Submission To The Tourism Policy Review Group

ITIC sets out a strategic vision and makes specific policy recommendations.

I. BACKGROUND

1.1. In October 2002, the Irish Tourist Industry Confederation (ITIC) published its study ‘The Impact of Tourism on the Irish Economy – The Need for a Future Development Strategy’. ITIC would request that this study be treated as part of its formal submission to the Review Group;

1.2. The study set out to achieve three objectives:-

(a) To describe and quantify the very substantial – and often under-rated – contribution made by tourism to national economic development in recent decades. This contribution was assessed under the headings of tourism-induced additions to national employment, consumer spending, physical capital investment and balance of payments stabilization. The singular contribution of tourism to regional development was specified while the significant tax take generated by tourist spending was quantified;

(b) To emphasize that there is no inherent guarantee underwriting the future growth of Irish tourism. Tourism in Ireland will not expand in the future simply because it prospered in the past. Moreover, the study identified a number of threats to future Irish tourism growth. These included: weak income growth in traditional source markets for Irish tourism; the erosion of price competitiveness in Irish tourism due both to excessive Irish inflation and adverse currency movements; deteriorating perceptions of the value for money offered by Irish tourism, reflecting combined concerns over prices, product quality and service quality;

(c) To initiate the preparation of a tourism development strategy that would not only address pressing current operational issues such as enhancing value for money, but would also chart a comprehensive and imaginative course for the tourism industry’s development over the medium-term.

1.3. In consequence, ITIC welcomed the establishment of the Tourism Policy Review Group by the Minister for Arts, Sport and Tourism, Mr John O’Donoghue TD.

1.4. In this submission to the Review Group, ITIC sets out its strategic vision, identifies policy objectives, amplifies and expands upon the types of policy instruments that can be used to achieve those objectives and makes specific policy recommendations in a number of key areas.

II. CURRENT ECONOMIC CONDITIONS

2.1. The work of the Review Group has been made more onerous and the outcome of its deliberations more important by the deterioration in both domestic economic conditions and in the international politico-economic environment in recent months.

2.2. Domestically, since the ITIC study was published last October, the Government has indicated that real Gross National Product managed to grow by a disappointing 1.8% last year. Nor is the outlook for the current year much brighter. Budget 2003 forecasts that real GNP in 2003 will expand by just 2.2%, well below the economy’s potential rate of expansion.

2.3. Internationally, the advent of war in Iraq is creating instability in all markets. This is particularly evident in tourism markets where potential tourists – particularly from the United States – are significantly less willing to travel overseas.

2.4. The ITIC study last October stated “economic forecasts for 2003 do not indicate a rebound to robust growth in the industrial world next year”. Since then the growth outlook has deteriorated quite sharply, particularly in Europe, as shown in Table 1

TABLE 1: FORECASTS FOR REAL GDP GROWTH IN 2003
PERIOD Euro Area Britain France Germany Italy USA
AUTUMN 2002 1.8% 2.5% 2.0% 1.4% 1.8% 2.3%
FEBRUARY 2003 1.3% 2.3% 1.5% 0.6% 1.2% 2.5%
Sources: European Commission Economic Forecasts, Autumn 2002
Consensus Forecasts, The Economist, February 2003

The failure of demand conditions in Ireland’s principal source markets to evince
signs of strong growth will stunt the pace of Irish tourism expansion in the short-run.

2.5. Ireland’s rate of consumer price inflation continues to run at more than twice the average for the Euro area, as can be seen from Table 2. This will make it difficult for Irish tourism to hold its share of existing and new markets in 2003.

TABLE 2: CONSUMER PRICE INFLATION – 12 MONTHS TO JANUARY 2003

Ireland

4.8%

Euro Area2.1% Britain2.9%

France

2.3%*

Germany

1.1%

Italy

2.8%

USA

2.4%*

Source: Central Statistics Office; The Ecomonist  *Twelve months to December 2002

2.6. Moreover, in some tourism-related segments, rates of price increase continue to outstrip the national inflation rate. This is shown in Table 3.

TABLE 3: IRISH INFLATION RATES: 12 MONTHS TO JANUARY 2003
SEGMENT FOOD* DRINK /
TOBACCO
RECREATION
& CULTURE
RESTAURANTS
& HOTELS**
TOTAL
PRICES
INFLATION 2.4% 11.7% 4.5% 7.7% 4.8%
*Includes non-alcoholic beverages / **Includes alcohol served on licensed premises.
Source: Consumer Price Index – January 2003, Central Statistics Office, Table 3

The scale of the 11.7% increase in alcoholic drink and tobacco prices in the year to January 2003 is largely explained by the additional excise and VAT impositions in the Government’s Budget for 2003. The competitiveness of the tourism sector was further undermined by the raising of the lower rate of VAT from 12.5% to 13.5%, with the new rate taking effect from 1st January, 2003.

2.7. Finally, the Euro exchange rate has strengthened from US $0.93 at end-May 2002 to US $1.08 at end-February 2003, effectively raising Irish prices facing US tourists by 16.1% compared to last Spring. Against sterling, the Euro has risen from 0.64 to 0.68 over this period, adding a further 6.3% to costs facing British tourists to Ireland.

2.8. In summary, against a backdrop of weakening international demand, Ireland’s tourism industry has suffered a further severe erosion of price competitiveness since the start of the last tourist season. This loss of competitiveness is due to two factors. First, Irish prices have continued to rise faster than prices in the principal source markets for Irish tourists. Second, the depreciation of the US dollar and sterling against the Euro over the past nine months has raised Irish prices yet further for potential US and British visitors in terms of their domestic currencies.

2.9. Table 4 shows the effective rise in Irish prices facing visitors since Spring 2002.

TABLE 4: RISE IN IRISH PRICES FACING TOURISTS SINCE SPRING 2002
MARKET EURO AREA BRITAIN UNITED STATES
SPRING 2002 100.0 100.0 100.0
FEBRUARY 2003 103.2 109.7 119.8
INCREASE 3.2% 9.7% 19.8%

III. TERMS OF REFERENCE: METHODOLOGICAL ISSUES

3.1. In broad terms, ITIC supports the terms of reference governing the work of the Review Group. ITIC believes that, in meeting the terms of reference, the Review Group will generate the information and analysis required to formulate a development strategy for the industry.

3.2. However, ITIC is concerned that the terms of reference, taken together, lack a strategic shape. ITIC believes that this can be remedied relatively easily with the following amendments.

3.3. PHASE 1: REVIEW OF TOURISM PERFORMANCE AND PROSPECTS

As shown in Table 4, since the Spring of 2002, effective Irish prices have risen by almost 10% for British tourists and by close on 20% for US visitors.

(i) The historic data, analysis and projections generated in this section need to be codified into a strategically-useful set of conclusions at the end of the section. To this end, ITIC would suggest the inclusion of a simple SWOT analysis at the conclusion of Phase 1, showing:-

(INTERNAL) * STRENGTHS * WEAKNESSES

(EXTERNAL) * THREATS * OPPORTUNITIES

(ii) Bullet Point 4 of Phase 1 sets the Review Group the following task: “ Assess the future tourism market potential for Ireland in terms of priority source markets, categories of visitors, changes in holiday-taking trends and level of international competition”. The onerous nature of this task, in the available time frame, should not be underestimated. For it requires:-

(a) Projecting future demand levels for international and European tourism;

(b) Simulating the supply side of Irish tourism by major market segments;

(c) Developing forecasts of future exchange rate adjusted competitiveness;

(d) As a result, deriving Irish market shares by principal market segments.

3.4. PHASE 2 – STRATEGY FOR FUTURE SUSTAINABLE DEVELOPMENT

(i) ITIC is of the view that it is crucially important, at the outset, to establish an overall strategic objective for the medium-term development of the tourism industry.

(ii) Given a strategic objective, it is also important that a strategic framework be developed within which proposed policies under the eight bullet points listed can be checked for internal coherence;

(iii) The regional and small enterprise dimensions of tourism’s strategic development should be included in any comprehensive strategy;

(iv) The final strategy should be assessed against the proposed SWOT analysis.

IV. ITIC’s STRATEGIC VISION

4.1. A VISION OF QUALITY

Tourism is embedded in the fabric of the Irish economy. It cannot divorce its absolute level of costs and prices from those prevailing elsewhere in the economy. In addition, the national inflation rate in large measure determines the rates of increase in tourism costs and prices. Externally, Irish prices, denominated in foreign currencies, are subject to foreign exchange shocks over which neither the Irish Government nor the tourist industry can exert any control.

The ITIC study of October 2002 showed definitively that, in terms of absolute prices and costs, Ireland is now an expensive country. In absolute price terms, it is the second most expensive country in the Eurozone and the fifth most expensive in the European Union.

Every effort must be made to preclude a further deterioration in Ireland’s relative price position. Such efforts to contain future inflation should focus in particular on:-

(i) Securing undertakings from Government that it will not increase tourism-sensitive purchase taxes in future budgets;

(ii) Reducing inflation, particularly in the non-traded services sector, by a more vigorous use of competition policy;

(iii) Encouraging tourism providers to innovate new low cost products in highly visible price sensitive tourism segments. Useful initiatives have recently been introduced in this sphere.

The increases in the Irish price level in recent years, both in absolute and in relative terms, does not diminish opportunities for the successful development of Irish tourism in the years ahead. It does, however, fundamentally shift the focus of tourism strategy. The operating environment for Irish tourism has changed. As a result, the drivers of growth in the future have also changed. The future scope for engendering sustained large increases in traditional tourism products is limited. In this changed environment, the strategic focus must shift from price competitiveness to improving the product and quality offering to potential visitors. This shifts the central question in the tourism argument from “Is it inexpensive ?” to “Does it represent value for the price charged ?”. Strengthening industry competitiveness in the future thus depends crucially on quality. This embraces the quality of product choice, the quality of individual tourism products and the quality of service with which tourism products are delivered.

The central thrust of this ITIC submission holds that improvements in the medium-term competitiveness of the tourism industry depend crucially on developing the industry’s capability, its product range and product quality. As indicated in the ITIC study of October 2002, the physical capacity of the industry has been greatly enlarged and extended by the scale of investment during the 1990s.

The emphasis now should shift to leveraging up investments in human capital – business capability, management development, innovation, employee training – with the objective of building the product range, developing the product distribution system and raising quality standards. For it is to these created and refined factors of production that the industry must now look for success in the future.

The motivation for this strategic shift is not altruistic. Tourism products that satisfy visitors product and quality wants more completely offer higher margins than traditional tourist products. In the medium-term, the shift to quality is the route to higher levels of industry profitability. Profitability is central to future industry success. In the absence of a return to adequate levels of profitability, the tourism industry would lose its dynamism and its ability to invest in the future. In contrast, enhanced profitability would provide:-

(i) the incentive for enterprises to continue investing in tourism in the future;

(ii) the resources to invest in product innovation and new product development;

(iii) the money to finance enterprise-level marketing in relevant market segments;

(iv) the funds to employ high calibre personnel, raising service quality while at the same time easing difficulties of staff recruitment and retention.

4.2. A STRATEGIC MARKETING INTERPRETATION

The essence of this approach can be expressed in strategic marketing terms thus:-

  • Ireland is now an expensive country, even within the high-cost European Union. Ireland’s position in terms of absolute prices continues to deteriorate, as evidenced by the faster rate of inflation in Ireland relative to tourism trade rivals.
  • Ireland’s tourism sector exhibits two key characteristics. First, it is deeply integrated into the domestic economy, so that its prices and costs reflect national prices and costs. Second, it is an internationally traded service industry, which leaves it heavily exposed to foreign competition in both its home and foreign markets.
  • Traditional tourism products are weakly differentiated from competitors in terms of product/service characteristics. In such circumstances, competition in the marketplace will be based principally on price. Put another way, price has been the principal form of product differentiation in traditional tourism markets.
  • Even as Ireland succeeds in reducing inflation to average European levels, its absolute costs and prices will remain high, even within an expensive EU context.
  • In these circumstances, efforts to continue with, at best, an unchanged product/quality offering would consign Irish tourism to markets where its ability to compete is most impaired – traditional markets where pricing is the principal competitive instrument. This would severely circumscribe the size of visitor revenue yields and, by implication, future profitability growth. Moreover, these constraints on future growth would apply not only to the attraction of foreign visitors to Ireland, but to the retention of home holiday makers in the domestic marketplace;
  • Given that the national price level – though not the prices of individual products – is inflexible downwards, the only key variable that can be influenced decisively is the quality of the national tourism product;
  • Raising the quality of the national tourism product requires an array of initiatives. These include: the strengthening of the distribution system for existing products; the extension of the product range; the innovation of new products, the integration of existing products into more sophisticated and complex products, the cross-selling of existing products and raising the quality of service with which all products are delivered. The unifying characteristic of all of these initiatives is that they seek to meet consumer wants more effectively. Consumer wants are needs that have been transformed into products.
  • Satisfying the consumer more completely and more effectively is the key to profitable tourism growth and expansion in the future;
  • The central objective of this approach is to create a portfolio of differentiated, high-quality Irish tourism products. Where successful, it would free the Irish industry from competing in highly price-sensitive traditional tourism markets, where Irish tourism is least able to compete successfully.

V. INTRODUCING QUALITY TOURISM – THE SUPPLY SIDE

5.1 INTRODUCTION

The tourism industry comprises a loose and fragmented coalition of businesses with varying degrees of dependence on tourism spending. However, a common feature of most tourism enterprises is that they are small business, often operated by owner managers. Since such enterprises form the backbone of the tourism industry, proposals for the strategic development of tourism must focus particularly on raising their productivity and quality of performance.

5.2 RAISING MANAGEMENT CAPABILITY

The most direct route to improving the business performance of tourism SMEs is to build management capability at enterprise level. Better management yields direct gains in enterprise productivity and profitability through a more efficient allocation of the resources of the business. It also encourages a more imaginative approach to product innovation, staff training and financial management. Against this background, ITIC proposes two positive policy initiatives:-

(i) The establishment of a Tourism Enterprise Development Programme, to be supported and administered by the National Tourism Development Authority. It is proposed that the programme would operate in the same manner as the Company Development Programme currently run by Enterprise Ireland. Candidate companies should demonstrate a successful track record and would be selected on the basis of profitability potential and additions to the national tourism product range. Initially, participation should be limited to 50 enterprises;

(ii) The introduction of Tourism Management Development Networks. As proposed, these should be of a similar type to the networks currently organized under the Skillnets initiative. They would make extensive use of Information Technology and Distance Learning techniques in the delivery of management training.. Such networks are particularly appropriate for tourism, since activity tends to be clustered in particular geographic locations.

5.3 RAISING SERVICE QUALITY

Enterprise productivity and profitability would be raised, and service quality to customers enhanced, if employees in the industry received more training. By its nature, delivering employee training to SMEs is difficult. In the first instance, it requires a clear commitment by management to the provision of additional employee training. Building management capability is the best method of ensuring a greater awareness amongst management of the benefits conferred by additional employee training. But more extensive training of the tourism workforce also requires an improved training delivery system. In particular, it is important that initiatives aimed at raising training activity do not disrupt the normal business operations of tourism enterprises. At the same time, there is an urgent need to ensure a continuing inflow of new entrants from the education system into the tourism workforce. Against this background, ITIC proposes that:-

(i) The inclusion of tourism studies – with a particular emphasis on crafts used in tourism – in the Leaving Certificate Vocational and the Leaving Certificate Applied curricula. In the case of the Leaving Certificate Vocational stream, tourism studies should count towards qualifications for third-level entry;

(ii) In the case of non-craft training, a particular emphasis should be placed on delivering training in-house and on-the-job, using the latest Information Technology training aids;

(iii) New training initiatives should seek to strengthen hospitality and customer relations skills amongst staff at all levels;

(iv) Ensuring that the content and delivery of training programmes is both relevant and computer literate would require a training of trainers programme;;

(v) The National Tourism Development Authority should assume responsibility for advising enterprises on the the range of tourism training programmes available on the Internet, the web and as distance learning modules;

(vi) A portion of the funding for the existing Training Support Scheme should be ring-fenced for tourism enterprises.

5.4 ENCOURAGING INNOVATION AND PRODUCT DEVELOPMENT

Product innovation in all its forms is a function of management capability. Developing the skills, strength and imagination of management in the sector is thus a necessary precondition to leveraging up the quality of the tourism product range.

In essence, the calibre of management and the entrepreneurial impulse are the wellsprings of product innovation, product development and the pioneering of more complex value added products. The state can create the conditions in which management skills can be augmented and entrepreneurial talent can flourish, but it cannot substitute for them. Innovation and business creativity is essentially a matter for enterprises themselves.

However, in the case of tourism SMEs, scale imposes physical limits on the capacity of individual enterprises to innovate new products. In these circumstances, the scope for product development can be greatly advanced by co-operation amongst enterprises.

The state can be of assistance in creating and supporting the structures within which such co-operation can take place. Earlier, ITIC has noted two examples of policy innovations which could activate such co-operation:-

(i) The introduction of tourism management development networks based on local tourism centres. These would provide a structured framework for the investigation of new joint products and the cross-selling of existing products;

(ii) The establishment of a Tourism Enterprise Development Programme would directly support and assist tourism enterprises developing innovative products.

In this context, the role of the Regional Tourism Authorities in the tourism development process needs to be changed fundamentally, re-defined and enhanced. In the future , the regional tourism development process must become an active agent of tourism development, assuming responsibility for:-

  • Supporting enterprise development and providing assistance to owner/managers in the tourism and hospitality sector at local and regional levels;
  • Co-ordinating the provision of facilities and products at local level, including the clustering and integration of existing products, fostering enterprise co-operation to innovate new products and the identification of new regional product opportunities.

In terms of redefining the instrumentation of regional tourism development, the experience of the industrial development agencies may yield useful lessons. ITIC believes, however, that, as examples, there are two major potential tourism innovations in which direct involvement by the state is a necessary condition for success.

First, ITIC strongly believes that the development of a major International Conference Centre in Dublin is an essential addition to the national tourism product portfolio. Against this background, ITIC recommends that:-

(i) the site for the Conference Centre be provided by the state;

(ii) the investment cost be funded by the state, with private sector participation if deemed necessary and with EU structural fund assistance, if feasible;

(iii) the annual operating losses, within pre-determined parameters, be funded by a special levy on the rates.

Second, the establishment of a Product Marketing Group by Bord Failte and RELSA ten years ago to promote English language tourism in Ireland has met with major success. The scope now exists to build further on this initiative, using both private and public sector resources. English Language schools have already forged partnerships with some third-level institutions as course providers and sources of students. There are now opportunities to build new high value added products based on integrating the existing high quality English Language product with a range of business disciplines using third-level colleges in the regions as the delivery mechanism.

In an international business context, Ireland possesses a singular advantage in speaking English. The revolution in computer electronics and Information Technology has ensured that English is now unrivalled as the international business language. There is an extensive international demand for English language courses coupled with business and professional applications. There is now a pending over-supply of third-level educational infrastructure. Hence, there exists a new high value market segment with very large potential for long-stay foreign visiting students coupled with the available educational infrastructure to accommodate them. ITIC requests that the Review Group provide an initial assessment of the potential for innovating these new educational tourism products.

VI. INTRODUCING QUALITY TOURISM – THE DEMAND SIDE

6.1. INTRODUCTION

The strategic marketing analysis conducted in Section 4.2 made clear the imperative that tourism development must focus on creating more value in its products and in its service quality. Only in this way can the industry escape in the medium-term from dependence on price sensitive markets where its ability to compete is weak. However, the drive towards a higher stage of tourism development will not evolve automatically. While many of the recommendations made on the supply side – building management capability, enhanced employee training, encouraging co-operation between tourism enterprises – would prepare the ground for product development, they will not, of themselves, deliver marketable products.

Determining which products for which markets requires a series of marketing research exercises. By definition, it is impossible to prejudge the outcomes in advance. However, ITIC is strongly of the view that the Review Group must map out a clear programme of market research aimed at determining the product/market matrices that should be targeted by tourism in the future. In furtherance of this objective, ITIC identifies below the core areas on which research data is required.

6.2. ASSESSING POTENTIAL CONSUMER DEMAND

Most current consumer research on Irish tourism focuses on tourist satisfaction ratings. In other words, it assesses the satisfaction ratings of tourists who have already visited Ireland. In current circumstances of declining customer satisfaction ratings, there is a need to update in-depth research on potential tourists in the principal source markets in order to determine their reasons for choosing to come to Ireland, or, even more importantly, the reasons why they ultimately decided against an Irish holiday. The use of focus groups in the principal source markets can play an important role in identifying deficiencies both in the national tourism product and in the individual components of the product range. This would provide a relatively inexpensive way of defining the barriers to taking holidays in Ireland and the gaps that require to be filled by the innovation of new products. Responsibility for this task should be assigned to Tourism Ireland.

Assessing potential consumer demand in this way is a necessary precondition to refashioning product development strategy, for it is imperative that any revisions of product development strategy be market-led.

6.3. MARKET-LED PRODUCT DEVELOPMENT

Product development is the key to the formulation of a successful new strategy for the medium-term development of Irish tourism. Its importance cannot be overstated. More specifically, market-led product development offers a defence against deteriorating price/cost competitiveness, since product differentiation would allow Ireland to escape from price-sensitive commodity tourism markets in which it is least able to compete.

It should also be recognized at the outset that product development is not wholly within the hands of the industry itself. The development of existing and new products based on Ireland’s scenery, landscape, countryside, food and culture cannot be undertaken by the industry alone. It requires the active support and participation of a range of other interests from landowners to local authorities, from Inland Waterways to the Office of Public Works. These interests must not only be recognized, they must be accommodated in a form of structured partnership which allows for sustainable product development.

This requires in the first instance that the National Tourism Development Authority defines as its first task the formulation of a Product Development Plan. As an earnest of its intention to prioritize product development, ITIC further recommends that it establishes a dedicated Product Development Unit within the new Authority.

ITIC sees four necessary steps in reshaping product development strategy:-

(i) CONDUCT AN AUDIT OF EXISTING PRODUCTS

Using grants disbursed under the Operational Programmes for Tourism 1989-1993 and 1994-1999, conduct an audit to assess the size and range of the existing tourism product base. Such an audit would also indicate the effectiveness of grants support in specific markets and niches.

(ii) REPACKAGE THE EXISTING PRODUCT RANGE

In many tourism product segments, Ireland does not suffer from an insufficiency of products, but from a scarcity of marketable products of acceptable quality, delivered with professionalism. In many cases, the raw product material already exists, it simply has not been processed into marketable form. This requires the development of product ‘wrappers’, binding together and integrating an array of existing products (Examples might include “Visit Ireland’s Five Most Historic Sites’; ‘Play Ireland’s Five Great Links Courses’; ‘Walk the Shannon for a Week’).

The repackaging and ‘wrapping’ of existing products into marketable products offers two advantages over the innovation of new products. First, it requires much less physical product investment and lower business risk. Second, it provides a clear focus for product marketing campaigns in the future.

(iii) STRENGTHEN THE PRODUCT DISTRIBUTION CHAIN

At present, there is a deficiency in the number and range of tourism products that tour operators and agents can present to potential foreign visitors. Many tourism products are not even entering the distribution chain as they are not deemed to be sufficiently well prepared, organized, or professional to be marketed to the trade. Again, these are existing products that, with additional professional input, could reach the required standard of quality to enter the distribution chain.

(iv) INNOVATE NEW PRODUCTS

Innovation must be distinguished from invention. The innovation process centres on developing new applications for already existing materials. The innovation of new tourism products should therefore focus on developing more complex and sophisticated products from the existing product base, on product innovation and on sales and marketing innovations such as cross-selling.

6.4. ACCESSING POTENTIAL CONSUMER DEMAND

The advent of Information Technology and the increasing use of the Internet as a means of purchasing airline and ferry tickets and of reserving accommodation has made IT a key instrument in marketing tourism. The quality of the national marketing effort on the web and the internet needs to be evaluated in a benchmarking exercise against other similar tourist destinations such as Scotland. At the same time, technical assistance should be provided by Tourism Ireland to encourage and facilitate those offering generic and specific tourism products to develop a quality presence on the internet and the web.

VII. IMPROVING ACCESS TRANSPORT

ITIC recognizes the contribution of low access fares to the rapid expansion of Irish tourism during the 1990s. In broad terms, tourism traffic follows the available routes. For this reason, ITIC believes that the opening up of new low fare routes to Ireland would substantially benefit the expansion of tourism in the future.

In principle, ITIC believes that the Irish/US bilateral is a barrier to tourism growth. ITIC recommends that the Review Group examine the impact of the bilateral on future traffic growth. If convincing evidence is adduced that the bilateral constitutes a barrier to future tourism development, ITIC urges the Review Group to call for its removal.

More strenuous efforts should also be made to encourage ‘own car’ tourism, where visitors bring their own cars to Ireland. Such tourists are particularly valuable since they generate higher yields, stay longer and travel more through the regions than other tourists. Visitors renting cars in Ireland produce similar high yields.

VIII. TOURISM’S INFRASTRUCTURAL NEEDS

The ITIC study ‘Spatial Spread of Tourism and Extending the Season’, published in January 2001 pointed out:-

  • Spatial spread/regional tourism is not only helped by direct access to the region but also by an improvement in domestic transport links, improvement in roads and public transport services.
  • Ease of access to holiday destinations is vital – travel times between origins and destinations in Ireland have deteriorated and are now a major source of complaint.

Against this background, and notwithstanding current pressures on budgetary resources, ITIC strongly emphasizes to Government the absolute need to complete the road development programme for national primary routes in accordance with the timetable set out in the National Development Plan 2000-2006. Failure to complete targeted primary route developments on time would not only cause a serious deterioration in the quality of the Irish tourism product through increased time losses and congestion costs, but, by curtailing access to the regions, it would also jeopardize future regional tourism growth.

At the same time, it should be recognized that many overseas tourists use public transportation in travelling around Ireland. The declining quality of Irish public transport, particularly evident on the inter-urban rail system, has now reached a point where, for many, it is detracting from the overall quality of an Irish holiday.

IX. TOURISM’S ROLE IN REGIONAL DISPERSION

As an industry, tourism is both geographically dispersed and concentrated. It is geographically dispersed in that many of the country’s leading tourism centres are located in the West and South West regions. It is concentrated in that some 60% of all registered tourist accommodation is located in the five counties where earnings from tourism are highest – Dublin, Cork, Kerry, Clare and Galway. The top three tourism centres – Dublin, Galway and Killarney together account for 30% of all registered tourist accommodation.

The existence of such key tourism centres is a feature of the tourism industry worldwide.

To date, public policies aimed at inducing a wider spatial spread of tourism have been ineffective. Under the Operational Programme for Tourism 1994-1999, the proportion of total tourism revenues accruing to the top five tourism counties actually increased from 65% to 70%.

ITIC is committed to increasing the spatial spread of tourism nationally and to the opening up of new tourism destinations within the regions. However, ITIC recognizes that the spatial re-balancing of tourism is a difficult and complex task that can only be pursued effectively over the medium- to long-term. It therefore recommends:-

  • Policies aimed at increasing the spatial spread of tourism should not be pursued at the expense of existing tourism centres. Such existing tourism centres have already proven themselves as Ireland’s leading tourism assets and they should not be sacrificed;
  • The problems encountered by tourists in the leading tourism centres – traffic congestion, poor public transportation services, inadequate signposting, insufficient visitor information points – should be addressed directly on-site by a combination of infrastructural investment and improved visitor management;
  • The promotion of an improved spatial spread of tourism requires the careful selection of a small number of new regional tourism centres which possess key characteristics that are attractive to potential tourists. This will require extensive market research and planning, since it is imperative that any such selection is market-led;
  • A clear policy distinction must be drawn between the promotion of niche products or rural tourism in small locations and the development of new regional tourism centres. Both are sustainable policy initiatives, but they are quite different in character.

X. TOURISM’S SUPPORT FOR ENVIRONMENTAL PROTECTION

An unspoiled and unpolluted natural environment is one of Ireland’s greatest tourism assets. More than virtually any other industry, tourism supports the protection and preservation of the natural environment, since environmental degradation directly diminishes the quality of the national tourism product. ITIC supports the strict enforcement of environmental legislation and the development of public authority/industry partnerships at local level to preserve the natural environment.

Already, ITIC has managed the ‘People and Place’ programme, part of the Pilot Initiative on Tourism and the Environment. This programme sought to mobilize industry and local support and assume collective responsibility for the protection and enhancement of Irish tourism’s central attributes – the friendliness of the people and the unspoiled character of the natural environment.

The ‘People and Place’ initiative demonstrated that both the industry and local communities clearly appreciated the importance of these key attributes and were prepared to play a part, individually and collectively, in their enhancement.

In consequence, ITIC recommends that the NTDA put in place a permanent mechanism within which the tourism industry, local communities and the state can together work to ensure public awareness of, and support for, environmental protection measures.

XI. IMPROVING THE SEASONAL SPREAD OF TOURISM

An ITIC 2001 study found that the seasonal spread of tourism greatly improved during the 1990s. Just one quarter of revenue is now earned in the peak July/August season.

The remaining three-quarters of revenue now accrues outside this peak season. Much of the success in achieving a more even seasonal spread of tourism is explained by increased short-stay holidays – primarily in Dublin – higher numbers Visiting Friends and Relatives (VFRs) and more business travellers.

For the future, ITIC recommends:-

  • Efforts to encourage a greater seasonal spread of tourism should continue, since they raise directly the degree of capacity utilization in the industry;
  • The continued use of promotional campaigns targeted specifically at those segments most likely to take short-stay breaks or visit friends or relatives in Ireland;
  • Recognition that a greater seasonal spread of tourism is most easily achieved through the promotion of major tourism centres in the largest urban areas.

XII. THE ROLE OF THE STATE AND STATE AGENCIES IN DEVELOPMENT

12.1 THE ROLE OF THE STATE

The scale of the tourism industry’s continuing contribution to national economic development, evidenced in the ITIC study of October 2002, gives the state a vested interest in securing the industry’s future. If the industry falters, the state loses.

The thrust of this submission has focused on fashioning a medium-term development strategy for the tourism industry. However, the evolution of the industry in the medium-term cannot wholly be divorced from its performance in the short-term. In the limiting case, industry collapse in the short term would preclude its development in the medium-term.

In broad terms, ITIC sees the state’s central role as creating the conditions, in terms of both economic policy and performance, within which the tourism industry can flourish. In ITIC’s view, the state can best secure the industry’s long-term future by concentrating its short-term efforts on the introduction of measures aimed at curbing inflation at home and by promoting Ireland as a tourist destination abroad.

(i) CURBING INFLATION

On the production side, tourism is deeply embedded in the Irish economy. The resources it uses are Irish resources. It is for this reason that its contribution to national economic development is so pronounced. However, the extent of its integration into the Irish economy also causes it to mirror cost and price trends prevailing in the economy. Yet, while its costs, prices and taxes are determined by prevailing trends at home, it is an internationally-traded service industry, which must compete for business in foreign markets. When Irish costs and prices are rising faster than in competing tourism destinations, the competitiveness of the Irish tourism product suffers. As a result, the attractiveness of Ireland as a tourism destination is diminished relative to alternative destinations. In turn, profitability is eroded, making it progressively more difficult to retain capital and labour in the industry while severely diminishing the resources and the incentive to undertake new product developments. The industry can exert no control over national trends in costs and prices. Action to control national inflation is a matter for government.

In this regard, it must be said that recent Government actions have been unhelpful to tourism. The industry’s cost base has been raised significantly as a result of the raising of the VAT rate applicable to the industry from 12.5% to 13.5%, the budgetary increases in excise duties and reductions in capital allowances and the sanctioning of increases in local authority charges.

The industry’s cost base has also been leveraged upwards by rapidly rising insurance costs. Not only are general increases in insurance costs raising industry costs, but they are placing in jeopardy many of the activity holiday areas such as equestrian holidays which offer firm prospects for future tourism product development. To date, Government has relied on competition policy to effect market-driven reductions in areas such as insurance costs. There are few visible signs that this strategy has yielded concrete results.

Against this background, ITIC strongly recommends that:-

  • The VAT rate applicable to the industry should immediately be returned to 12.5%. In the medium term, the Government should move towards reducing the VAT rate applicable to tourism to the prevailing EU average of around 10%;
  • While Irish inflation remains above EU average levels, no increases in indirect taxes that would raise consumer prices directly should be introduced. Instead, either Government current spending should be cut or borrowing should be allowed to rise to levels permitted under the EU Growth and Stability Pact;
    Government must engage directly with the insurance industry in an effort to reduce insurance costs and methods of curbing the costs of insurance claims should be investigated.
  • For its part, ITIC undertakes to support efforts to reduce the sectoral rate of inflation in the tourism industry. The efforts can include the introduction of fixed-price tourist menus in restaurants; the introduction of special low price packages for tourists, particularly in the ‘shoulder’ and low seasons; and by selective price discounting.

(ii) PROMOTING IRELAND ABROAD

International tourism finds itself particularly exposed to external threats in the current volatile global environment. In these circumstances, it is particularly important that the state maintains its investment in the overseas promotion of Irish tourism.

Tourism industry commitments to overseas marketing have risen rapidly in recent years and reached an estimated Euro 135 million in 2001.The state’s backing for the overseas tourism promotion effort is significantly smaller than the industry’s investment, being estimated at Euro 50 million in 2001.

In the light of current circumstances, ITIC believes it essential that the Government at least maintain the real level of state resources committed to destination marketing in overseas tourism markets.

12.2 THE ROLE OF STATE AGENCIES IN TOURISM DEVELOPMENT

Following the establishment of Failte Ireland, there is an urgent need to review the roles and responsibilities of the state agencies involved in supporting the sector, particularly with respect to marketing and research. Each of these is examined in turn.

(i) MARKETING

In the marketing sphere, an urgent review of operating procedures and responsibilities for Destination Marketing and Product Marketing is required. This review should clarify:-

  • the manner in which destination marketing and product marketing campaigns are to be co-ordinated and integrated in overseas markets;
  • the criteria to be used in allocating resources to each campaign;
  • the mode by which product providers and tour operators can participate in both campaigns, given that Destination and Product Marketing are intrinsically linked.

(ii) RESEARCH

In the research area, a new research unit should be established within Failte Ireland which would allow for direct participation by industry representatives. The new research unit should both undertake research itself and commission research from industry experts, including third-level education institutions. The research programme should be geared towards providing enterprises in the industry with up to date analyses of industry trends, consumer attitudes and new product innovations.

12.3 THE DEPARTMENT OF TOURISM AND TOURISM ORGANIZATION

At present, there is a proliferation of state organizations engaged, in whole or in part, in tourism, particularly at sub-regional levels. This is leading to duplication, the blurring of responsibilities and waste. There is a need for a streamlining and rationalization of such organizations, with objectives, lines of responsibility and reporting set out clearly. At sub-regional level, organizations should only be retained where they can demonstrate a clear raison d’etre and adequate skilled personnel to achieve objectives.

At departmental level, there is a need for the Department of Arts, Sport and Tourism to co-ordinate the activities of those departments that make significant investments in both tourism products and tourism promotion.

The Department of Arts, Sport and Tourism also needs to co-ordinate the tourism marketing expenditure of the array of state organizations engaged in its financing. At present, organizations providing funds for tourism marketing include local authorities, state agencies and a number of Government departments.

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