Northern Ireland: prospects for hotel investment and tourism recovery.

With much ground to make up, Northern Ireland's tourism officials have studied the province's tourism industry in detail. Now they must carry out plans to increase tourism arrivals.

Prior to 1987 anyone looking at hotel investment in Northern Ireland would have appeared extremely brave

or completely foolhardy. Since the beginning of the "troubles" - sectarian violence - in 1969, not only had Northern Ireland lost most if not all of its attraction as a mainstream tourist destination but hotels had become prime terrorist targets. The Europa, for example, endured more than one cycle of bombing, refurbishment, and rebuilding. The [TABULAR DATA FOR EXHIBIT 1 OMITTED] Drumkeen still must be rebuilt, and the La Mon experienced so much carnage that it took much time to attract a regular clientele back.

As explained in the accompanying article ("The Challenge of Northern Ireland Tourism"), the volume of tourism in Northern Ireland varied inversely with the level of terrorist incidents, which peaked in 1973, the year of the deepest trough in the number of tourists. Although violence gradually declined during the 20 years since 1973, hoteliers still had to contend with the threat of bombs and violence and an environment of political instability, and their guests faced a heavy army presence, including armored vehicles, road blocks, and barbed wire.

Even in pre-trouble times, Northern Ireland had no special advantage as a tourist destination over the rest of the United Kingdom. In a 1978 study, the Northern Ireland Tourist Board (NITB) demonstrated that even a peaceful Northern Ireland was perceived as having no advantage over the Republic of Ireland as a destination. Against this negative background, the NITB was given the job of increasing tourism to Northern Ireland.

The NITB, in conjunction with the district councils (similar to U.S. municipal governments) and hoteliers, was reasonably successful in stimulating a slow growth in hotel occupancy rates through a concentration on business travelers, encouraging tourists to visit friends or relatives, promoting special-interest holidays such as golfing or fishing, encouraging more people to take holidays at home and (taking advantage of higher prices in the Irish Republic) encouraging shopping trips. One of the most effective campaigns to attract southern visitors was the "Belfast is buzzing" campaign (initiated in 1987), which proved effective in bringing shoppers to Belfast's city center.

Hotels experienced a slow, steady growth in room occupancy from what was at the time an unheard-of low in 1973 of 32 percent [ILLUSTRATION FOR EXHIBIT 1 OMITTED] to 47 percent in 1987, the year that NITB started a new marketing program, and to 51 percent in 1994. Occupancy rates lagged behind the rest of the U.K. and Ireland (see Exhibit 2). Hotels made up for the lack of occupancy by concentrating on meetings and functions and the disco, restaurant, and bar businesses.

Against the encouraging backdrop of tourist figures that were nearly 50-percent better than those of 1973, the NITB and the Tourism Branch of the Department of Economic Development in 1987 launched a planning document "Tourism 90."(1) The document addressed key areas such as marketing, public relations, research, the development of infrastructure, and registration (or accreditation) of premises. This document also signalled the start of a more professional approach to marketing and planning by the NITB.

Exhibit 2

Comparative occupancy rates, 1987

England                         43.9%
Northern Ireland                31.6%
Republic of Ireland             38.0%
Scotland                        38.1%
Wales                           40.9%

Source: Tourist Board statistics

Apart from the detail of registration, the document was of interest to existing and potential providers of accommodations because it outlined the intention to provide grant aid to "concentrate on improving and upgrading existing tourist accommodations, extending hotels and encouraging the supply of self-catering accommodations."(2) In addition, it launched an innovative "minor-grants scheme" for projects costing under [pounds]20,000. Other grant aid was proposed to help councils develop their own tourist amenities.

Special initiatives included targeting conference business, special product packaging, and the promotion of regional tourism organizations (groups of councils to promote a region rather than an individual council area).

Resolving Problems

In 1989 the Department of Economic Development produced the planning document "Tourism in Northern Ireland - A View to the Future."(3) This document took a critical look at the contribution of tourism to the Northern Ireland economy, turning up two particularly worrying facets:

Exhibit 3

Contribution to GDP and employment, 1987

                         Contribution     Tourism as percent of
                           to GDP         total civil employment

Northern Ireland           1.57%                    0.9%
Great Britain              4.23%                    4.7%
Republic of Ireland       50.3%                     6.2%

Source: NITB/Bord Failte
Exhibit 4

Reason for staying in Northern Ireland, 1987

                         Republic of      Great      Northern
Reason                   Ireland         Britain     Ireland

VFR(*)                      21%           20%          50%
Business                    18%           23%          22%
Holiday                     49%           44%          13%
Other                       12%           13%          15%

* VFR = Visiting friends or relatives

Source: NITB/Bord Failte

* In spite of record figures in 1987, the Northern Ireland tourist sector was the weakest in the British Isles in both GDP and employment provision (see Exhibit 3); and

* The overall improvement in "tourist" figures was still dogged by the lack of real holiday-makers staying overnight in Northern Ireland (see Exhibit 4).

The only conclusion that could be drawn from these figures was that "the vast majority of those visiting Northern Ireland make the visit because they have another reason for doing so. "The report pointed out that tourism contributed a revenue of only about [pounds]15 million per year and delivered between 1,000 and 1,500 jobs - a poor return for an annual government investment of some [pounds]6 million. The report suggested "an agenda for action," which called for

* a drive to improve the image of Northern Ireland as a tourist destination,

* an attempt to address poor integration and presentation of the tourism product,

* identifying gaps in the market,

* improving the marketing of the product,

* improving the structure of the industry,

* improving the provision of amenities,

* improving the transport linkages to the province, and

* developing a new tourism organization.

In its last point, the report recognized fundamental weaknesses in the structure of the NITB and suggested ways of addressing these weaknesses. By 1990 the NITB restructuring was well underway. Its new marketing objectives included increasing the number of tourists to about 1.6 million per year by 1994 (an increase of about 70 percent over 1988 figures) with half of the increase (i.e. 300,000) being holiday visitors.

In October 1990 NITB published one of the first major sets of proposals aimed at the provision and development of accommodations primarily focused on holiday visitors, "An Indicative Plan for Tourism in Northern Ireland."(4) Under the tourism-development scheme, NITB qualified the assistance that would be given to the development of tourist accommodations. The tourism-development scheme had its roots in a bed-stock study, "A Review of the Quality and Supply of Tourist Accommodation in Northern Ireland," conducted by Horwath Consulting.(5) Horwath concluded that:

* Visitor arrivals to Northern Ireland in 1990 had increased by only 7 percent compared to 1967 (compared to an increase of 329 percent to the remainder of the United Kingdom during the same period);

* Overseas visitors represented a small proportion of total visitor numbers but 28 percent of non-domestic revenues (overseas visitors stayed longer and spent more than domestic travelers); and

* If NITB were to meet its ambitious targets for overseas visitors, "there would have to be an improvement in the quality and value for money of the accommodations to match the needs and expectations of today's and tomorrow's international visitor and to compete effectively in the tourism market place."

The report identified major weaknesses in the physical standards of bedrooms, the marketing and selling of accommodations, the lack of market segmentation, lack of branding, lack of customer awareness at all levels, and the training of management staff. It also highlighted certain fundamental issues that needed to be addressed (see Exhibit 5).

The tourism-development scheme addressed many of the recommendations in the Horwath report by targeting accommodations that would have a high "holiday visitor" appeal and specifically excluding hotels having "10-30 bedrooms and extensive function, disco, and entertainment facilities... which are aimed primarily at satisfying the local market for new guest-house developments...unless they are providing a value-added product."

The primary targets for the tourism-development scheme were:

* The development of at least three new 80- to 100-bedroom hotels offering budget-price accommodation to meet the needs of the coach-tour market and to be situated in the greater Belfast area, North Antrim, and County Fermanagh;

* A number of high-quality country-style hotels ranging from 12 to 30 bedrooms. It was pointed out that "greenfield" development (building on bare land) was less likely to get support than the development of existing houses;

* Extension projects of up to 20 bedrooms to existing hotels, primarily for the tourist market;

* The provision of new self-catering units in an area of high tourist potential and on a first-rate site;

* Priority given to areas short of rooms, such as the Mournes, Sperrins, and Glens of Antrim, although other areas would not be ruled out; and

* Minor schemes to improve the quality of guest and farm-house accommodations, in addition to the provision of accommodation for the youth travel market (i.e., hostels).

Further assistance. Since that time, in addition to the grant aid offered through the NITB and the DED, the International Fund for Ireland (IFI) and the European Community Scheme provided development grants. In 1989 IFI awarded substantial grants to the Marine Hotel in Ballycastle ([pounds]365,000), and the Kilbroney House Hotel in Rostrevor ([pounds]435,000). In 1992 IFI supported many tourism-amenity projects and guest-house, self-catering, and some new hotel development.(6)

The 1990s

In 1990 a study by Cardiff University and Queen's University of Belfast included a census of Northern Ireland hotels and a sample of Republic of Ireland hotels.(7) The report found little differences in the degree of optimism for the future between hoteliers in the north and south, in spite of the troubles. Northern Ireland hoteliers in common with their southern counterparts expressed cautious optimism about the future but stressed that more could be done in developing the industry infrastructure and in marketing hotels if more government assistance were forthcoming. Another important factor identified as being necessary for future growth was staff development and training, especially management training.

The years between 1989 and 1993 saw hotel-room occupancy stabilize at around 49 percent (refer to Exhibit 1). As discussed in the accompanying article, the August 1994 ceasefire announced by contending groups led to a surge of visitors in the last three months of the year (with hotel bookings up 8 percent) and a record December occupancy rate of 44 percent compared [TABULAR DATA FOR EXHIBIT 6 OMITTED] [TABULAR DATA FOR EXHIBIT 7 OMITTED] with 32 percent in December 1993. The overall figures for 1994 showed that there were 1.29 million visitors compared to 1.25 million in 1993 - an increase of 3 percent against the forecast expectation of a 1-percent increase. The growth in arrivals translated into a hotel-room occupancy rate of 51 percent for 1994.

This surge in tourism has been supported by a massive increase in interest in Northern Ireland as a destination with inquiries to NITB offices running at unprecedented levels.

The NITB has attempted to convert this initial interest into long-term growth of tourism with focused advertising campaigns in Scotland and the Irish Republic, such as "Northern Ireland: You'll Never Know Unless You Go." As of mid-1995, this campaign appeared to be paying dividends, and the number of Scottish visitors was expected to pass the 200,000 mark for the year. In addition, a [pounds]6-million "Ireland's Vacations" cooperative advertising campaign promoting the whole island was rolled out in the United States, Great Britain, France, and Germany.

The NITB has had to reappraise its targets for the future. With tourism currently producing only around 2 percent of GDP (compared to around 7 percent in Scotland and the Republic), it is obvious that there is a real potential for growth. The current forecasts for this year (1995) of 20-percent growth in total visitors (including a 35-percent rise in holiday visitors) and 1,000 new jobs look relatively conservative. The NITB's goal of an extra million visitors a year, a tripling of tourism's contribution to GDP, and a potential 20,000 new jobs looks at least feasible if the current cessation of violence can be turned into a more permanent political settlement.

This confidence is also echoed by the local district councils in a census of chief executives carried out in March 1995 by the authors of this paper. All of the respondents were in agreement that tourism could become one of the major employers in Northern Ireland. In addition, most of them reported an upgrading of accommodations and amenities in their area over the past five years and projected increased activity in the provision of accommodations, facilities, and marketing support for the future.

Potential Hotel Investment

As can be seen from Exhibit 6, there has been little growth in the overall number of hotels and bedroom stock since 1983. Many of the supply gains from new hotels were cancelled out by the loss of others due mainly to terrorism. As shown in Exhibit 7, since 1989 when the NITB focused development on hotels for visiting tourists, there has been a modest increase in the number of hotels (3.25 percent) and a more substantial increase in the number of bedrooms (22.5 percent). There are still only four 4-star hotels but there has been a substantial upgrading of the facilities of most other hotels, with 93 percent of all hotels boasting private facilities compared with only 58.8 percent in 1983 and 80.4 percent in 1989. In addition there has been overall improvement in NITB classifications for the majority of hotels.

When one looks at the guest- and boarding-house sectors, it can be seen that there has been a substantial increase in both the number of guest houses (18 percent) and the number of bedrooms (11 percent) and a smaller, although still substantial, increase in the number of boarding houses (8.1 percent) and of bedrooms (11.6 percent). As with the hotel sector, there has been a significant degree of upgrading of facilities especially in the guest-house sector with 55.3 percent of guest houses offering private facilities (March 1995) compared with 21.7 percent in 1989.

The largest increase in accommodations has been in self-catering establishments (239.5 percent), which in turn makes up a large part of the overall total growth of 30.9 percent in tourist accommodations from 1989 to March 1995.

More to come. The potential for hotel development in Northern Ireland could be large, provided tourism levels continue to grow.

* The NITB in its Tourist Development Scheme identified what it perceived to be the gaps in provision of hotel accommodations in terms of the 1989-90 figures and trends. Some of these gaps have been filled but others still remain. The tourism increase makes these forecasts conservative.

* The council survey conducted by the authors has highlighted demand in various regions for new hotels, with some hotels mentioned as being at various stages of the planning cycle.

* The Horwath report highlighted many of the weaknesses of the current bedroom stock. Many of these have been addressed by subsequent upgrades of hotel rooms, but until the Hilton comes on line in Belfast, Northern Ireland will not be represented by an international chain hotel.

* Much of the current investment in hotels was committed before the cessation of violence, including the [pounds]6.6 million rebuild of the Hastings Group's Europa Hotel, the [pounds]17 million investment by the Hilton International Group at Laganbank (adjacent to Belfast's new convention center), and the [pounds]10 million investment by the Radisson Group in the Radisson Roe Park Hotel in County Londonderry.

* The Royal Institution of Chartered Surveyors (RICS) in February predicted that hotel development will prove to be one of the major sources of construction employment in Northern Ireland, providing a balance to the loss of work among security agents.

* Graham Gudgin, director of the Northern Ireland Economic Research Centre has predicted a requirement for about 40 additional large hotels. Twelve of those properties are already at the planning stage, while four of the proposed additional hotels are made moot by the Radisson development.

* Northern Ireland's major chain, Hastings Hotels, which operates the Everglades, Ballygally Castle, Europa, Culloden, Stormont, and Slieve Donard Hotels, has not been slow to demonstrate its confidence or its willingness to meet incoming competition. Hastings recently announced plans for a [pounds]24 million investment to build a hotel in Dublin (to give the group an all-Ireland dimension), together with a refurbishment package of [pounds]2.5m for the Slieve Donard Hotel and a [pounds]1.5m package for the Everglades Hotel. The group hopes to gain a coveted fifth star for its Culloden Hotel and a fourth star for the Stormont Hotel. In addition, the group has announced that it has implemented extensive training programs for its staff. The Stormont Hotel recently became the first hotel in Northern Ireland to achieve "approved center status" for developing its supervisors to give in-house training to staff.

Amid the euphoria about the future of tourism in Northern Ireland, one study stresses a note of caution. Consultants BDO Stoy Hayward found that there was only cautious optimism among Northern Ireland hoteliers about their future [TABULAR DATA FOR EXHIBIT 8 OMITTED] prospects.(8) The study found that although nine out of ten hoteliers expressed the opinion that they were optimistic about the following three months, that ratio was lower than that of the previous quarter, when nearly all respondents were optimistic or very optimistic. Economic rather than political factors worried the hoteliers most, particularly the fear of a downturn in the U.K. economy [ILLUSTRATION FOR EXHIBIT 8 OMITTED]. While most were confident that the downturn in the industry had ended, they were cautious about the length of time it might take to show a definite improvement. Nearly two-thirds expected a full recovery would take 12 months or more.

Most reported that business was much better or much the same as last year, with few reporting a worsening position. Roughly half of the hotels planned to increase their expenditures on marketing, advertising and training, as of December 1994. None planned to decrease their spending. About half reported that staffing would remain the same and half said it would increase. Nevertheless about one-quarter reduced staff in the late months of 1994. A substantial proportion were contemplating tariff increases, which once again is an indicator of future confidence.

Hopes for a Settlement

The odds appear strong that if the ceasefire holds, Northern Ireland will experience substantial short-term tourist gains, especially considering the marketing efforts of the NITB, the councils, and the hotels. In the short term the many tourism inquiries will mean increases in business for existing hotels and a promising environment for new hotels coming on line.

If the growth continues, there is no doubt that there will be a need for further hotel development in the medium- to long-term together with a concomitant development of standards in existing hotels and other tourist services (a point made both. by the Horwath report and the council survey conducted by the authors). If the growth in tourism continues, there will be excellent investment prospects, especially if the grant aid from the various sources continues. In addition, increased investment in Northern Ireland will lead to greater business traffic and thus there should be opportunities for hotel development in virtually all segments of the market.

A distant cloud. Any sustained tourism growth depends on a permanent political settlement. While there is currently a huge craving for peace among virtually all the country's residents, a political settlement is not really in sight. For a lasting political settlement, all parties must make serious compromises on longstanding political viewpoints. The necessary consultative process for such a possible compromise has not yet begun. Thus, while prospects for hotel investment in the Northern Ireland tourist industry have improved, investors still are gambling on continued growth that is linked to permanent peace. In the meantime, if the ceasefire breaks down operators of the new hotels and existing operators alike will be facing not a growing market but one closer in size to that of 1993.

Exhibit 5

Horwath's lodging survey and recommendations

Findings

* interior design is often dated and furnishings in need of repair;

* There is little or no integrated approach to design;

* Bedrooms command the lowest priority in all aspects, including investment, levels of finish, and standards of service;

* Properties are, consequently, not keeping pace with the current and anticipated future demands and expectations of tourists;

* The origins of many hotels in, and continuing emphasis on, food and beverage means:

- large, unimaginative, impersonal, and unfocused restaurants,

- extensive and unimaginative menus compromising quality in favor of wide choice,

- hotel guests alienated by function guests, and

- bedrooms as an "add-on" rather than an integral part of the business;

* The overall image included:

- unprofessional operations,

- a lack of training and experience, and

- a lack of awareness of changing attitudes to service standards; and

* The accommodations supply falls short in the provision of a product to satisfy the needs and expectations of consumers and offers poor value.

Recommendations

* The targets set by the government in 1989 for the tourism industry in Northern Ireland, including their implications for accommodation demand, should be reviewed regularly in line with changing international demand patterns;

* The hotel industry must be committed to the tourism strategy and goals for Northern Ireland;

* The new scheme of classification and grading of accommodations must be applied rigorously;

* The quality of the product, particularly lodging, to meet market demand, must be improved through new development or redevelopment to higher standards;

* Hoteliers should be assisted in the development of business and marketing plans that are in line with the tourism strategy and goals;

* Professionalism in management should be encouraged by facilitating educational activities and programs;

* The training and development of new and existing employees within the sector must be supported;

* Appropriate marketing techniques in hotels should be developed;

* Hotel marketing and reservation techniques in source markets must be improved; and

* Financial assistance should be channelled toward properties and management that are providing or that are aiming to provide the higher standards necessary to compete successfully in the wider tourism market.

Source: Horwath Consulting Report

1 Tourism 90 (Belfast: Northern Ireland Tourist Board, 1987), pp. 1-45.

2 Self-catering accommodations comprise mobile homes known as caravans, apartments, and, in rare instances, houses.

3 Tourism in Northern Ireland - A View to the Future (Belfast: Department of Economic Development, 1989), pp. 1-24.

4 "An Indicative Plan for Tourism in Northern Ireland," Northern Ireland Tourist Board, October 1990.

5 "A Review of the Quality and Supply of Tourist Accommodation in Northern Ireland," Horwath Consulting, 1990, p. 8.

6 "The Guest House Initiative," International Fund for Ireland, 1992, p. 15.

7 "The Main Factors Influencing Success and Growth in The Small and Medium-sized Hotel Sector in the British Isles," Cardiff University and The Queen's University of Belfast, March 1990.

8 "The October to December 1994 Quarterly Northern Ireland Hotel Confidence Survey" produced by BDO Stoy Hayward

A.J. Titterington, ABD, is a lecturer in marketing and business strategy in the School of Finance and Information at the Queen's University of Belfast. Ron Lennon, Ph.D., is associate dean and professor of marketing at the Andreas School of Business at Barry University, Miami, Florida. The author acknowledges the research funds provided by the British Council and support provided by the Queen's University of Belfast.