THE IRISH hotel industry is currently hostage to the “dumbest competitor”, the annual conference of the Irish Hotel Federation (IHF) has heard.
Prof Cathy Enz of New York’s Cornell University told hoteliers in Galway yesterday that they should resist discounting at all costs and focus on creating value to survive the current crisis.
Prof Enz, who is head of strategy at Cornell, disagreed with economist Dr Peter Bacon’s recommendation at the meeting of IHF members that 15,000 bedrooms, equivalent to 150 hotels, should be removed to ensure the long-term survival of the sector.
“Dr Bacon’s notion is intriguing, but it requires a Government incentive, and I don’t believe there’s a lot of public sentiment out there to resolve the problem,” Prof Enz said.
Price reductions, which consumers were currently benefiting from, would have long-term consequences in terms of reduced value and lost business, she said.
“And hotels will find that it takes years to bring prices back up once they start to cut due to changed consumer expectations,” Prof Enz warned.
“Discount rates don’t stimulate demand. Creating both difference and value does.”
Closing down hotels “creates all sorts of complexities”, Prof Enz said. “There are different kinds of consumers out there, with the more price-sensitive tending to use internet sites.
“Hotels need to focus on nurturing the more sophisticated segment, where they can define customers, manage costs and maintain control.”
Dr Bacon told the conference that the banking system must face up to the threat caused by insolvent hotels as failure to foreclose on them would damage the long-term interests of the sector.
A report carried out by him for the IHF last November had identified excess capacity of between 12,000 and 15,000 bedrooms due mainly to the addition of 27,000 new hotel bedrooms between 1999 and 2008.
“The result is that the ‘zombie bank’ aspect is being transferred in the first instance to the hotel sector,” Dr Bacon said, and transfer of certain hotels to the National Asset Management Agency (Nama) would “simply transfer the loss from one credit institution to another”.
“You’ll transfer the burden to the butcher, the baker, the candlestick maker and they’ll then be in a zombie state,” Dr Bacon told hoteliers.
The sector was “compromised”, and the worst thing was that the public believed it was “a great thing to be getting a great deal on hotel prices” due to discounts, he added.
If the sector was going to “move forward” it would have to garner public support to explain that “you cannot sell pound notes for 50 pence”, Dr Bacon said in response to questions from the floor.
Restructuring, as in removal of 15,000 rooms, should take place before the “2010 peak”, and should be addressed by the sector in co-operation with the tourism agencies and financial institutions.
Taoiseach Brian Cowen said a “rationalisation” was already taking place in the hotel sector, which would be “affected in due course by commercial considerations”.
Speaking to reporters at the IHF conference, Mr Cowen said Dr Bacon was pointing out that a “structural change has to take place in the hotels sector”.
“Whether they [hotels] remain in the banking system or are transferred into the Nama situation, that basic criterion doesn’t change,” the Taoiseach said.
Addressing the hoteliers, Mr Cowen said the Government’s budget proposal to offer discounted travel to senior citizens travelling to Ireland from abroad would be initiated to coincide with the St Patrick’s Day festival this year.
Fáilte Ireland had initiated a new advertising and promotion campaign for home holidays with a budget of €4 million, Mr Cowen added.
The conference at the Radisson Hotel, Galway, continues today.