PROFIT LEVELS in hotels in Dublin are falling by about 8.2 per cent, according to a new survey by accountancy firm Horwath Bastow Charleton.

Although occupancy levels are 10 per cent higher than other regions across the country, hotels in Dublin are experiencing a decrease in profitability due to discounted room-rates, the annual Ireland and Northern Ireland Hotel Industry Survey found.

Further discounting in the second half of 2008 would continue to undermine the profitability of hotels in Dublin, warned Horwath Bastow Charleton, adding that the sector must keep rising costs in check.

Nationally, it is likely that average room rates in 2008 will be down by at least €5, which could reduce profits by 15 per cent, and market intelligence indicates that the trend is set to continue, it said.

There may be a "steeper fall in the profitability of Irish hotels" as lower room sales have a more pronounced effect on the bottom line, according to Aiden Murphy, a partner at Horwath Bastow Charleton.

This year and 2009 will be challenging for the sector, he said.

"The fall-off in economic growth and the reduction in consumer confidence will have a negative impact on demand by the domestic market," Mr Murphy said, adding that domestic customers now represented more than 60 per cent of all business.

"With a slowing hotel sector, higher hotel categories will tend to chase business from lower categories. Any reduction in visitor numbers from the US or UK will lead to higher-end hotels seeking a greater share of the domestic market, with special promotions they offer having a knock-on effect on the lower-end market," he said.

Targeting business tourism and the opening of the National Conference Centre would help to alleviate some of the difficulties facing the industry, Mr Murphy added.

Horwath Bastow Charleton is an accountancy firm that specialises in the hospitality sector.