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Hotels’ costs rising faster than revenues, says report

Hotels’ costs rising faster than revenues, says report

HOTEL insurance rates are rising by 10pc per annum, prompting some operators to rethink how their leisure facilities in particular are used, according to Aiden Murphy, a partner with accountancy and advisory firm Crowe Ireland.

He said one of the options for hotel operators is outsourcing the management of their leisure facilities.

“For most hotels, insurance is up 10pc year-on-year in terms of cost,” said Mr Murphy. “It’s a significant increase and it’s twice the increase hotels have seen in revenue terms.

“It’s growing at a level that is a problem for hotels, and a cost they have to focus more and more on,” he added.

“You could very well see that hotels might outsource their leisure centres on the basis that the insurance premium for that facility may actually fall to a third party, and it may allow the core hotel to bring down its own premium to a more manageable cost,” said Mr Murphy.

Releasing its annual analysis of Ireland’s hotel sector today, Crowe Ireland said that labour costs also remain a significant cost issue for hotels.

“For the second year in a row, payroll costs have also increased at a greater rate than total revenues, placing added pressure on hotels across the country,” the report states.

“Increasing costs relate to salaries and benefits, higher turnover levels and increased training and development in a highly-competitive arena. This will continue to be one of the most challenging areas facing Irish hoteliers in the coming years.”

Utility costs for hotels also rose by 8pc last year, according to the analysis.

“It is becoming harder for Irish hotels to increase profit levels despite reasonable revenue growth, as many costs are now increasing faster than the underlying growth in revenues,” claimed the Crowe Ireland report.

Last year, the firm said an additional 11,000 hotel rooms would be needed in Ireland over the next seven years as tourist numbers continue to increase.

Mr Murphy pointed out that Dublin’s hotel occupancy rate, at 84pc, is the highest of any European city.

If the occupancy level in Dublin eased to 80pc or 81pc due to additional rooms entering the market, he believes, then it might give the capital a “more competitive offering”.

That might also iron out instances where hotel rates spike when certain events are on in the city, claimed Mr Murphy.

“Average room rates in Dublin have grown very strongly – much stronger than in other European cities,” he said.

Crowe Ireland’s report shows the average room rate in Dublin last year was €145.82, which is 6.5pc higher than in 2017.

Nationally, the average nightly room rate also rose – to €118.27 last year – an increase of 6.3pc compared to 2017.

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