Most city hotels urge Govt. to continue with Minimum Room Rate

 

Most star  class city hotels yesterday appealed to the  Government to continue  with the highly beneficial  Minimum Room Rate  (MRR) regime which as per  original announcement was to end on 31 March.

Heads of Renuka Hotels PLC, Jetwing Colombo Seven, Ramada by Wyndham Colombo, Steuart by Citrus, Radisson Hotels, Fairway City Hotel and Colombo City Hotel as well as five star The Kingsbury detailed how the MRR implemented since 1 October last year, had been a lifeline for the smaller hotels which market around 3,000 rooms in the city employing over 6,000.

Having thanked the Government led by President Ranil Wickre-mesinghe and championing the cause by Tourism Minister Harin Fernando and Sri Lanka Tourism Development Authority (SLTDA) Chairman Priantha Fernando, these smaller hotels insist that continuity of MRR is critical especially during rest of 2024 drawing much needed foreign exchange earnings in tandem with the rebound in tourist arrival numbers. The MRR ensured these city properties could operate properly once again having suffered multiple blows starting from the 2019 Easter Sunday attacks, COVID-19 pandemic and the political-economic crisis thereafter. 

They added that MRR also boosted revenue to the Government by way of higher taxes and levies. These hoteliers also emphasised the need for a fair playing field for all the hotels irrespective of its capacity or classification.

Some of the leading five star properties Shangri-La, Hilton  and Cinnamon brands are against the MRR as it makes Colombo an expensive destination in comparison to Kuala Lumpur and Bangkok.

Following are excerpts of the heads of the smaller star class city hotels.

Renuka Hotels PLC Joint Managing Director Arnila Thambiayah

The hotel industry in Sri Lanka experienced probably the worst business conditions due to the negative impact from Easter Sunday bombing in 2019 followed by the devastation from the breakout of COVID-19 pandemic in early 2020. The hotel industry heavily suffered due to low tourist arrivals, galloping costs, shortage of utilities and hotel supplies and unstable exchange rates etc.

In the latter part of 2022 and in 2023 hotel industry started to benefit from gradual increase in tourist arrivals. However, small and medium category city hotels, such as ours, faced further issues to attract the limited number of tourists arriving into the country due to larger five star hotels offering lower rates to attract most of the tourists. They were offering lower rates to attract that segment of the tourists who are looking to spend $ 50-60 per night as well.

However, after the introduction of minimum rates in October 2023, hotels are experiencing a fair competition and a fair distribution of tourist arrivals within the industry making it more sustainable for each hotel in its category.

With the gradual increase in tourist arrivals, supported by the implementation of Minimum Room Rates most of the city hotels are bouncing back in business. This not only ensures the sustainability of the hotel industry but also enhances the livelihood of hotel employees through their increased earning as a result of higher service charge , bonuses etc.

We are hopeful and are optimistic that the business will improve with time and once again the leisure industry will be able to support the economy by attracting much needed foreign currency into Sri Lanka.

We also trust that the Minimum Room Rate scheme will continue to ensure a fair playing field for all the hotels irrespective of its capacity or classification. 

Jetwing Colombo Seven General Manager Ajantha Perera

We thank the Government for implementing the Minimum Room Rates in Sri Lanka for the Colombo City Hotels. This initiative by the Government has helped the hotels drive rates up based on its star category. Hotels too have had to enhance their offering to be competitive in the market due to the minimum rates being implemented.

While the hotel has seen a growth in its revenue compared to previous years due to the minimum rates, it has also enjoyed higher profits due to the minimum rates. The service charge for the associates, which has a big impact on their monthly remuneration package, too has seen growth.

With the growing tourist arrivals in 2024 and in the future years to come, the hotels will be able to maximise occupancy, further growing its revenue and profits. This growth will also see a decrease in employee migration due to the direct positive impact on their increase in earnings.

Hotels will also be able to take advantage of the increased profits to enhance guests’ experience, to not only be competitive in Sri Lanka but also in the Asia-Pacific region.

All in the travel and hospitality industry hotels must look at this drive by the Government in a positive manner and work together for increased growth of the industry in order to become a vibrant, sustainable industry, significantly contributing to GDP, foreign exchange earnings and creating enduring career opportunities for Sri Lankans.

Citrus Silver Ltd., General Manager Kumudu Jayathilake 

In line with the trends of the hospitality industry in the country which have been experiencing since 2015, The Steuart by Citrus also has come across many challenges and turning points where we have shown a great deal of resistance and adaptability while continuing to grow.

The initial minimum rates regulations which had come into force since 2009, which was a revolutionary decision by the authorities, have made almost all the hotels in the city operate with great financial freedom thereby extending a maximum justification to their stakeholders.

Many hotels have gone through refurbishments, expansions, and upgrades in many areas due to the positive cash flow and healthy bottom line, due to the same after these regulations came into effect.

The unfortunate event that took place in April of 2019 April was the beginning of the turning point of the industry which was then followed by the global pandemic situation, which put the last nail to the coffin.

We all know the rest of the story since then about the hospitality industry in Sri Lanka, and the struggles and the pain it had gone through to just survive, which is yet to be recovered to the pre-Easter attack stage.

We are confident and believe that the authorities have made an encouraging step forward towards the industry by re-implementing the minimum rates regulations as it has made the equal and fair playground for all the hoteliers.

Since October 2022, the industry has shown the great deal of potential of coming back to the near normal and the investors who had lost their faith in investing, have started investing.

We are experiencing a gradual increase of our revenue and the cash flow, which will increase the Government’s financial situations, directly contributing to the growth of the economy and we are committed to continue our efforts in order to contribute to a better economy in time to come.

We believe that the minimum rates regulations should remain in force, as it has already proven its positive effects to society.

Radisson Hotels Cluster General Manager Quadros Kristofer

We unequivocally thank the Government for implementing the MRR. This has helped us remain competitive and drive rates without being price prohibitive and yet remain competitive regionally. The year promises to be a bridge year and Sri Lanka continues to be featured as a must visit destination globally. We have seen a sharp increase in tourist numbers which reflects in our occupancy levels. The policy of having a minimum rate allows all properties to compete on an even playing field. Furthermore, driving rates reasonably across the board shows an increase in dollar earnings which will only add to the betterment of the overall economy.

Undercutting rates will only lead to a downward spiral, driving operational costs higher and making it harder to reinvest in the product. Besides, since the introduction of the MRR, service charge has improved in tandem with the top line revenues growing. Well trained talent are not pressured to leave the country to other destinations and we are also witnessing a trickle of Sri Lankans returning to the country which is adding more value to the talent.

Ramada by Wyndham Colombo General Manager Wasim Cader

We are delighted to have been part of the Sri Lankan hospitality industry for the past 50 years. However, in the face of persisting economic uncertainty, a significant percentage of hospitality workers have sought overseas employment causing a severe human capital shortage in the industry. While earning financial profits is already a challenge during an economic downturn, the operational strain caused by this issue on daily hotel functions is perhaps one of the biggest challenges that hoteliers are currently facing.

With business impacted over the past 4 years and the cost of operations rising on a daily basis due to economic reasons, the early part of 2023 was of concern even though we saw visitor arrivals increasing steadily. The prices were all time low and continuing to decrease due to increased supply. With some of the luxury 5 star hotels in the city selling their rooms at exceptionally low prices to drive volume, the 3 star, 2 star and 1 star hotels suffered heavily. So did us as most of our business went to the 5 star accommodation. The significant alterations in the Sri Lankan hospitality landscape following the onset of the coronavirus pandemic and its economic aftermath necessitated the implementation of resilient long-term strategies for hotels to ensure their survival.

A fair playing field came into operation in October 2023, with the Minimum Room Rate Gazette. The pricing in the Colombo city stabilised and our earnings saw a phenomenal increase. Our employees too benefited from this as their monthly remuneration increased with a substantial increase in their monthly service charge, which comes over and above their basic salary with a link to the hotel earnings.

With arrivals seeing a steady increase, we are confident the future will be even better if the pricing continues as it is today in the City of Colombo. A dilution of the existing price structure means a 100 roomed property may lose up to Rs. 200 million per annum according to our calculation.

Some predicted the tourist arrivals will decrease with the pricing policy coming into place 6 months ago. However, it has proved wrong.

Ramada by Wyndham is upbeat of the future prospects in tourism and are hoping that the year 2024 will see the highest tourist arrivals to the country ever and be the highest foreign exchange earner to Sri Lanka.

The Kingsbury Head of Operations Travis Casather

In recent years, the hotel has weathered significant challenges, including the aftermath of the Easter Sunday attack, the global COVID-19 pandemic, and political unrest within the country.  The recovery process from the substantial losses incurred, not only by the Kingsbury but also by the broader hotel industry, has proven to be an arduous challenge, aggravated by the absence of a cohesive strategy to bolster foreign income for the country.

Despite a gradual resurgence in tourist arrivals over the past year, the anticipated room revenue has remained elusive due to the prevalence of exceedingly low rates and competitive benefits offered by other market players. Implementation of the Minimum Room Rate emerged as a highly effective mechanism to maximize the foreign income at a time when the hotel, and the country as a whole need it the most.  

The Kingsbury Hotel has experienced tangible benefits from this initiative, notably observing positive trends in revenue generation. By setting higher room rates, the hotel has successfully attracted a discerning clientele while simultaneously optimising cost management. Although there was a marginal decline in room bookings initially, the resulting increase in income significantly boosted overall revenue compared to the lower rates previously offered. This has also contributed well towards mitigating the high staff turnover caused by hotel employees seeking overseas employment, as it has established a healthy service charge, thereby improving employee livelihood.

Given that room revenue typically constitutes approximately 80% of the hotel's bottom line, the introduction of the MRR has emerged as a pivotal catalyst for revenue growth. This strategic move not only safeguards the financial stability of individual establishments like The Kingsbury but also contributes to the broader economic prosperity of the city and the nation at large.

Fairway City Hotel General Manager Saman Perera 

Following the tragic Easter Sunday Bomb blast in 2019 and the subsequent challenges posed by the COVID-19 pandemic in 2020, Sri Lanka’s hospitality sector has confronted a multitude of difficulties, affecting both operational efficacy and financial solidity. The period spanning from late 2022 to early 2023 was notably tumultuous, characterised by a substantial decrease in occupancy rates, a sharp decline in revenues, and fierce price competition as consumers pursued discounts. Consequently, some hotels contemplated divesting their assets due to rising operational expenses and untenable pricing strategies.

Recognising the pressing need, the Sri Lankan Government reinstated the Minimum Room Rate (MRR) system in October 2023, offering a vital lifeline to the hospitality sector. The implementation of MRR not only stabilised pricing structures but also revitalised financial sustainability for the city hotels, enabling them to manage loan obligations and undertake necessary renovations and upgrades. Significantly, the MRR implementation also resulted in a notable upsurge in service charges. This increase not only bolstered morale among our workforce but also spurred greater interest among Sri Lankan youth in pursuing careers within the domestic hospitality industry, reducing the dependency on foreign employment opportunities.

Elevated room rates serve not only to bolster the financial well-being of hotels but also generate significant foreign exchange earnings for Sri Lanka. Striking a delicate equilibrium between competitive pricing and sustainable business operations enables Sri Lankan hotels to flourish within the global tourism arena while upholding the authenticity of their offerings. As Sri Lanka progresses, stakeholders must acknowledge the significance of upholding equitable pricing standards and prioritising investments in top-notch services. The hospitality sector assumes a central role in the nation’s economy, and by harnessing the advantages of initiatives such as the MRR, hotels can make substantial contributions to national progress while delivering unforgettable experiences for tourists.

Colombo City Hotel Managing Director Gamini Mathew 

With the confidence in the growth of tourism in the country, the hotel operations commenced at the height of the 30 year civil war the country was facing. We had faith in tourism and felt the investment was worthwhile. However, the owners faced unprecedented challenges and overcame the same due to the resilience and the confidence we had in the country. Soon after the hostilities ended in 2009 the Government imposed the minimum rates for all City Hotels to control the undercutting of room rates that was occurring during that period. It was out of the box thinking but the fact was the rates stabilised thereafter and all city hotels saw a tremendous increase of their revenue and most hotels were able to refurbish their properties during this period of time and our workforce in the hotel received double the service charge. One year on, to the Minimum Room Rates, the hoteliers began to hail the Government for their decision.

The value of increasing rates was realised by all hoteliers in the City of Colombo.

However with the 2019 Easter Bomb attack and the ensuing calamity saw a dilution of the minimum rates as there were no tourist arrivals and to add woes to the already affected parties, the COVID– 19 pandemic which lasted 2 years and thereafter the economic and political crisis created havoc to all hotels and the tourism industry.

The year 2022 saw a recovery and tourists started visiting our island nation and with it there started the rampant undercutting once again by most of the larger hotels who could have sold at $ 125 - 150, wanted to grab all the business of all categories by selling their hotel for the 55-60 dollar business which drove the smaller hotels to a point of closing its doors, whilst some were compelled to sell rooms by the hour.

The accommodation sector was in a panic as hotels were running at losses after 4 challenging years. They approach Government authorities, banks, the association etc. for redress due to experiencing severe financial difficulties. The hotel debt had doubled with an accumulation and banks slamming interest on interest. Most of us requested the Government reinforce the Gazette on the minimum rates to halt the rampant undercutting taking place, and with its good offices the message was sent out to the Tourism Minister as well and the SLTDA Chairman and saner council prevailed and minimum rates were introduced once again in October 2023.

This brought a sigh of relief to the hoteliers such as ours and many other hotels in the City which suffered due to the big boys in the industry wanting the $ 55 – 60 paying tourists as well as the high end tourists as well as corporates who were willing to pay $ 100 -125 per night.

Prior to the imposition of the minimum rates in October 2023, we were seriously considering selling our property as it was not financially viable to operate the hotel. There were many other city hoteliers who thought in the same manner.

However with the increase of tourist arrivals and without the undercutting taking place we are once again back on track and have seen a resurgence in our operations as we are now able to sell our rooms at $ 45 – 50 per night. This has resulted in the increase of service charges to our staff who are happy and we have decided to declare a bonus in the upcoming Sinhala and Tamil New Year period in April 2024, to all of our staff who have served over 1 year with us.

The Government too has benefited by getting the much needed dollars to its coffers and has also increased the rupee revenue by collecting high revenue by way of VAT, SSCL and TDL We hope that the minimum rates will continue to be in force and are confident that in time to come all hotels will immensely benefit from this decision.

We are confident 2024 will be one of the best years in tourism and stable rates will help all run viable business enterprises in a sustainable manner.