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Wednesday, 10 February 2016 01:04 - - {{hitsCtrl.values.hits}}
By Shehana Dain
Sri Lanka’s tourism proposition needs to go for a complete shift to bring in a Compound Annual Growth Rate (CAGR) of 60% which will in turn translate to a $ 15 billion opportunity by 2018 year-end.
At the current state of affairs tourism earnings CAGR will be contracted to 30% which is $ 7 billion, if the proposition remains unchanged, a report by Capital Alliance Holdings (CAL) research arm showed.
According to the report, a focal lagging point which could obstruct targets is the discrepancies between hotel pricing points which may cost the regulated hotel market $ 480 m by 2018 year-end as an overspill of apartments cater to tourists alongside a plethora of informal hotels and home stays which amount to 36% of the total room nights. In this context regulated hotels have lost $ 97 million in 2014 at 90% occupancies.
The report observes that over 3,000 luxury units will hit the market, bringing the total to 4,884 by 2018; which is an increase of 65% from the current figure of 1,839 units. The majority of these properties are expected to be brought under investment purposes due to the hefty price tag of $ 850,000 which is beyond the means of an average household’s ability to bear. Subsequently this means the majority of these households will be rented.
Moreover CAL stresses that the negative outcome could be owing to the mismatch of pricing schemes of graded city hotel rooms in Sri Lanka. “Compared to regional peers, local city star graded hotels are at a 15% premium. Also Colombo’s competitiveness is limited by the options available to tourists and is further limited due to the older properties in operation, which currently account for 70% of room inventory. As a result, the shift towards supplementary and unregulated options has increased,” said CAL Head of Research Purasisi Jinadasa.
However the Daily FT recently reported that Colombo city hoteliers were content with the current pricing strategy as they claim it has gained more positives than negatives to the leisure industry, mainly as means to reinvest into refurbishment measures. According to Colombo City Hotels Association President M. Shanthikumar, refurbishment costs in recent years amounted up to $ 120 million.
The research firm projected that luxury apartments could be rented out at a lesser cost than luxury hotels, making the former option more economically viable.
“A family of four could save on average $ 311 a night by staying at a luxury apartment in Colombo. A stay at a three bedroom apartment is $ 180 and food and beverage costs can be reduced to $ 35 a day if regular delivery services or non-hotel restaurants are frequented. Further the grocery bill may amount to $ 70 per week,” the report added.
Moreover, CAL research says that an attempt to formalise the sector is likely to have minimal impact and applying the current city hotel combined tax of 25%, may not resolve the issue.
“The differential between the two options remains wide. CAL estimates 70% of the total Colombo city graded room inventory are within tired properties, offering sub-standard levels of products and service. For the local hotel sector to improve competitiveness, a significant upheaval in standards may be needed, considering the entrance of new globally recognised brands,” Jinadasa emphasised.
Further, the report also observed that policymakers may have to take into account the evolution of the typical tourist and acknowledge that Asia-based tourists spend 65% more than our traditional market and typically seek a different experience.
Sri Lanka may not be able to sustainably grow tourism numbers by mass marketing the country’s natural resources or traditional all-inclusive tour packages, the CAL research stressed.
As a solution the report suggested that a dual approach of catering to the high-spending experiential Asia-based tourist and developing a niche exclusive eco-tourism product is likely the way forward, adding that this may enable the country to generate a higher spend per tourist while ensuring our natural resources remain pristine.
Additionally the report also observed that the number of island-wide graded establishments falls far short of the required rooms based on tourist arrivals and length of stay by 2018. The demand and supply gap amounts to 52,441 rooms and cannot be compensated with the contribution from the upcoming integrated resorts which will add 4620 rooms. CAL expects average length of stay to fall to 7.5 days by 2018 and a tourist arrival compound annual growth rate of 23% through 2018 to 3.5mn arrivals.
Another leakage factor the report ponders on is the earnings lost due to the absence of a strategically developed product.
According to statistics Sri Lanka lost $ 23 million in heritage sites alone in 2014; due to lack of products developed to leverage optimum tourist experience. Efforts to revitalise the tourism proposition can increase the current $ 161 tourist up to $ 580 spender.
The report states that with infrastructure development of the road network, operational structure improvement at the Bandaranaike International Airport and commencement of international hotel brands will bring in the high spending tourists to Sri Lanka.
