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Why Ireland’s tourism recovery is nowhere near secured

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At this festive period, it is difficult to gauge the mood of Irish tourism businesses — raise a glass to the fact that 2022 was far better than anticipated, or nervously take a sip as to what 2023 holds in store?

Certainly, compared to this time last year — when Covid was rampant and the industry was shut — things are much more positive. 

Since travel restrictions were finally lifted back in March, the speed and strength of the recovery in tourism numbers to Ireland has exceeded expectations and the surge in demand surpassed most industry projections.

The Irish Tourism Industry Confederation (ITIC) estimates that 7m international tourists will have come to Ireland this year, a 73% recovery compared to the pre-pandemic peak of 2019. Not an inconsiderable feat considering there were no international holiday-makers in the intervening two years.

Pent-up demand, deferred bookings and accumulated savings all bolstered business this year and 1.5m high-spending North Americans came here, which was a great boost for the tourism and hospitality sector up and down the country.

Energy prices

However, hopes of difficulties being in the rear-view mirror have quickly evaporated as inflation and particularly energy prices have soared to unsustainable levels. 

This, allied to a sharp reduction in tourism accommodation as a result of Government policy, means there is considerable unease about the outlook for 2023, with fears continued recovery will be threatened.

Estimates for next year range from a dip on this year’s performance to single-digit growth. Air access and demand from key source markets look strong but economic headwinds globally, allied to cost inflation and supply constraints at home, make accurate forecasting challenging. 

Fáilte Ireland data clearly shows that for every €1 a tourist spends on accommodation, €2.50 is spent on ancillary tourism services.
Fáilte Ireland data clearly shows that for every €1 a tourist spends on accommodation, €2.50 is spent on ancillary tourism services.

Certainly, a full recovery to 2019 levels is likely to be some way off, probably not until 2026.

Although macroeconomic concerns and interest rate increases are outside of anyone’s control, there are certain aspects very much within the gift of Government here that can determine Irish tourism’s chances of continued recovery. 

Tourism and hospitality Vat rate

One of the first items in the in-tray of new Finance Minister Michael McGrath is the fate of the 9% tourism and hospitality Vat rate. This is scheduled to increase by 50% on February 28, which tourism industry leaders think would be folly in such a volatile environment. 

The 9% Vat rate puts Ireland on an even keel with our European peers and to increase it would serve only to depress demand, damage our competitiveness, and add further cost to the system at the very time that businesses are dealing with escalating price rises elsewhere.

Economist Jim Power has recently completed a report into the economic rationale for the 9% Vat rate, in which it is estimated the increase in Vat would add 4.1% inflation to accommodation and food services and cost 24,000 jobs. 

Hopefully, Mr McGrath heeds these warnings and quickly gives the industry certainty about the 9% Vat rate going forward.

Refugees and asylum-seekers

Another key Government policy that will affect the industry’s success next year is its current over-reliance on tourism accommodation providers to house Ukrainian refugees and asylum-seekers.

Latest departmental figures estimate that 28% of all tourism beds in regional Ireland are now no longer available to the tourism economy due to Government contracts. 

Eoghan O'Mara Walsh: 'If there are no tourism beds in tourist towns next summer, there will be no tourism activity and that will have a very negative impact on local economies.'
Eoghan O’Mara Walsh: ‘If there are no tourism beds in tourist towns next summer, there will be no tourism activity and that will have a very negative impact on local economies.’

While hotels and guesthouses are part of the solution to accommodate refugees, they cannot be the only solution. If this level of tourism accommodation stock is unavailable next year, industry estimates it could cost the broader tourism economy up to €1bn in lost earnings. 

Downstream businesses such as shops, attractions, pubs, restaurants and cultural experiences will be hit particularly hard. Fáilte Ireland data clearly shows that for every €1 a tourist spends on accommodation, €2.50 is spent on ancillary tourism services.

Put simply, if there are no tourism beds in tourist towns next summer, there will be no tourism activity and that will have a very negative impact on local economies. 

Clampdown on short-term lets

The proposed clampdown on short-term apartment lets — many of whom are bonafide tourism businesses that have traded for years — also risks reducing accommodation capacity just when it is needed most.

Government needs to urgently publish a balanced two-year plan as to how refugees and asylum seekers are to be accommodated, including the use of vacant buildings, State institutions, unused dwellings and modular housing, as well as tourism accommodation stock. 

Furthermore, a Department of Taoiseach-led approach is needed such is the seriousness of this issue to both the welfare of refugees and to Ireland’s tourism industry, which is the country’s largest indigenous industry and biggest regional employer.

2022 might have been better than anticipated for Irish tourism but a sustainable recovery is not yet secure and everything must be done to support such an important industry.

  • Eoghan O’Mara Walsh is CEO of Irish Tourism Industry Confederation

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