On paper, at least, 2023 was a very good for the travel industry.
Almost 17.8m people arrived in to Irish air and sea ports between January and October – an increase on the numbers seen in the same, pre-pandemic period of 2019.
That has boosted the coffers of airlines like Ryanair, which now expects a record annual profit this year; and Aer Lingus, which flew back into the black earlier this year.
But under the surface, it was far from plain sailing for the tourism and hospitality trade.
A tale of two travellers
Transatlantic trade performed well this year – as improved connectivity catered to pent-up demand from US travellers.
This is particularly good news for the Irish economy, as American tourists tend to stay for longer, travel to more parts of the country, and spend more money while they're at it.
However other tourism sources were far less buoyant.
The recovery of visitor numbers from the UK and Germany lagged through the summer – in part due to the economic woes being felt within those countries.
The appeal of Ireland can’t have been helped by the particularly wet weather seen through the peak tourism season, either – something that was sure to have dissuaded many last-minute bookers or spur-of-the-moment weekenders.
Expensive excursion
Many were also sure to have been put off by the expense of making a trip – with the cost of everything from air fares to hotel rooms to car rentals now significantly higher than it was in 2019.
Remaining competitive on price was such a concern that Fáilte Ireland issued a warning early in the year about the potential damage over-charging could do to the entire sector.
However those in the industry have argued that they are simply passing on the higher costs they are being presented with – as inflation spread beyond energy to weigh on every aspect of business.
Tourism and hospitality firms also continued to suffer from a severe staffing shortage. That forced some to raise pay rates in order to attract and retain talent, while others opted to curtail their operations to match what they had the staff to offer.
But the sector was constrained in another way – and that was in the availability of accommodation for those coming to visit.
Capacity crunch
While tourism representatives have remained supportive of the need to accommodate Ukrainian refugees, the continued reliance on hotels and guesthouses impacted the entire industry this year.
Through the peak tourism season of this year, as much as 20% of visitor bedrooms were unavailable to the tourist trade. While hoteliers have at least been paid for the use of those beds – they, and others, have missed out in other ways.
Where a tourist might spend money in a bar or restaurant, book a spot in a nearby activity, or spend money in local shops, an International Protection applicant will likely not.
That means that a significant amount of ancillary revenue is lost to the trade.
Early in the year Fáilte Ireland estimated that the non-accommodation tourism sector would miss out on €1.1 billion in revenue due to the lack of beds in the country.
And the constraint has led to renewed calls for a step-up in the number of hotels being built, with some in the industry saying there could be an acute shortage in the coming years.
Turbulence ahead
There are other challenges on the horizon in the shorter term, too.
Despite significant lobbying by the industry, the VAT rate on hospitality reverted to 13.5% in September.
While the timing meant that businesses still enjoyed the lower rate for this year’s tourism season, they now must decide whether they will further shrink their margins – or push prices higher – for 2024.
Meanwhile other costs pressures loom on the horizon.
From 1st January the minimum wage is set to rise to by €1.40, to €12.70 per hour. For a sector heavily dependent on young, casual workers, that is likely to have a significant impact.
Other staffing costs are set to rise, too, with changes to sick pay entitlements, employer PRSI, the introduction of pensions auto-enrolment and additional Revenue reporting requirements all set to add to businesses’ burden.
And this comes against a backdrop of continuing high inflation – albeit at a more modest pace than it was in late 2022 – and no prospect of an improvement in accommodation or staffing constraints.
But with the euro zone and the UK on the brink of a recession, and the US expecting a significant slowdown in growth next year – the solution likely won’t be as simple as passing on those extra cost burdens to would-be visitors.
