hotels sector has                                                and restructuring of viable hotels.     hotels and guesthouses. While
    experienced a positive start                                               This goes hand in hand with             hoteliers have cut costs across
    to 2013 with overseas visitor                                              initiatives now underway to             every aspect of their business,
    numbers up over 7% in the first                                             improve access to equity finance         local authorities have been
    quarter following a stabilisation                                          and support owners committed            unwilling to adjust to the new
    in the industry last year. However,                                        to running viable hotels for the        realities in the economy and
    while performance is particularly                                          long term.                              have kept rates at pre-2007
    strong for North America and          TIM FENN
                                                                                                                       levels, even though turnover is
    continental Europe, much more                                              A measure introduced by the             significantly down.
    needs to be done to recover           experiences for our visitors when
                                                                               Government this year is the
    the UK - our most important           they come. Strong community
                                                                               extension of the Employment             Similarly wage costs remain
    tourism market - which has lost       involvement brings the ‘Irish
                                                                               and Investment Incentive                high, standing at about 40%
    significant ground since 2007.         welcome’ to life and we believe
                                                                               Scheme to include hotel and             of average hotel turnover
                                          this will be the lasting effect of
                                                                               guesthouse businesses, thereby          according to the most recent
    As we approach this year’s            the Gathering that we can build
                                                                               providing incentives to private         industry report. The hotels
    peak holiday season, hoteliers        upon into the future.
                                                                               investors to invest equity. This        sector views current attempts
    are more optimistic about the
                                          Our industry also continues          will enable qualifying hotels to        to reintroduce sectoral wage-
    outlook for Irish tourism with
                                          to benefit from a number of           restructure their balance sheets,       setting mechanisms as anti-
    most hotels and guesthouses
                                          significant pro-tourism policy        bring debt down to sustainable          business and out of touch with
    having a positive outlook
                                          initiatives by the Government        levels and enable operators to          the issues confronting tourism
    for trading conditions. City
                                          such as the reduction in VAT on      reinvest in and refurbish existing      businesses across the country.
    destinations such as Dublin,
                                          food and accommodation from          accommodation stock.                    With 54,000 employees working
    Cork and Galway continue to
    benefit significantly from event        13.5% to 9%. This has acted                                                  in hotels and guesthouses,
    and business-related tourism          as a vital stimulus for hotels and   It is vital that debt servicing does    the overriding objective must
    while lower levels of growth are      guesthouses at a difficult time,      not compromise the ability of           be to safeguard current levels
    evident outside the key urban         providing a key competitive          hotels to deliver good customer         of employment and create an
    areas where hotels are more           advantage when marketing             service and to continue to              environment that supports
    reliant on domestic demand.           Ireland as a tourism destination –   maintain appropriate quality            further job creation.
                                          both at home and abroad. Given       service standards. Indeed, banks
    As a sector, we are actively          the tremendous benefit the            and investors are now valuing           As we look ahead, there are
    working on initiatives to help the    reduction has provided in terms      hotels based on enterprise value        real opportunities for growth in
    industry grow by re-energising        of growth and employment, it is      (7-10 times free cash-flow as            the sector and across the wider
    our marketing message and             important that the Government        measured by EBITDA or similar           tourism industry. Initiatives such
    giving holidaymakers new and          retains this measure to secure a     measures) rather than the asset         as the Wild Atlantic Way touring
    compelling reasons to visit           sustained recovery.                  value (building and site) alone.        route will tap into a global
    Ireland. The Gathering is an                                                                                       market hungry to re-engage
    obvious example with tourism          A key challenge our sector faces     Beyond financial restructuring,          with nature. Already, we are
    businesses, industry bodies and       is the level of overhanging debt,    the hotels sector continues to          seeing Dublin make significant
    locals communities working            which stands at approximately        face very high operating costs          strides with venues such as the
    together to create thousands          &6.7 billion. The Irish Hotels       arising from a range of factors         Convention Centre Dublin (CCD),
    of initiatives throughout the         Federation held an investment        – most notably local authority          the O2 and the Bord Gáis Energy
    country that provide engaging         conference last October, and         rates. The current system of            Theatre. Though city destinations

                                                                                                             OUTLOOK   O   HOTEL INDUSTRY 2013              13
are seeing the strongest growth,                                           acumen in this cohort is not
the rest of the country can make                                           developed enough and is a
significant gains if we get the                                             constraint. One possible way
industry back into good financial                                           for smaller hotels to grow is the
shape, redouble efforts to attract                                         development of consortiums
a greater spread of visitors to                                            (particularly in the areas of
the regions and promote specific                                            purchasing and marketing) to
reasons to visit – whether                                                 leverage purchasing power.
activity-based or focusing on                                              This is already happening in
heritage and culture.                                                      a small way but there may be
                                                                           some reluctance for individual       TOM BARRETT
                                      PAT MCCANN
                                                                           hotels to get involved in such
                                                                           initiatives.
                                      in the mix of visitors to hotels                                          Dublin has benefited most from
                                      but what has changed is how          In terms of banking relations with   this turnaround, representing
PAT MCCANN                            visitors find us – greater use of     the sector, they’re no different     about a third of all hotel beds in
CHIEF EXECUTIVE                       technology/digital channels –        from other industries in terms of    the country, though Galway and
DALATA HOTEL GROUP                    rural/smaller hotels lag behind in   business banking relationships.      Cork also recorded some
                                      the use of this technology. This     Hotels need to get into a            improvement. One measure of
We see a strong recovery in           means that hoteliers need to         position where they can generate     Dublin’s better circumstances
urban hotels – Dublin, Cork &         understand customer behaviour        sufficient working capital. This      is that some hotels are now
Galway – with other areas flat or      when visiting sites and how to       can be very difficult for some as     enjoying 80-85% occupancy
showing marginal improvement.         exploit these sales channels by      revenues and margins continue        rates thanks in part to ‘crowd-
The urban recovery is hopefully       distributing their site to a third   to decline.                          pulling’ attractions like the CCD
a precursor to recovery in other      party and the use of Google                                               along with improved transport
regions. However, hotels outside      analytics to measure/track           As many as 300 out of the 800        infrastructure.
Dublin have become over-reliant       performance.                         hotels in Ireland are in some
on the domestic market since the                                           kind of financial difficulty. The      Nevertheless, we are still
decline of UK visitors.               In terms of performance,             inevitable disposal of assets will   suffering from an over-supply
                                      beverage sales have declined         suppress the market value of         of bedrooms in Ireland. Back in
The three Irish tourism bodies        across the board and this decline    hotels in the short/medium term.     1995 there were about 25,000
are doing a good job and the          is most marked for domestic          There is a need for banks to         beds, which rose steadily to
Gathering is believed to be a         visitors. Food sales are holding     provide reinvestment capital as      45,000 by 2005. Unfortunately
good initiative for the US market,    – mainly because of value for        hotels have become over reliant      it didn’t stop there: by 2008
which seems to be holding.            money improvements – as a            on self-funding. Those with a        there were 60,000 beds, a peak
UK visitors are critical for Irish    consequence, the hotel food          high level of debt are finding it     that coincided with the start of
tourism but the weakened UK           offering has become more             difficult to access finance.           the recession.
economy is a contributing factor      attractive for foreign visitors.
to reduced visitor numbers.                                                In addition, there is a need for     It wasn’t just the number of
Ireland seems to have lost its        There has been a demise of           hoteliers to up-skill their finance   beds that was the problem,
sparkle. We punched above our         international hotel brands –         skills – many still do not produce   despite growing revenues
weight during the Celtic Tiger era    Marriott, Sheraton, Hilton – due     regular P&L reports. Training        during the boom, costs
and we really need to recapture       to reduced demand for this           and upskilling doesn’t stop          rose even faster, harming
some of the sparkle that has          offering in the Irish market.        there, hoteliers’ need to upskill    profitability. The irony is now,
been lost since then.                 Although this should provide         in HR, IT, energy management,        thanks to more efficient and
                                      an opportunity for small/            procurement.                         professional management,
There is no perceived change          independent hotels, the business                                          some hotels are now more
                                                                                                                profitable than they were

 “We punched above our                                                                                          before the recession!

                                                                                                                However, in some cases that
                                                                           TOM BARRETT
 weight during the Celtic Tiger                                            HEAD OF HOTELS AND LEISURE
                                                                                                                improvement in profitability
                                                                                                                has been bought at a price.
                                                                           SAVILLS                              A number of hotels have

 era and we really need to                                                 A key measure of the business
                                                                           performance of hotels is RevPAR,
                                                                                                                secured false economies in
                                                                                                                the form of cutbacks in
                                                                           or revenue per available room.       training, excessive reductions

 recapture some of the sparkle                                             The good news is that RevPAR
                                                                           has been growing over the past
                                                                                                                in staffing levels, and under-
                                                                                                                investment in refurbishment.
                                                                           few years, after a steep fall,       Such savings are not sustainable

 that has been lost since then”                                            with double-digit growth not
                                                                           uncommon for city hotels.
                                                                                                                and are ultimately harmful to
                                                                                                                the business.

14        OUTLOOK     O   HOTEL INDUSTRY 2013
OUTLOOK
X   E X P E RT V I E W S

    But we need to be realistic: a       sector, particularly evident in the                                          business as that’s where the
    lot of hotels were built at the      prime sector in Dublin. A lot of                                             growth will come from for
    wrong time in the wrong places.      this investment is international                                             the foreseeable future. This
    The pain isn’t gone, though the      money, but Irish investors are                                               means a focus on online, but
    excess of rooms is declining by      also playing a part. The simple                                              not necessarily on online travel
    about 1,000 rooms a year, so the     fact that hotels are selling,                                                agencies like Expedia.com and
    pace is slow and will take many      giving more confidence about                                                  Lastminute.com. The online
    years to unfold at this pace.        valuations, will encourage banks                                             travel agents (OTAs) take a
                                         to actively support buyers in                                                large slice (up to 40%) of the
    We are beginning to see the          the future.                                                                  sale value. Too great an over-
    banks more engaged with                                                                                           reliance on OTAs can diminish
    hotel owners, for example in                                               CAEMAN WALL
                                                                                                                      revenues. It may make more
    lending money for acquisitions                                                                                    sense for hoteliers to sell
    and necessary refurbishment.                                               on average. Dublin is closer to a
                                                                                                                      directly online, if the savings
    Those hotels that are operating                                            fifty/fifty split between domestic
                                                                                                                      from doing so free up money
    profitably with a positive cash       CAEMAN WALL                           and foreign tourists.
                                                                                                                      that can be spent on developing
    flow are being considered by the      HEAD OF RESEARCH
                                                                                                                      and promoting their own
    banks when it comes to lending.      FÁILTE IRELAND                        This over-reliance is holding
                                                                                                                      websites for bookings etc.
    The real financial problem for                                              back recovery in the hotel sector
                                                                                                                      But OTAs will continue to play
    many hotels is no longer in the      There is growing evidence that        to a certain extent, simply
                                                                                                                      a crucial role in generating
    P&L; it’s in the balance sheet.      the tourism market has bottomed       because of the continuing fall
                                                                                                                      demand from foreign tourists
    The key challenge – for banks as     out in Ireland. Although British      in Irish consumer spending. The
                                         tourist numbers are still down,                                              given the importance of the web
    well as for the hotel sector – is                                          domestic market is an important
                                         those for North America look                                                 for tourist information, planning
    to establish a realistic sense of                                          source of volume for hotels, but
                                         like being the best ever this year.                                          and purchasing.
    the debt levels (and repayments)                                           it isn’t as profitable as the foreign
    that individual hotels can           The Gathering has clearly played      tourist market.
                                                                                                                      Traditionally, financial skills have
    sustain while continuing to          a role in this regard, and a lot
                                                                               Hotels in the traditional              not been strong in the hotel
    run a business with long term        of hotels around the country
                                                                               tourism destinations around            industry, simply because people
    potential. The bottom line is that   have worked with their local
                                                                               Ireland are benefiting from any         skills matter more in terms of
    you can’t just take 100% of the      communities to create events
                                                                               improvements, but too many             customer experiences. This has
    cash flow surplus out in the form     that really appeal.
                                                                               hotels are located in the wrong        been a challenge for the banks
    of debt repayments and expect
                                         Nevertheless, the Irish hotel         place, which simply means there        that are much more focused on
    to have a hotel that will survive,
                                         sector is still over-reliant on the   is over-capacity in such locations.    the financial performance of
    let alone thrive.
                                         domestic tourism market, with         In reality, such hotels are in the     hotels these days rather than the
                                         about two thirds of their business    domestic leisure market rather         value of the asset or the land
    There is now an emerging
    appetite for investment in the       coming from domestic tourism          than the tourism business.             it’s sitting on. Failte Ireland and
                                                                               Nevertheless, the quality of the       others have been focused on up-
                                                                               Irish hotel stock is very good and     skilling the sector in relation to
                                                                               we are ‘over-stocked’ with 5-star      business planning and financial
                                                                               hotels by comparison to other          management. But there is still
                                                                               European markets.                      some way to go.

                                                                               In the past, there was the             Failte Ireland is also interested
                                                                               mistaken belief that ‘if it’s good     in seeing initiatives such as
                                                                               for hotels it’s good for tourism’.     Shared Ownership for hotels
                                                                               Now we realise that ‘what’s good       – something already working
                                                                               for tourists is good for tourism’.     around the world, including
                                                                               It’s what’s outside the hotel that     Scotland. It effectively lets
                                                                               attracts tourists, so hoteliers        millions of tourists from
                                                                               have to sell the experience of         around the world benefit from
                                                                               staying in the location. It’s all      a ‘time-share’ type arrangement
                                                                               about showing an interest in why       featuring hotel rooms, not just
                                                                               the tourist is visiting your hotel,    apartments and villas. There
                                                                               which usually isn’t just about the     are about 30 hotels in Ireland
                                                                               hotel no matter how nice the           that would benefit from Shared
                                                                               pictures of the bedrooms and           Ownership. Part of the hotel
                                                                               reception area!                        sector’s recovery will require
                                                                                                                      greater experimentation with
                                                                               A key challenge for hotels is          new ways of funding, owning
                                                                               to grow their foreign tourist          and running hotels. O

                                                                                                            OUTLOOK   O   HOTEL INDUSTRY 2013               15
OUTLOOK
     X   LO O K I N G FO R WA R D

     BACK ON TRACK
                    THE WORST MAY BE OVER                                         been one of the country’s most      past eighteen months, some of
                                                                                  important industries and its        which are existing AIB customers
                    FOR THE IRISH HOTEL SECTOR                                    impact is felt in every village,    while others are former customers
                    AND WHILE THERE ARE SOME                                      town and city in Ireland. It        of overseas banks that have
                    CHALLENGES TO OVERCOME,                                       contributes in the order of         exited the market. Through our
                                                                                  &5.7 billion a year to the          market leading internet based
                    A DEGREE OF STABILITY HAS                                     economy and employs around          banking platform (AIB’s internet
                    RETURNED TO THE MARKET AND                                    180,000 people both directly        Business Banking) we also offer
                                                                                  and indirectly. A vibrant           our customers an efficient cost
         THAT’S GOOD FOR THE TOURISM INDUSTRY
                                                                                  tourism industry, and indeed        effective and secure cash flow
         AND THE WIDER ECONOMY, WRITES OWEN                                       a vibrant hotel sector, will play   management tool giving them
         TRAVERS, AIB’S HOTEL SECTOR EXPERT.                                      an important role in Ireland’s      greater control and certainty over
                                                                                  expected and long-awaited           their cash flow.
                                                                                  economic recovery.

         T
              here is no denying that the     There are of course many                                                For the last 10 years, the reality
              past few years have been        opportunities for the Irish hotel   AIB understands the Irish hotel     was that business was so good
              very difficult for the Irish     sector and the medium term          sector. We have dedicated hotel     for most hotels that the numbers
         hotel industry. Like many other      outlook is more bullish than it     sector Relationship Managers        spoke for themselves and
         sectors, the economic downturn                                           across our Corporate, Business      information required by banks
                                              was three years ago. Revenue
         has created numerous challenges                                          Centre and Branch Banking           in support of an application was
                                              per available room (RevPAR)
         although in the case of the                                              operations which provide full,      limited and finance functions did
                                              has continued to improve,
         hotel industry, some of these                                            efficient and expert coverage        not have to be as strong as they
                                              particularly in Dublin, Cork and
         challenges are quite unique.                                             of the sector. AIB is fortunate     are now. When the downturn
                                              Galway. While demand outside
                                                                                  to have built up very strong        kicked in, however, many hotels
                                              these centres is weaker, RevPAR
         A substantial debt overhang                                              relationships with many of          were quickly faced with the task
                                              has increased marginally, as the
         within the sector, the withdrawal                                        the key stakeholders within         of better margin management
                                              more value-conscious domestic
         of a number of overseas                                                  the sector while we have also       and business planning. AIB
                                              market appears to have stabilised
         banks from the market and                                                accumulated a considerable          has also taken a knowledge-
                                              and the number of tourists from     amount of expertise, knowledge
         an oversupply of property in                                                                                 leadership position in the hotel
         certain areas of the country has     overseas increases. As evidenced    and insights into the issues and    sector. Through a series of road
         ensured that conditions in the       by the Amárach Research             opportunities that lie ahead.       shows, which the bank organised
         market have been trying. Add to      findings, over 50% of hoteliers      AIB has a significant market         in association with the Irish Hotels
         this mix a drop in international     have seen turnover increase         share and it is a sector that we    Federation, we have assisted
         tourists visiting Ireland between    during 2012 while 55% of            understand well and its impact      hotels around the country to
         2007 and 2011, increased             them intend to improve or grow      on the economy.                     understand what a bank expects
         competition from other tourism       their business over the next                                            to see in important areas like
         markets within the EU as well        three years.                        At a time when other banks          financial management, budgeting
         as rising overhead costs in areas                                        have been withdrawing from the      and business forecasting when
         like wages, local authority rates    AIB recognises the importance       market, AIB has been actively       assessing a request for credit.
         and utilities and it is clear that   of the sector, not just to the      involved in providing existing
         conditions in the market remain      bank but to the wider economy.      customers and indeed new ones       An overall improvement in
         challenging.                         Tourism has for many years          with a wide range of financing       financial management has
                                                                                  solutions from working capital      played an important part in the
                                                                                  facilities (overdrafts, insurance   recovery of room rates over the
          “A key focus for hotels at the                                          premium financing, etc) to
                                                                                  funding acquisitions, business
                                                                                                                      past two years. Unfortunately
                                                                                                                      when the downturn struck,
                                                                                  expansion and CAPEX investment      many hotels cut their rates
          moment is the management of                                             (term debt, leasing and asset
                                                                                  financing). AIB has played a
                                                                                                                      just to keep customers coming
                                                                                                                      through their doors and as a
                                                                                  significant role by providing        result margins were materially
          revenue and margin growth.”                                             finance solutions to many
                                                                                  leading hotel groups over the
                                                                                                                      impacted or non-existent in
                                                                                                                      certain cases. Now, many hotels

16           OUTLOOK    O   HOTEL INDUSTRY 2013
have a stronger grounding in         asset. For AIB the focus is not the   sector is central to achieving this     an over-supply of hotels in
margin management and are            value of the asset but rather the     growth. Indeed it is clear from         certain counties outside of
better equipped when it comes        free cash-flow that it generates       the Amárach Research findings            Dublin. Some of these hotels are
to forecasting and preparing         and the quality of the business       that many hoteliers consider this       relatively new and have been
business plans.                      plan that underpins that cash         as one of their top priorities with     developed in the past by property
                                     flow. Repayment capacity is            some 55% of those surveyed              developers, often with little
They also have a greater             paramount in all the bank’s           indicating that they intend to          knowledge of the industry. In
understanding of the importance      dealings with customers and we        grow or improve their properties        many cases they also happen to
cash-flow plays, particularly in      rigorously assess whether or not      with another 84% of these               be the best product in the area
relation to servicing any credit     the business can repay the loan       saying that the investment              and this presents difficulties for
facilities they may have in place.   without hampering its growth          will come from retained                 some of AIB’s existing customers
One of the key reasons why there     potential and its future viability.   profits. This is testimony to the        who find themselves in a
is a substantial debt-overhang                                             optimism, professionalism and           difficult position of competing
in the market is that during the     A key focus for hotels at the         determination that exists within        against such properties. Where
boom times, the amount a hotel       moment is the management of           the sector.                             it can, AIB has been supportive
could borrow was linked to           revenue and margin growth. AIB                                                of these customers and has
the valuation of the underlying      believes that investment in the       Unfortunately, there still remains      provided finance for upgrades >>

                                                                                                         OUTLOOK   O   HOTEL INDUSTRY 2013             17
OUTLOOK
     X   LO O K I N G FO R WA R D

          For the sector, it’s about
                                                                                    feel that this “temporary”             including friends and family
          competitiveness and the reduction                                         VAT rate of 9% should be               will see it as an opportunity to
                                                                                    maintained, at least until the         invest in a local business that
                                                                                    country’s economic recovery is         they see has potential or might
          in the VAT rate has helped it                                             firmly back on track. For the           not be understood by outside
                                                                                    sector, it’s about competitiveness     investors. We are outlining
                                                                                    and the reduction in the VAT rate      to prospective customers
          compete with other markets.                                               has helped it compete with other       how much sustainable debt
                                                                                    markets. This is clear from the        they can currently put on to
                                                                                    growth in the number of tourists       a particular structure based
         and refurbishments so that they       particular – have been overdone.     coming to these shores and             on their repayment capacity
         can compete head-to-head with         This is likely to lead to further    the perception in international        and sometimes there is a
         these hotels.                         acquisition activity in the sector   markets that the Irish tourist         gap between that and their
                                               although demand for properties       product is a value for money           expectations. So we take the
         The exit of developers from           outside of Dublin is expected to     proposition. The importance of         view that it is a great addition
         the market has also meant             be more select with cash-flow         this can’t be overstated enough.       to the options available when
         that asset values are now more        and repayment capacity a key         More importantly, as far as the        it comes to bridging the
         meaningful and stable. Recent         consideration in any deals.          VAT rate is concerned any loss in      funding gap.
         market activity in the sector
                                                                                    revenue to the exchequer arising
         involving properties like The Clare   There are of course other issues                                            Another welcome development
                                                                                    out of its reduction in VAT, has
         Inn, the Fleet Street Hotel, The      at play within the sector. Any                                              for the sector and which was
                                                                                    more than likely been offset by
         Morrison, The Marker and The          change to the VAT regime,                                                   also contained in the Finance
                                                                                    the gains the economy has made
         Burlington Hotel have all helped      for example, is likely to have                                              Bill 2013 was the final
                                                                                    directly and indirectly by the
         set a realistic value base in the     a negative effect, particularly
                                                                                    increase in tourists. So it’s a big    confirmation that the Real
         industry.                             on those businesses where
                                                                                    issue for the industry.                Estate Investment Trust (REITs)
                                               ground floor activities like food
                                                                                                                           regime announced in last
         In addition, there is an appetite     and beverages, account for           In addition, the inclusion of          December’s Budget will allow
         from overseas investors, many of      a sizeable proportion of their
                                                                                    the tourism-related enterprises,       hotels and other tourism
         whom believe that asset value         overall turnover. Many of the key
                                                                                    including hotels, within the           accommodation be held as
         declines – in the Dublin market in    stakeholders within the industry
                                                                                    Employment & Investment                rental investment assets by these
                                                                                    Incentive Scheme (EIIS) is a           REITs. As outlined in the Finance
                                                                                    welcome development for the            Bill, REITs may therefore be
                                                                                    hotel sector (see page 25 for          attractive to holding structures
                                                                                    more information). In the recent       where, for example, a hotel
                                                                                    Finance Bill, the Minister for         premises is owned as a rental
                                                                                    Finance announced that the EIIS        investment asset by investors,
                                                                                    was being extended until 2020          and leased to a separate
                                                                                    and as part of this extension,         operating company that would
                                                                                    hotels, guesthouses and self           engage in the taxable trade of
                                                                                    -catering accommodation will           hotel-keeping. This is likely to
                                                                                    be allowed to qualify on a             lead to further interest in the
                                                                                    temporary basis where they             sector from investors and a
                                                                                    meet the conditions of the             reduction in the debt overhang
                                                                                    incentive. The inclusion of            as distressed properties emerge
                                                                                    tourism accommodation in the           from insolvency.
                                                                                    EIIS will be reviewed after a
                                                                                    period of two years.                   Here at AIB, we firmly believe
                                                                                                                           that the Irish hotel sector has a
                                                                                    The rationale for its inclusion        bright future, notwithstanding
                                                                                    was that the debt overhang was         the immediate challenges it
                                                                                    leading to an underinvestment          faces. The bank will continue to
                                                                                    in the repair, maintenance and         support this vital sector and its
                                                                                    refurbishment of hotels and            future growth potential with a
                                                                                    guesthouses. Equity funding from       range of innovative solutions and
                                                                                    the EIIS willl hopefully provide a     our team of sectoral experts. O
                                                                                    key piece of the missing liquidity
                                                                                    for the sector, particularly outside   Owen Travers is Business Unit
                                                                                    the main centres. The hope is          Head, AIB Corporate Banking
                                                                                    that groups of local investors,        and Specialist in the Hotel Sector.

18           OUTLOOK    O   HOTEL INDUSTRY 2013
OUTLOOK
X   CASE STUDIES

     A GRAND
     RELATIONSHIP                                                                                                   Germany need to be ‘re-
    EFFECTIVE COMMUNICATION HAS PROVED VITAL TO THE GRAND
                                                                                                                    introduced’ to Ireland.”
    HOTEL MALAHIDE, BOTH IN TERMS OF INFORMING POTENTIAL
    CUSTOMERS OF ITS OFFERINGS AND SHARING KNOWLEDGE WITH                                                           Other aspects of the Grand
                                                                                                                    Hotel Malahide’s business that
    LONG-TERM BANKING PARTNER AIB.
                                                                                                                    have been revamped include
                                                                                                                    its menus, which have been

    T
         he Grand Hotel was built in                                                                                updated to make eating out
         1835 and officially reopened                                                                                more affordable and accessible.
         in 1955 following a major
    reconstruction and modernisation                                                                                Matt has banked with AIB since
    programme. In 1974 Matt Ryan                                                                                    he took over the hotel and
    became the new owner of the                                                                                     describes it as a bank that listens
    hotel and during the present                                                                                    to its customers. “Sometimes
    ownership of the Ryan family it                                                                                 you have to invest in products
    has expanded from having 12                                                                                     in one area of the business that
    staff to nearly 200. Development                                                                                will generate revenue in other
    and improvement work                                                                                            areas – for example, investing
    continues to this day. In 1982 a                                                                                in our restaurants increases
    large conference centre was built                                                                               bedroom sales. AIB has a good
    and in subsequent years 100                                                                                     understanding of the hotel
    bedrooms, the Coast restaurant,                                                                                 industry in terms of costs, where
    a new reception area, Ryan’s Bar                                                                                business is generated and what
    and a top-class business meeting                                                                                you have to do to generate
    centre were added.                                                                                              business.”

    Matt Ryan says investment in                                                                                    Matt also points out that online
    bedroom stock is just one of                                                                                    banking has been very helpful
    the key areas where AIB has                                                                                     in enabling the Grand Hotel
    supported the business. “Over                                                                                   Malahide to continually review
    the last five years in particular the                                                                            its accounts and take advantage
    quality of bedrooms has become                                                                                  of better interest rates where
    absolutely critical. Rooms must                                                                                 available. All payments are made
    be refurbished regularly and the                                                                                electronically, which reduces
    ‘lifecycle’ of a hotel room has        MATT RYAN                                                                administrative costs such as
    shortened. AIB is a vital partner in                                                                            postage and statement printing.
    this regard in terms of providing      sales to see where revenue is       forward – conferences are            “Our suppliers love this because
    finance since they understand           generated and how customers         typically booked about a year in     they know they will be paid
    that we need this type of funding      want to purchase the various        advance.”                            directly on a specific date and it
    for refurbishment to maintain the      services.
                                                                                                                    enables end-of-month accounts
    volume of business we are doing.                                           When he explains that the
                                                                                                                    to be compiled in an efficient
    Business will fall and customers       “Because domestic spending          average spend per international
                                                                                                                    manner.”
    will go elsewhere without this         power is reduced, we have           delegate is about F1,500,
    continuous investment,” he says.       increased our focus on attracting   it is easy to see why business
                                                                                                                    Quarterly meetings with AIB
                                           conferencing business from          tourism is now recognised as a
                                                                                                                    enable Matt and his team
    All the business areas within the      outside Ireland,” Matt adds.        vital contributor to the
                                                                                                                    to benchmark the hotel’s
    hotel (bars, conferencing facilities   “As well as helping the local       Irish economy. “There is
                                                                                                                    performance against the industry,
    etc.) are also regularly reviewed      economy, such events give us        considerable unrealised potential
                                                                                                                    which gives him a picture of how
    at all stages from purchasing to       a firm base of business going        in this sector and markets like
                                                                                                                    the business is performing.

                                                                                                          OUTLOOK   O   HOTEL INDUSTRY 2013               19
OUTLOOK
 X   CASE STUDIES

     “Banks and businesses are                an industry. “We have been in
     partners in the process of reviving      the hotel business for almost
     the economy. It is vital to be           four decades and AIB knows
     able to talk ‘business language’         that we don’t take massive risks
     to your banking partner. For             and that we follow through on
     example, our wage levels                 our plans. We also understand
     are high compared to other               their requirements in terms of
     industries, but AIB understands          information and vice versa - if
     that this is a feature of the            they say ‘no’ there is always
     service sector.”                         a good reason that is well-
                                              communicated. Determination to
     According to Matt, a true                protect an industry is a valuable
     banking partner recognises the           characteristic for a bank, as is
     importance of understanding an           a willingness to be fair to all
     individual business rather than          customers in a particular sector.”

         With four hotels in Ireland and two in sunny
         Malaga, David Kelly, CEO of FBD Property &
         Leisure knows the value of a strong banking
         relationship

         FBD Property & Leisure is owned by the
         publicly quoted FBD Group and AIB is sole
         banker to the company. The company’s well-
         known hotels in Ireland include The Tower
         Hotel and Faithlegg House, both of which
         are in Waterford and the Castleknock Hotel
         and Temple Bar Hotel in Dublin. In Spain,
         meanwhile, it owns the popular Sunset
         Beach Club in Malaga as well as the upscale
         La Cala Golf Resort, outside Marbella.

         In June 2012, AIB worked with the
         hotel operator to refinance its bank debt and
         has worked very closely and constructively
         with the company ever since, according to
         David Kelly.

         “By understanding our business very well
         and by adopting an open and commercial             Michael Holland, the owner of the                also the sole lender to the hotel.
         approach, we found that AIB was able               popular Fitzwilliam Hotel Dublin agrees
         to engage with us very quickly and                 with David Kelly. “The professionalism of        In addition to the FBD Property and
         constructively and agree with a re-financing        AIB’s Hotel sector team enabled us to            Fitzwilliam Hotel deals, some of the other
         of our facilities to match our business needs      complete a complex refinancing in a very          recent financing initiatives in which AIB has
         into the future. The bank’s knowledge of           efficient manner. Over a 6 month period           been involved with over the last 12 months
         our business and the open and trusting             from initial engagement to drawdown of           include the following:
         relationship that we have with them was the        funds we found that AIB adopted a “can
                                                            do” attitude while their knowledge and           Doyle Hotels (Holdings) Ltd: &220m, 4 year
         cornerstone on which our re-financing was
                                                            understanding of the industry was very           refinance of term debt facilities in addition
         completed,” says David.
                                                            evident to all involved.”                        to working capital and FX facilities. AIB is
         AIB provided the company with a 3 year                                                              also the sole lender to the company.
         refinancing of its existing banking facilities      AIB provided the hotel with &21m, 3 year
                                                            term debt facility in addition to working        Dromoland Castle: Acquisition and
         including term finance, working capital and
                                                            capital and leasing facilities and the bank is   refurbishment financing.
         leasing facilities amounting to &45.9m

20       OUTLOOK        O   HOTEL INDUSTRY 2013
FROM STRENGTH
 TO STRENGTH
T
     he Coyle family, owners of    Current owner John Coyle                                                    especially vital in light of recent
     Renvyle House, one of the     recalls that his father opened an                                           uncertainty in the banking sector.
     country’s oldest and top      account with the Munster and                                                We have also secured some long
hotels, can trace their banking    Leinster Bank in 1918 (which                                                term finance for investment in
relationship back to 1918 when     became AIB in 1966 after a                                                  our accommodation.”
they first opened an account        merger with the Provincial Bank
with old Munster and Leinster      of Ireland and the Royal Bank of                                            This investment has enabled
Bank, which later became part of   Ireland) and that they have been                                            Renvyle House Hotel to win
AIB in 1966.                       banking there ever since.                                                   numerous industry accolades,
                                                                                                               most recently the Gold Award at
Located on 200 acres on the        Given the sheer length of this                                              this year’s Irish Accommodation
shores of the Atlantic Ocean in    relationship, his views on the                                              Services Institute (IASI) awards.
Connemara, the historic Renvyle    most important qualities for
                                                                        JOHN COYLE
House is celebrating its 130th     a banking partner carry more                                                AIB has also enabled Renvyle
birthday in 2013. It is also 60    weight than most.                                                           House Hotel to streamline its
years since Dr Donny Coyle                                              to have local managers who can         banking processes, says John.
bought the property back in        “The bank needs to understand        make decisions and fight your           “We have started paying staff
1953 and the Coyle family have     the business, especially in tough    corner, as well as being willing to    wages and salaries electronically.
been successfully running the      economic times. There needs to       challenge you if they think you        This has been very beneficial
business ever since.               be someone in the branch who         are making a wrong call.”              for our employees because we
                                   gets to know you personally and                                             are located in a beautiful (but
One thing that hasn’t changed      is prepared to take the time to      The state of the economy and           remote) part of Connemara
down through the years is its      have a cup of coffee and a chat.     oversupply in the hotel sector         and the nearest bank is 30-40
banking partner. In an era where   Many of these relationships were     mean the current focus is on           minutes drive away. As well as
relationships between customers    lost during the boom years, but      maintaining business, John             being useful for staff, electronic
and banks have come under          AIB has been working hard to re-     explains. “AIB has assisted us         payments have saved us money
severe pressure, the loyalty of    establish the connection between     in this process by continuing          and we will be looking to pay
the family behind Renvyle House    the branch manager and local         to provide access to seasonal          suppliers the same way in the
Hotel is truly astonishing.        businesses. It is absolutely vital   working capital, which is              near future”. O

                                                                                                     OUTLOOK   O   HOTEL INDUSTRY 2013               21
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