Committee Reports > List of Committees > Dáil > 1987 > Committee on Public Expenditure > Report No. 23 - Review of Public Expenditure on Tourism

Appendix III

REMARKS BY MR MICHAEL MACNULTY, DIRECTOR GENERAL, BORD FAILTE TO THE DAIL COMMITTEE ON PUBLIC EXPENDITURE

Tuesday, 30 September 1986

Bord Failte’s primary objective is to provide economic and social benefits for the people of Ireland through tourism; in other words, to earn the maximum foreign revenue possible with the consequential benefits of increased employment and a higher standard of living.

Irish tourism is a product which competes openly in the most rapidly growing and ruthlessly competitive international market. Each year new destinations emerge, often with large budgets, to compete for the attention of holidaymakers. Ireland is on the international supermarket shelf as surely as any manufactured or agriculture product.

Last year, 1985, was an excellent year for tourism here. Earnings from the overseas markets reached a record level and this was evident throughout not only the industry but in other sectors such as retailing, entertainment and restaurants.

We had looked forward to a satisfactory year in 1986; unfortunately, international terrorism had its well-documented affect on the US market and consequently we expect our earnings to be below 1985 but still ahead of the previous year.

While tourism is generated by economic forces, other factors can and do dominate from time to time. We are all too aware of the effects of political violence on the industry; between 1969 and 1972 Ireland lost its growth momentum due to Northern Ireland and suffered a drop of almost 500,000 visitors during that three-year period. No other competitor destination has ever had such a traumatic factor to contend with. Indeed, it is still there as a serious inhibiting factor; our research indicates that up to 40% of our potential market still discount Ireland because of their perception of Ireland as a country in turmoil.

As I have said, tourism is affected by economic forces where it goes depends, over time, on relative price levels. In our case, our very high domestic inflation, which in Europe was not compensated for by currency changes because of the EMS, resulted in rapid increases in real prices over and above the competition. Between 1979, which was the record year for tourism, and 1984 our real price competitiveness fell by one-third - in other words, potential customers saw Irish holiday costs grow by over 30 per cent - way out of line with competing destinations. Inevitably, this took its toll and our European business fell for the first time ever.

Happily, now our inflation is down to less than 5%, fiscal policy related to tourism has changed and the erosion of our competitiveness has slowed greatly.

Between the periods of special difficulty which I have referred to, Irish tourism performed well in world terms but these factors were so strong that our share of world tourism is not now as high as it otherwise would have been.

The manner in which tourism has coped with these external influences, and has recovered lost ground, amply demonstrates the industry’s inherent resilience and Ireland’s ability to compete as a solid and worthwhile tourism destination.

It is generally accepted that world tourism will grow between 3 to 4% per annum and may well be the world’s largest industry by the year 2000. The challenge before us is not to excuse the past, but to understand its lessons and ensure that the essential partnership in Irish tourism - the public and private sectors, will take the necessary steps to see that the industry gets the support and the resources needed to realise its enormous potential. The benefits are obvious - higher levels of foreign revenue, resulting in additional employment; this employment will not be subject to the vagaries of ever increasing high technology and the cost per job created is very low.

At present it is estimated that tourism generates around 80,000 jobs. This is considerable but is not the only benefit to the economy. Exchequer receipts directly from tourism earnings are estimated at £450 million; the direct State expenditure on tourism is around £30 million - a return annually of 15 to 1. There are few if any other economic activities producing this level of direct return to the State.

The other benefits are socio-economic; tourism spreads itself throughout the more disadvantaged areas of the country and provides business and job opportunities in many areas which have few other forms of economic activity at present.

Tourism is one strong argument for the preservation and conservation of our natural environment. Enhancement of the environment benefits all of us, not just visitors. It is the cornerstone of the industry but an aspect of life today that is constantly under threat and, by and large, under-funded by many agencies involved in its upkeep. We must give a higher priority and greater urgency to cherishing and enhancing our environmental and, indeed, our cultural heritage.

Turning to Bord Failte for a moment; as you know we received £27 million in grant aid this year. Of this, we devoted £17 million to marketing, £4m to development activities and £2m to Regional tourism. We have, at present, 304 staff, compared to 405 in 1973. This reduction has been deliberate as we saw the necessity to reduce overheads in order to increase our marketing budget. Recently we announced the closure of five public offices abroad in order to transfer additional funds from bricks and mortar to more direct promotional purposes. The offices were no longer essential in the light of customer needs and today’s technology. This streamlining was necessary because our overall budget has actually fallen by 16% since 1979. Our capital budgets have fallen even more - by 37% in the same period. If we were to be involved in the same level of capital development as in the 1960s, we would require funds of £20 million this year. In fact, we have a capital budget of £4 million. It is obvious to us that Ireland is lagging behind other European countries in providing the range and quality of facilities that visitors experience elsewhere, and this is a matter of concern as we plan for the future.

I have already referred to our belief that Irish tourism can achieve significant growth in the future. However, there are a number of barriers to be overcome if the industry is to reach its undoubted potential.

The most important factor is that Ireland remains price competitive; by this we mean that inflation must stay in line with our competitor destinations, that fiscal policy treat tourism as an internationally traded product and gives it recognition as such. The Report of your Advisory Panel has made recommendations in this regard, with which we would agree.

As I said, our competitiveness generally took a hammering in the late 70s/ early 80s and, for many potential visitors, prices in Ireland are still regarded as too high. While the industry is faced with relatively high domestic costs, I believe that now more than ever constraint must be used to get the balance right between price and value for money. It is this which determines whether we have a satisfied or dissatisfied customer and we depend heavily on satisfied customers to recommend Ireland to their friends.

Next, because Ireland is not a primary holiday destination, it requires a greater degree of marketing than many countries such as Britain, France and Italy. The private sector will have to do more in this regard but, as our industry comprises mainly small family businesses, any further substantial investment may have to come from public funds. I believe that because of the tremendous costs, and potential, involved in overseas marketing, we need extra resources in order to make the necessary impact on the mass of potential customers who do not as yet know sufficient about us to come here - or whose impressions are dominated by unrest or violence.

We are conscious of the need to achieve the highest possible level of product quality. The type and standard of accommodation, catering and visitor facilities which we offer must be at least the equal of those in other competitor countries. Bord Failte grant and advisory services are geared towards achieving this.

However, Mr Chairman, the fundamental area of concern to us is the cost of access to Ireland. If the potential customer does not come because fares are too high, the country loses out.

It goes without saying that for an island holiday destination, competitive, efficient transport services are essential. The fare to Ireland is the first cost with which the customer is confronted and many potential customers are at present being turned off.

Until the publication of the Green Paper last year there was no publicly articulated Government policy on transport and the bulk of the evidence suggested that the de facto policy was effectively framed in the carriers’ interest rather than the tourist interest and, we would argue, the wider national interest. This situation is changing as the EEC moves towards liberalisation. We have seen major developments this year on the London air route. Cheaper fares have now dramatically increased the number of people travelling by air.

While some of this business has transferred from sea, lower and more competitive airfares will generate additional tourist trips which otherwise would not have been made.

In the same way, cheaper fares by sea will also produce more business and we hope that the sea carriers will introduce lower promotional fares to stimulate extra traffic.

The airfares between America and Ireland have been competitive for the past few years, but the fares to Ireland from Europe represent one of the biggest problems facing us from the Continent. The fares on existing scheduled services are not attractive - indeed in some cases it is cheaper for an Irish person to fly to France than for a French person to fly to Ireland.

Whilst we are aware of the problems of the carriers, Ireland requires for both air and sea access, fares which are competitive to those to other destinations offering a similar holiday. It is particularly urgent that sea fares from Britain and airfares from mainland Europe are brought down to levels which resemble those to other neighbouring countries.

I have deliberately painted a very broad canvas and I have tried to touch on four or five of what we in Bord Failte see as the principal challenges - and opportunities - facing our industry. I am realistic enough to know that everything will not be achieved overnight; there are long and short term objectives to be attained. It is now becoming more accepted that tourism is an industry whose potential has perhaps been under-estimated heretofore. We look forward to assisting you, Mr Chairman, and your Committee in any way we can to help in the process of enhancing the industry and expanding its role in revenue earning and the creation of jobs.

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Appendix i

BORD FAILTE BUDGET ALLOCATION 1985

Item (3)

BORD FAILTE ADMINISTERED FUNDS 1985 PRICES

(Inflation of 3.5% assured for 1986).

Item (4)

The following table shows the change in Bord Failte Subvention of RTO Funding since 1981:

The reduction to 56% for 1986 is ahead of the target (65%) set after the RTO Policy Review.

Breakdown on RTO basis of Bord Failte Subvention

Item (5)

COSTS AND BENEFITS

Bord Failte’s market expenditure in each major overseas market is shown below together with the total tourism revenue of that market. Expenditure as a percentage of revenue is also given for the three years 1983-85 and it can be seen that, overall in 1985, revenue grew more quickly than expenditure a the figure improved from 2.16% to 1.95%.

* Including carrier receipts.

Item (6)

Bord Failte Marketing Budget and Forecast Revenue 1986

Item (7)

- Bord Failte Permanent Staff

* 1986 - End August