'Write off €2.5bn debt or tourism sector will fail'
A MASSIVE €2.5bn in debt needs to be written off from Ireland's hotels to ensure the sector returns to sustainable levels, it has been claimed.
Economist Alan Ahearne said the sector is sitting on about €6.7bn in debt, but a reduction in the range of 37pc will be required in the next five years.
In a report highlighting ways to restore financial stability to the sector, Mr Ahearne said the industry had been hit hard by the economic crisis with revenue per room dropping 30pc and profit slumping by 44pc.
Irish Hotels Federation (IHF) chief executive Tim Fenn said it was time for the Government to take decisive action.
"This issue cannot be allowed to fester and jeopardise future growth and job creation in the wider tourism industry," he said.
"If we don't act now, we'll be picking up the pieces of a failed tourism industry in five years' time."
Mr Ahearne set out initiatives to provide hotels with equity finance. These include:
• Setting up a hotel restructuring fund using funds from the National Pensions Reserve and the sale of state assets to invest in hotels that have a commercially sound prospect for profitability and growth.
• Setting up a qualifying investor fund for hotels that may be attractive to private investors, especially from abroad, who would like to invest in Irish hotels but do not wish to own hotels directly.
• The existing Employment and Investment Incentive Scheme should be extended to include restructured hotels, thereby providing incentives to private investors to invest equity in restructured hotels.
Tourism provides about 196,000 jobs, equivalent to 11pc of total employment in the country, of which more than 50,000 are directly employed by hotels and guesthouses.
The IHF said the average room rate has fallen from €97 in 2007 to €72 in 2011.
In his 'Time to Invest' report, Mr Ahearne said new equity in hotels is required if the sector is to prosper.
"Banks are becoming increasingly saddled with repossessed hotels because prospective buyers do not have access to finance," he wrote.
"This trend has to be addressed. The scarcity of new equity finance to purchase repossessed hotels represents a market failure that is gumming up the recovery process in the hotel industry."