The Minister for Arts, Sport and Tourism has called for an end to "the myth of rip-off Ireland," which he said was endangering tourism and the Irish economy.
Mr O'Donoghue said the notion that Ireland was a rip-off destination had gone too far and would have serious consequences in what was a very competitive market since the opening up of eastern Europe.
"It's going to have international repercussions. No tourism industry in the world runs itself down," Mr O'Donoghue said.
The Minister was in Killarney on Thursday night where he officially opened the €25 million Brehon Hotel, owned by Fáilte Ireland director Mr Patrick O'Donoghue and the O'Donoghue family. The O'Donoghues were described on the night as long-standing friends of the Minister.
After his speech, Mr O'Donoghue denied to reporters that he had himself contributed to the notion by constantly referring to the need for price competitiveness in the industry since coming into office.
"One of the great myths is there is in existence a rip-off Ireland mentality," he said. "That myth must be laid to rest for the sake of Irish tourism and the Irish economy."
Ireland had never been a low-cost sun destination, but "a destination for the discerning traveller", he said.
Tourism in Ireland was worth €4 billion in foreign earnings, it was worth €1.3 billion in domestic earnings, it employed 140,000 people and it contributed €2.2 billion in tax receipts to the Exchequer each year, he said.
However, following the doubling of foreign visitor numbers in recent years, tourism was "at a crossroads", he warned. Tourism was in a competitive market since the opening of eastern Europe and it could not afford to sit on its laurels. Cheap holidays were being offered out of Britain to eastern Europe. "The industry has become more difficult," he said.
He welcomed low-cost airlines into Ireland, but access had to be increased from north America. An open-skies agreement was required and he believed US visitor numbers could double "in a matter of a few years if we do that".
He denied he had contributed to the rip-off belief. As recently as August, in a press statement on the overall increase in visitor numbers to the country, the Minister had said "value for money and overall competitiveness continue to be huge issues facing the Irish industry".
Mr O'Donoghue said he had always spoken about the need to give value for money". The industry had responded and he now believed there was good value in restaurants and hotels.
"All I ever said was we had to offer people value for money. By that I never meant we were a low-cost destination and I got a response from the hotel and restaurant sector. We are offering good value all over the country."
The open-skies agreement was ready to be renegotiated now that the presidential election in the US was over, Mr O'Donoghue said. Aer Lingus was restricted to four destinations: New York, Boston, Chicago and Los Angeles - but it could fly out of 12 to 18 destinations if given the opportunity.
"We are also poised to attract major US airlines into Ireland," Mr O'Donoghue said.
They had a new confidence in the Ireland as a destination. He was "hopeful" even before the open-skies bilateral agreement was renegotiated, "some American airlines will take the initiative and travel to Shannon and to Dublin".
Shannon had to be given "certain guarantees" under the open-skies agreement. Those were up to the Minister for Transport, but Mr O'Donoghue said Shannon had nothing to fear and could have a great deal of confidence.