Ireland’s largest hotel group has warned that consumer discretionary spend could be hit by inflationary costs in the future.
While Dalata Hotel Group has not seen any impact a yet of cost of living pressures, it plans new initiatives to reduce costs.
The company said: “The trading environment remains challenging with global inflationary cost pressures around food supply, payroll and particularly energy.”
Dalata has either purchased or locked in prices for approximately 75% of its consumption for electricity and 65% of its consumption for gas for the second half of 2022.
“The group continues to see significant benefit from its previous investment in systems to manage labour costs, procurement and food and beverage sales and margins,” it added.
“We continue to progress our committed pipeline of 1,125 rooms that are expected to open between 2023 and 2025. We are actively looking at new opportunities across all our regions, including continental Europe.”
The update came as Dublin-based Dalata reported a pre-tax profit of €52 million for the half year to June 30 against a loss of almost €38 million in the same period last year.
The result came as business levels surpassed levels achieved in the equivalent pre-pandemic first half of 2019 with revenue up by 9% to €220.2 million.
The firm entered lease for first hotel in continental Europe, opened its 50th property with a Maldron hotel in Dublin with Clayton Hotel Glasgow City to follow in October.
Other hotels are under construction in Brighton, Liverpool, London and Manchester.
“Increasing footprint in regional UK and London remains our primary focus but also looking at large European cities for growth opportunities,” Dalata said.
Bookings are driven by continued strong leisure demand and an active events calendar. As is normal for this time of year, corporate travel decreases during the summer months but we expect this to increase from September. We are cautiously optimistic on trade for the remainder of the year.
“Supply in Ireland remains reduced as a result of rooms being utilised for government related business including the provision of emergency accommodation to refugees fleeing the war in Ukraine. At present, it is not known when these rooms will return to the market.
“Dalata has committed up to 5% of its rooms in the Republic of Ireland to be used as emergency accommodation until the end of 2022.
“Although we have not seen any impact on demand to date, inflationary costs may impact consumer discretionary spending in the future. In the face of these challenges, Dalata continues to focus on its sales and dynamic pricing strategies to optimise revenue and apply its normal cost disciplines including driving new initiatives to reduce costs.”
Chief executive Dermot Crowley said: “The first half of 2022 was a period of strong recovery after the lifting of Covid related restrictions at the end of January.
“The year to date has also been very busy on the development front with the addition of six hotels (1,600 rooms) across four cities.
“This includes our first exciting step into continental Europe as we entered the lease for Hotel Nikko Dusseldorf.
“Despite a challenging start to the year, we delivered revenues of €220.2 million for the period, exceeding the levels achieved in the first half of 2019.
“We continue to explore innovative and new ways in which we operate our hotels for the benefit of all stakeholders and are conscious of the need to mitigate the impact of inflation on our cost base.
“While technology will play a crucial role in managing costs going forward, the interest rate on our term debt to October 2024 is fixed and 60% of our rent is fixed until 2026, which will support us in the period ahead.
“I am personally delighted with the progress we have made since the start of 2022. I want to personally thank the entire team of people within Dalata for delivering six additional hotels and an excellent trading recovery.
“Despite the macroeconomic challenges, we look forward with optimism and enthusiasm to the months and years ahead.”
- David Brohan, equity analyst at investment banking specialist Goodbody, described the results as “reassuring, reflecting how the sector continues to recover at pace due to soaring demand for holidays post-pandemic”.
He added: “A major factor impacting margins for the industry in H2 and into 2023 will be energy costs.
“Having hedged 70% of its electricity and 65% of its gas for H2, while also reducing the energy consumption per room sold by 17% since Q2 2019, Dalata are well placed to navigate the current volatility in energy markets in the second half of the year.”