Tourism sector cuts recovery projections even if 9% VAT retained

Internal industry data shows that representatives for the tourism sector have cut their projections for the recovery of the industry in coming years, even if the Government retains its special 9 per cent VAT rate in the budget this month.

Figures set to be circulated this week among the members of the Irish Tourism Industry Confederation (ITIC), the sector’s main lobby group, show it has upgraded forecasts from earlier this year for the total number of inbound tourists in 2022.

However, the projections seen by The Irish Times show it has shaved 4 per cent off the number of inbound tourists it expects to visit the State in 2023, and more for following years. It has also pushed out its projection for the full recovery of the numbers to pre-pandemic levels by a further year, to 2027.

In April, The confederation predicted fewer than 6.5 million visitors to Ireland from abroad this year, as the sector emerged from pandemic restrictions. However, it said increased “aggressive” expansion of capacity from Ryanair and the restoration of 93 per cent of the peak capacity of Aer Lingus fuelled a better-than-expected initial recovery. It now estimates that 7.5 million foreign tourists will have arrived by year end.

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Macroeconomic worries

However, the intensifying inflation crisis and macroeconomic worries, especially for the European market, have cast a cloud over projections from next year onwards. Previously, it had forecast 7.6 million visitors for 2023 in a baseline scenario, but this has been cut to 7.3 million. Itic now says numbers in 2024 could be 800,000 lower than previously estimated.

It estimates by 2026 the numbers will have returned only to nine million, still 600,000 shy of the inbound visitors tally for 2019. The industry group believes US tourist numbers will hold up well, but a shortage of visitors from Europe and Britain could hold back the sector’s recovery.

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The confederation’s projections also include an “upside” scenario, which assumes the Ukraine war ends early next year, the US dollar remains strong (giving US tourists more buying power) and a continued strong recovery in leisure travel from the US. In this scenario, numbers in 2023 would be 700,000 ahead of the baseline, and 1.8 million ahead of a pessimistic “downside” scenario, which assumes reduced connectivity and “prolonged depressed demand from all source markets with Ireland losing market share”.

Baseline scenario

Its projections are based on research with carriers, airports, global tourism trends and economic data. Its baseline scenario, which it believes is “most likely”, includes the retention of the sector’s special 9 per cent VAT rate, although it is due to run out at the end of February. However, Itic is at the forefront of an intense budget lobbying campaign to prevent the special rate reverting to 13.5 per cent.

Hoteliers and other tourism industry businesses have been prominent in the media in recent weeks about the severe impact energy bills, which in some cases have quadrupled, are having on their viability. Itic is lobbying for energy supports, the maintenance of elevated marketing budgets for tourism agencies, and the retention of the 9 per cent.

However, there is significant opposition within the State to extending the rate. Minister of State for Skills and Further Education Niall Collins last week accused the sector of “price gouging” on hotels in the summer, while neither the State’s Tax Strategy Group or the Commission on Taxation and Welfare indicated the lower rate should stay.

Leo Varadkar, the Tánaiste and Minister for Business, insisted last week a decision on the 9 per cent had yet to be taken, although there is widespread belief it will change.