The fact that the number of European visitors who see Ireland as good value for money has fallen from two-thirds to one-third in six years is very disturbing, writes John O'Donoghue
The past couple of years have been difficult ones for Irish tourism. After 10 years of uninterrupted growth, the industry suffered two major blows in 2001 - the outbreak of foot-and-mouth disease and the impact of the tragic events of September 11th. But this year has also seen the emergence of a vigorous national debate on the competitiveness of Irish tourism and the prices being charged for the tourism product here.
As Ireland's inflation level over recent years has begun to increase, our competitive position as an international tourism destination appears increasingly under pressure. Moreover, favourable exchange rates with the US dollar and sterling are unlikely to be sustained in the medium term and if they deteriorate, may unmask potentially serious issues relating to the maintenance of Ireland's competitive position. The challenge to be faced can be gauged from the value-for-money perceptions of visitors to Ireland from mainland Europe.
For example, in 1995 almost two-thirds of European visitors surveyed on behalf of Bord Fáilte rated Ireland as giving very good or good value for money. But by 2001 the corresponding proportion had declined to just one-third. This deterioration is even more acute if one looks specifically at the German market, although Italy, the Netherlands and France are showing similar trends. These are very disturbing developments.
The items that were considered less than good value by two-thirds of visitors surveyed were "eating out", the "cost of drink", the "cost of living generally" and "food in shops". Such comments are particularly worrying as nearly 60 per cent of tourist expenditure is on accommodation, food and drink.
A review of prices in the overseas marketplace indicates that the immediate problem with the competitiveness of the Irish tourism product is not apparent at the point of sale. An analysis of offers in the marketplace carried out in Germany indicates that Ireland holiday offers are not necessarily more expensive than holidays in directly competing destinations. There is also some evidence to suggest that accommodation prices in Ireland are not out of line.
The deteriorating perception of value for money is clearly focused on costs on the ground. This is borne out by the results of recent studies. A Forfás study indicated that Ireland is the second most expensive country in the euro zone behind Finland. The latest ranking of consumer prices positions Ireland as the joint most expensive country out of the 12 euro countries under the heading of pubs and restaurants and second most expensive for drink. While the national annual rate of inflation is currently running at 4.5 per cent, inflation rates for the restaurants, hotels and licensed premises category and for the recreation and culture category are running very considerably in excess of that figure.
It is highly probable that visitor perceptions of value in Ireland will be further eroded this year. There was evidence of abnormal price increases in a number of sectors during the first quarter of 2002. The weakening of the US dollar will strip away the long-standing exchange rate cushion. Furthermore, the ease with which comparisons can now be made, not only by euro zone residents but also by US visitors to Europe, will subject Irish prices to more critical scrutiny.
So what lessons can we learn from the above analysis? The responsibility of the tourism industry is to keep prices in check. It must put in place the necessary modern business practices to improve productivity, control costs, improve human resource management and utilise modern technologies.
The Government, too, must play its part. I will be looking to the new National Tourism Development Authority - combining the current functions of Bord Fáilte and CERT - to devise strategies to encourage the tourism sector to confront the new challenges which they face.
The more modest growth rates in the economy anticipated over the next few years should help to exercise downward pressure on prices. The Government will robustly pursue sound macroeconomic policies that serve to reinforce a favourable business environment.
The Tánaiste, Ms Mary Harney, has recently announced Government action to address insurance costs. The tourism industry has argued that the current weighting in fiscal policy on indirect taxation may be putting upward pressure on prices, and no doubt this will be very vigorously debated in the context of evolving budgetary policy.
Having said that, our VAT rates on tourism services and our excise duties, although high in the euro zone context, are not out of line with the north European model and the reality is that the southern European sun destinations that charge lower rates are not in direct competition with Ireland as a tourist destination.
Much of the debate in Ireland on tourism prices this year has been emotive and anecdotal.
There is no doubt that excellent value for money may continue to be obtained here when quality and costs are taken into account, bearing in mind that Ireland is not a low-cost mass tourism destination, but we must be vigilant in ensuring that our price competitiveness is not eroded. I believe that through resolute action on the part of the tourism industry, with the assistance of the Government, we can do much to safeguard the future prospects of an economic sector that generates €4 billion in annual overseas revenue and accounts for employment of 150,000 workers.
John O'Donoghue is Minister for Sport, Arts and Tourism