Hospitality industry hit hardest

Employment levels in the restaurant and hotel industry are expected to continue to deteriorate for at least the next six years as the industry struggles with the worst downturn in almost a decade, according to industry experts.

The number of workers in the hospitality and tourism industry will drop between 8 percent and 10 percent this year, followed by another 3 percent to 5 percent decrease in 2011, according to an analysis by hotel and tourism advisory group Mag Consulting.

This comes after numbers from the Czech Statistical Office showed the number of workers in the industry totaled only 114,000 people in the first quarter of 2010, the lowest level in seven years.

"The crisis is going to deepen this year and the year after, and then we expect five years of stagnation," said Mag Consulting Director Jaromír Beránek. "Tourism has been struck this year by several influences that have had a negative impact on the domestic and international market. By far the most pronounced effect was the disruption of air traffic over Europe earlier this year because of the risk produced by volcanic ash."

Other events plaguing tourism numbers in the Czech Republic are European Union-wide austerity measures, fluctuations of the Czech crown and concerns about the impact of reforms introduced by the new government.

The situation is so bad that by the end of next year, Beránek expects employment in the hospitality industry to total little more than 100,000 workers.

The prediction comes as the Czech Republic faces a fragile and tentative economic recovery. The Finance Ministry expects GDP to grow 1.5 percent in 2010, 2.4 percent in 2011 and 3.2 percent in 2012, up from a 4.2 percent contraction in 2009. Total unemployment, an indicator that typically lags in times of recession, is also shaky, with the ministry predicting a rate of 7.9 percent in 2010, up from 6.7 percent in 2009. The rate slightly declines to 7.8 percent in 2011 and 7.2 percent in 2012.

In terms of employment in the hospitality and tourism industries, Prague is one of the hardest-hit areas.

Meanwhile, Secretary General of the Czech Association of Hotels and Restaurants Václav Stárek said overcapacity is particularly problematic for Prague's hotels.

"There is overcapacity in hotels because supply exceeds demand," he said. "In 2008, there were 7,600 new rooms on the market, and in 2009, there were 2,500 new rooms," he told The Prague Post.

The recession has also affected the revenue per available room, or RevPAR, which is 30 percent to 35 percent lower because of the recession, he said.

Stárek is also cautious on the prospects for the industry going forward. He expects staff reductions will continue this year, namely because of the increasing use of outsourcing services.

"Definitely these past two years have been the worst, but we don't know what will happen this year because it depends on the new government and what happens with the VAT [value-added tax] and meal tickets for restaurants," he said.

There are concerns that the new center-right government will increase the VAT rate, which could result in more expensive hotel and restaurant services and lead to another leg down in demand. Meanwhile, there are worries that meal vouchers, which present tax advantages for employers, could be abolished.

"The new government measures will only exacerbate the situation," Beránek said. "Another round of dismissals of employees will take place, and thus a drop in revenues in accommodation and gastronomy [will follow]."

External measures are also expected to have an impact. Beránek points to the announced 10 percent reduction in Prague's state administration and services.

"[It] poses a threat to tens of thousands of state employees, which might discourage them from traveling," he said.

Meanwhile, Stárek is calling for VAT rates to be lowered to a reduced rate of 10 percent from the standard rate of 20 percent.

"In 2009, when the Czech Republic held the EU presidency, all members decided to apply the reduced rate, but the Czech Republic didn't agree," he said.

In addition, more widespread measures are needed, he said, to highlight the importance of tourism to the Czech economy.

"What we want is to have an established law for tourism, so that politicians pay more attention to it, because they don't think it is important," he said. "But it accounts for 7.6 percent of employment in the Czech Republic."

- Klára Jiřičná contributed to this report.

Gabriella Hold can be reached at
ghold@praguepost.com