Hotel Sector Tourism figures show a 4 per cent increase for the first half of 2005 but, with a 15 per cent increase in rooms, the hotel industry is under intense competitive pressures, writes Joan Scales

This year almost €1 billion will be spent on building 37 new hotels around the country, as developers rush to complete hotels before the capital allowances for hotel developments run out in July 2006.

Tourism figures show a 4 per cent increase for the first half of the year but, with a 15 per cent increase in rooms (an additional 3,788), the hotel industry is going to find itself with increased under-occupancy as the business spreads across the new properties. Hotel room capacity will increase by almost 1.3 million bed nights - the number of rooms available by days of the year - in addition to the nearly one million added in 2004.

Between 2000 and 2004 an additional €2.2 billion has been invested in accommodation and visitor attractions, generally of very high standard and good value. Most tourism businesses are performing reasonably well but will be facing tougher competition again next year.

In the past three years 58 hotels have not renewed their registrations so, while new hotels are appearing, it seems that others are closing too. Most closures have been at the lower end of the market with new properties having more rooms and up-to-date facilities.

An example of the pressure the industry is coming under is the Great Southern Hotel group, a nine-strong traditional hotel group owned by the Dublin Airport Authority, which is expected to run out of cash by the first quarter next year if trading does not improve. The group is coming under pressure from new hotel builds around the country and particularly at Dublin Airport, where three new hotels near the airport are siphoning off business, and there are two more planning to open shortly.

In Galway, too, the Radisson SAS, with its extensive meeting and leisure facilities, is attracting more business. The G Hotel in Galway will also have an impact on the two Great Southern hotels nearby. Not that Galway's Great Southern hotels have stood still, both have had major revamps of rooms and facilities.

So far this year, things are looking good. The British market - worrying last year when it flattened - has shown an increase of 1 per cent. Some 19 per cent of all rooms sold were into this market, where in 2001 the share was 21 per cent.

All other market origins are showing increases, except north America, where the weak dollar is affecting tourism, though June saw a 7 per cent increase in visitors from north America. The bombings in London in July have had an impact on the 40 per cent of visitors who combine UK and Ireland visits.

At the five-star end of the market, occupancy rates recovered to over 65 per cent, after a dip last year. However, in the same period supply in this category has dropped by 8 per cent, while rooms occupied have increased by 9 per cent, resulting in a 6 per cent increase in occupancy. The closure for renovation of the Shelbourne, for example, is helping the other hotels in this sector.

Supply of rooms in the other categories has shown some decline year-on-year but unclassified hotel rooms available rose by a substantial 26 per cent. These would be new hotels waiting classification.

Rooms rates in the two and four-star market fell marginally, where these type of properties are experiencing pressure from the increased three-star range of hotels available, mostly all new or recent renovations and new branding. Grade one hotels showed an increase from 39 per cent to 50 per cent but, overall, the number of rooms available has fallen by 10 per cent.

Pressure on the traditional guesthouse and B & B market continues with the number of bed nights occupied in guesthouses by visitors falling by 12 per cent in the second quarter. Price sensitivity is the main reason, with three-star hotels marketing into the same price range. The urban rural divide is also having a serious effect on traditional B & Bs.

By far the most successful category is the three-star market, where much of the development in hotels has been happening. The huge increase in good quality rooms in this sector has put severe price pressure on the grades above and below, with the B & B market most affected.

Competition for rooms is coming from within the country and abroad. The balance of payments with tourism is now negative, with more money being spent abroad by Irish people then by tourists in Ireland. Other factors affecting the business are shorter holidays, and less travel to rural areas. Fortunately, the increase of 25 per cent in Irish people taking holidays at home since 2000 is helping to sustain the business.

The Irish Tourism Industry Council's recent study into regional distribution of visitors shows that, since 1999, growth has been achieved in Dublin and the eastern half of the country. Significant losses in tourist traffic have been experienced in the western regions, notably in motoring visitors from Britain and Europe, a fact that is borne out by the 17 per cent drop in sea travel in the second quarter this year. Air traffic increased by 21 per cent and has contributed directly to an increase in business for hotels.

Shaun Quinn, chief executive of Fáilte Ireland says: "In many ways, Ireland's recent economic success has presented the tourism sector with a number of challenges. Meeting these will require everyone - planners, businesses, transport operators, policy-makers and local authorities - to work together to build a vibrant, sustainable and regionally balanced tourism industry. Tourism has demonstrated a certain resilience over the years and will continue to represent a key strand in a growing Irish economy."