Significant growth in tourism persists

Tourist arrivals to the country continued to exhibit significant growth with YTD arrivals reaching 497,598, exceeding the arrivals recorded in CY2009 of 447,890.

Arrivals for the first 10 months of CY2010 were dominated by Western Europe for the first time since 2005 with total arrivals reaching 201,412, accounting for around 40% of the total arrivals. Asia came in second with a cumulative figure of 182,584 contributing to 37% of total arrivals.

Although Western Europe dominated the list, India maintained its position as the leading tourism generating country for Sri Lanka with arrivals reaching 95,579 representing a yoy growth of 48%. UK was ranked 2nd with 85,532 tourists visiting Sri Lanka.

Monthly occupancies have seen significant improvement during the year with occupancy averaging approximately 64% during January – October 2010 compared to 44% during the comparative period in 2009.

Hotels in Colombo and Greater Colombo recorded an average occupancy of over 70% from January – July 2010 while the South Coast enjoyed around 70%.

Leisure sector earnings

The leisure sector comprising 29 listed entities posted Rs. 1,061 million in earnings during 2QFY11/3QFY10 compared to a loss of Rs. 211 million in the comparative period in FY10/FY09 and Rs. 47 million in 1QFY11/2QFY10.

The city hotels were the largest contributor to the sector’s earnings with the segment generating approximately Rs. 617 million during the quarter. Earnings in the segment were dominated by Asian Hotels & Properties PLC (AHPL) which posted Rs. 326 million in earnings to equity that included Rs. 126 million in PAT for the property development arm.

The second largest contributor to city hotel performance was Renuka City Hotels PLC (RENU) which posted Rs. 122 million that included Rs. 119 million in other operating income from its trading investments.

The months of July and August are recognised as a mini season for the local tourism industry. The month of July recorded the highest number of arrivals of 63,339, the highest recorded since December 2004.

The resort hotels posted Rs. 444 million for the quarter compared to a loss of Rs. 255 million in 2QFY10/3QFY09 and a loss of 205 million in 1QFY11/2QFY10. Amaya Leisure PLC (CONN) was the largest contributor to the segment with a profit of Rs. 264 million which included Rs. 204 million in profit from the sale of its investment in Hotel Reefcomber PLC (REEF).

Aitken Spence Hotel Holdings PLC (AHUN) contributed Rs. 152 million for the quarter where a majority of its earnings were generated by the local sector despite its heavy exposure to the South Asian sector. John Keells Hotels PLC (KHL) too saw a sharp reduction in losses on the back of improved performance from its Sri Lankan operations and reduced losses from its Maldivian operations due to the divestment of its Alidhoo property.

Outlook

The recent budget proposals have indicated an increase in the minimum room rate to US $ 125 for all 5 star properties across the country from January 2011. 5 star operators failing to charge the minimum rate will be charged a bed tax of US $ 20 per bed per night.

Most operators are currently drawing up plans to increase the room supply in the country while also having undertaken refurbishment of their existing properties ahead of the winter season. However, these projects earmarked for expanding room supply are unlikely have an impact on the total supply until the end of CY11, during which time the existing stock of rooms will command high rates as demand outstrips supply.

(Source: John Keells Stock Brokers)