Speech by the Minister for Public Enterprise, Mary O' Rourke Td, on Private Members Motion - Great Southern Hotels

The Review Process..

Last August I wrote to the Chairman of Aer Rianta and requested that, in the light of the challenges faced by the company in the immediate years ahead, it would be opportune for the Board to undertake a fundamental review of the future development of the company.

I requested that the review should, among other options, give serious consideration to the full range of future development options, which present themselves. Specifically, I asked that the Board consider the most appropriate strategic direction for the company given the sheer scale of the investment requirements over the next five to ten years.

The Aer Rianta approach to the Review..

The Board of Aer Rianta, in developing its response to my request established a sub-committee to work with management and staff to set out a shared vision of the future strategic direction of the company.

The consultants Arthur Andersen, IBI Corporate Finance and Lehman Brothers International assisted and advised on the most appropriate option for Aer Rianta. The staff of the company were also fully involved in the process through the Compact for Constructive Participation.

The Aer Rianta report..

The outcome of the Aer Rianta review process was a report titled 'Aer Rianta - Future Strategic Direction.' It was presented to me on 15 April and I immediately arranged for copies to be circulated to all Deputies. Indeed, I believe today's debate is part of the overall consultative process which I am angaged on in this matter.

The overall thrust of the report is that Aer Rianta consider it essential that they focus fully on their core airport business, of developing the three State airports and also to grow the company's involvement in the international airport sector. This is the context which gives rise to the Aer Rianta view, expressed in their report, that they should no longer be involved in the hotel sector.

The Ministers' consideration of the report.

I, along with my colleague, the Minister for Finance, are now carrying out our own analysis of Aer Rianta's proposals. We have appointed a group of analysts to examine the options, not only from the perspective of Aer Rianta's recommendations, but from the perspective of the wider national policy concerns.

I recognise that there is a great deal of interest in this work and I am available for consultations with the many stakeholder and sectoral interests that are involved in this area, be they representatives of the staff, the airlines, tourism interests and business representative organisations.

Above all, I want to make it quite clear to the staff of the Great Southern Hotels Group in particular, and their unions, that I am available to meet with them and to discuss their concerns. I have already met with some staff in the Corrib Great Southern and in the Eyre Square hotel in Galway.

I have arranged to meet with the Regional Secretary of SIPTU this coming Thursday at 11 o'clock. I had previously fixed a meeting for last week, last Friday, with the Regional Secretary who had to cancel at the last moment. It is also my intention over the coming weeks to meet with management and staff in all of the other hotels. Of course I have already visited several of the hotels , including Shannon, Galway and Parknasilla, and I attended the opening of the Dublin airport hotel just over a year ago.

The professional analysis which I am having carried out of Aer Rianta's proposals is primarily focused on the future direction of that company. The Chairman of Aer Rianta has advised me that the Board have retained Arthur Andersen to focus on the options for Great Southern Hotels.

My main consideration, and what I will be saying when I meet with the staff, is that I want to find the right future for Great Southern Hotels in a way that will also be right for the staff in terms of their employment and other rights, as well as for the Irish tourism industry.

Focus in on Great Southern aspect of the review

This Aer Rianta review process should not be regarded as a threat to the Great Southern Hotel Group. The Great Southern Hotel Group has a proud history, and I know it will have a vibrant future. The review process is an opportunity for the group.

It is my intention that any changes that might be considered by the Government in the course of its review of the future strategic direction of its parent company, Aer Rianta, will be to the benefit of Great Southern Hotels, and its staff, as well as to the benefit of Aer Rianta. It would be wrong to assume that one company needs to be placed at a disadvantage for the benefit of the other.

There are great opportunities ahead for the future development of the Great Southern Hotels, just as there are great opportunities for the future development of Aer Rianta. The development of one does not preclude the development of the other. The issue is how best to ensure that both companies are set on the right track and that is what I am having examined now.

History of the Group

The Great Southern Hotel chain has a long and distinguished history. The Galway Great Southern dates from 1845 and the Killarney Great Southern from 1854. The company enjoyed early success in the heyday of rail travel. This was what the hotels were originally designed for.

They were resort hotels to be supplied with customers by the new railway lines that were being built at the time from the middle of the 1800's onwards. In fact, that era marked the first beginnings of the tourist industry as we know it today.

The railway company put together a package, not only building the railway track, but also developing top quality hotel accommodation in the towns at the end of the track. The idea was that these quality hotels would provide a tourist destination and this would, in turn, promote greater use of railway that served the location.

The State acquired the hotels as part and parcel of its acquisition of the various private railway companies and their amalgamation to form CIE. By the 1960's with the decline of railway traffic and the growth in use of the motor car the hotel group developed several motor-inn type facilities such as the Rosslare Hotel, the Torc in Killarney and the Corrib in Galway. The Russell Court in Belfast was also developed in this period.

As a result of the oil crises of the 1970's and the downturn in tourism due to the Northern troubles, the Great Southern Group found itself in financial difficulty. In 1977 the company sold the Kenmare, Mulranny, Sligo and Bundoran hotels to the private sector to raise capital for essential refurbishment of the remainder. The Russell Court was disposed of in 1983.

Trading conditions remained very poor. By the early 80's the Great Southern Hotel Group had accumulated losses of £10 million. The group was then transferred, in March 1985 from CIE to CERT which is the national body responsible for the co-ordination of education, recruitment and training for the tourism industry.

The Government provided for a re-financing package of £14 million to cover accrued losses, rationalisation of the group and a programme of capital development. A further £2.7 million was made available in 1986. This investment and better trading conditions produced an improved performance and by 1987 the company was trading profitably. It has continued in profit every year since that date.

The then board of Great Southern Hotels recognised that further significant investment in the group was needed to realise its potential in terms of expansion and development. The board recognised that the company was incapable of financing the required development programme from its own internal resources.

This lead to the decision of the Government in 1990 to accept an offer from Aer Rianta to acquire the six hotels of the Great Southern Hotel Group in return for a cash payment of £10 million to the Exchequer and a commitment to invest in further development of the Group.

Aer Rianta agreed to contribute £4 million to a further refurbishment programme. Aer Rianta also transferred its hotel at Shannon airport to the Great Southern Group bringing the number of hotels in the chain to seven.

Great Southern Group today

Today the group consists of eight hotels. Five are located in prime tourist destinations. These are the Killarney Great Southern, the Torc great Southern and the Parknasilla Great Southern in Co. Kerry and the Galway Great Southern and the Corrib Great Southern in Galway city. The remaining three hotels are located at the principal tourist and business gateways to the country; one at Shannon airport, one in Rosslare and there is a new hotel at Dublin airport. There are plans for a further hotel adjacent to Cork airport which is due to commence construction before year end.

The Hotel Group's current performance is good

The hotel group has progressed well over the years since its acquisition by Aer Rianta. Turnover in 1997 increased by 4.4% to IR£22 million while the net profit grew by 12% to IR£2.9 million.

Aer Rianta has not taken any dividends from the hotels group, and has invested significantly since its acquisition. Between 1990 and 1998 a total of £32m has been invested, including the construction of the newest addition at Dublin Airport (£10 million). The Great Southern Hotel Group has made profits of £18.4m in that period.

The recent developments in the company reflect its new found confidence. The Great Southern in Killarney now remains open all year round and produced record results in 1998. Parknasilla will remain open for all of 1999 for the first time in its 104 year history. Rosslare has extended its season to 11 months. The company's marketing plan is geared to developing more off-season business in the winter at these locations.

The Great Southern Hotel at Dublin Airport is a state of the art development. It has created employment for 87 new staff with particular emphasis placed on recruitment from local communities. The addition of this property substantially enhances the geographic spread of the group and will help reduce its exposure to seasonal locations. Already six new conference rooms have been added to the hotel and there are plans to build for a further 80 bedrooms, bringing the total to 230.

The development of a hotel at Cork Airport will fulfil the objective of having a Great Southern hotel at each of the main tourist gateways. This hotel will have 75 bedrooms and should be completed by the end of next year.

Hotel Sector in Ireland today is vibrant...

It is a good time to examine the options for the future development of Great Southern Hotels, as business has never been better for the Irish hotels industry. The current performance of the sector tells the story. The last five years has seen continuous and significant growth. 50 new hotels were built in 1997, 37 last year and a further 30 are expected this year. The number of hotels rooms has risen by approximately 50%. Dublin has witnessed the highest growth rate, with the number of hotel rooms almost doubling to over 10,000 in that time.

We are all aware of being constantly surprised at the unexpected appearance of yet another new hotel in various locations around and about the city. I want the hotels that belong to the Great Southern Hotel Group to be able to participate fully in, and benefit from, these positive developments in this important sector of the economy.

The expansion of the hotel sector is underpinned by the continuing growth in tourist and business traffic to Ireland as well as buoyant Irish origin tourism growth. While the growth in tourism was expected, the rate of that growth has exceeded all expectations.

Irish tourism continued to grow. Last year there was an increase of 9% over 1997. The US and UK markets continued to flourish and the strong Irish economy ensured the further growth of the domestic sector. Continental traffic was somewhat disappointing recently. The two main markets, Germany and France, are performing below their potential due to the sluggish performance of their domestic economies. But overall the message remains one of growth in visitors and growth in the demand for hotel accommodation.

Employment and the position on ESOPS

The opposition motion made mention of Employee Share Ownership Schemes, or ESOPS. As I have stated in the past the issue of ESOPS in commercial State companies can only be dealt with on a case-by-case-basis in accordance with the particular circumstances of the company in question.

This Government has shown, more than any other, that the staff, and the long term interests of the staff, are to the fore at all times when future options for the development of the State companies are being considered. Great Southern Hotels has a loyal, professional group of employees who are, and will continue to be, a key factor in the continued success of the Group.

The rapid growth of the tourism industry and resulted in an increase in the numbers of staff employed in the sector of 20% over the last two years. So much so that the sector is now becoming a victim of its own success. The retention and recruitment of staff in the hotel business is becoming increasingly difficult.

Even so, I recognise fully that staff will, very naturally, be concerned whenever the possibility of major change is mooted. I have been advised by the Chairman of the Board of Aer Rianta that they have extended the appointment of Anderson Consulting to examine further the range of options in respect of the hotel group and to engage closely with the staff in the course of this process.

To conclude, as the amending motion indicates, any decisions in relation to the future of the Hotel group will only be taken after the fullest consultation, in particular with the staff of the hotels, and with the overriding objective of maintaining and maximising employment.

And I will continue to make myself available to meet with the staff of the hotels and their union representatives in that regard.