Minimum Room Rates: A no-ball?

At the behest of special-interest lobbies, tourism authorities have decided to hike the rates of Sri Lanka’s Colombo city hotels from 1 October onwards under a Minimum Room Rate (MRR) mechanism. As per this arrangement, the MRR charges for hotels below the three-star rating will be $ 50 upwards, while three-star hotels are required to charge $ 60 and above. Further, four-star hotels have been priced at $ 75 upwards, and five-star hotels will be pricing $ 100 and above.

Sri Lanka’s tourism industry underwent an extended period of adversity over the last four years, beginning from the 2019 Easter Sunday attack. The industry suffered a distressing setback when the travel industry around the globe came to a standstill due to the COVID-19 pandemic. The misery was further prolonged by the political and economic crisis last year. Nevertheless, consequent to the restoration of political and economic stability since President Wickremesinghe took over the Government, the tourism industry has made a rapid recovery. 

Tourist arrivals increased by a substantial 67% to 767,913 from January to July this year from 458,670 a year ago while earnings from tourism grew by almost 29% from $ 680 million in the first half of 2022 to $ 875 million in the corresponding period of 2023. In this backdrop, the expectations are high for a rewarding tourist season this year. However, those optimistic hopes have been dealt a blow by the Government’s poorly thought-out decision to impose the MRR policy.

An MRR policy was first introduced by the Mahinda Rajapaksa administration in late 2009, but it was scrapped in 2019 after the Easter Sunday terror attacks. The fact that the Rajapaksas have scant regard for market economic principles is well known. To see the return of an anti-market policy under a Ranil Wickremesinghe presidency is viewed as a huge disappointment by those who oppose MRR. To make the matter worse, Tourism Minister Harin Fernando is also a UNPer (he was reappointed to its working committee recently), and opponents of MRR would have expected him to refrain from endorsing price control measures that go against the ideology of his political party. The flamboyant minister has worked with immense zest to revive the industry, but this ill-conceived move could impair his standing. 

The entire country is eagerly looking forward to the resurgence of the tourism industry, as its rebound could provide an immediate relief to the economy which desperately yearns for foreign exchange. It must be noted that Sri Lanka’s key tourist markets in Europe – Germany and the UK – are still recovering from a recession, and hence imposing the MRR at such a time does not make any commercial sense. Furthermore, it could adversely affect tourist arrivals from countries such as India and Russia, which have accounted for a significant number of tourist arrivals in recent years.

It is reported that the authorities have taken this step to satisfy three-star and four-star hotel owners who cannot face competition from five-star hotels. The Sri Lanka Association of Inbound Tour Operators has strongly opposed this decision and argued that it would result in Sri Lanka being seen as an expensive destination. As per the available data, Thailand’s average rate for five-star hotels is $ 80 (below the stipulated MRR for five-star hotels in Colombo from 1 October) including taxes. Thailand is one of the prime tourist hotspots in the world and offers a wide range of exhilarating amusements, entertainment, as well as a vibrant nightlife for travellers to experience, whereas Colombo’s appeal as a tourist destination in terms of pleasure and activity is very limited.

The tourism industry has numerous stakeholders, and it is not confined to hoteliers alone. The Government must make policy decisions that benefit the entire economy and industry instead of catering to the vested interests of a coterie of individuals.