Is tourism ready for the challenges ahead?

A well-subscribed webinar was organised by PwC Sri Lanka and Daily FT recently, which included leading experts in the tourism industry – Mikael Svensson, the Sector Head of the Cinnamon City hotels and Executive Vice President of John Keells Holdings PLC, Vickum Nawagamuwage Founder CEO of Santani Wellness Resort, Thilan Wijesinghe Director Ceylon Tea Trails Ltd., Director Resplendent Ceylon Ltd. and Director Serendib Leisure PLC, Nalaka Amaratunga Chief Executive Officer Destination Management Sector, Vice President John Keells Group and Executive Committee Member of the Sri Lanka Association of Inbound Tour Operators. The session was ably moderated by Thivanka Jayasinghe Partner PwC Sri Lanka and assisted by Kavinda Weerakoon Director Mergers and Acquisitions PwC 

Sri Lanka.

To kick the webinar off, Thivanka presented an overview of the industry and its importance to Sri Lanka, including key statistics. He also highlighted that a study published by the World Travel and Tourism Council in April 2020 predicted an estimated one hundred million job losses in the global tourism industry. The same study had also highlighted that the contribution to global GDP will also be negatively impacted by 30% which amounts to $ 2.7 trillion. 

He ended the presentation quoting the Airbnb CEO, who had stated that post-COVID-19, “people will want options that are closer to home, safer and more affordable but people will also yearn for something that feels like it’s been taken away from them which is the human connection”.

“Don’t waste the crisis,” Mikael explained the second step taken by his team after the decision to temporarily suspend operations at all of their properties in Sri Lanka and the Maldives to ensure the safety and health of employees. This allowed the team to use the downtime to relook and re-assess how things were done operationally as well as how the hotels should be marketed. The team was focused to ensure that decisions taken will not hurt the properties in the long run purely for short term gains.

Vickum explained that Santani has benefitted from the extensions of the moratoriums and working capital loans initially offered after the Easter Sunday attacks in 2019. He pointed out that a timeline should not be placed on the moratoriums and that its timing has to be matched with the revival of the industry. He also mentioned that after the Easter Sunday attacks in 2019, there was a widespread acknowledgement of an inherent issue in the industry, which is the lack of any strategic positioning for Sri Lanka tourism. He also stated that this is the time when the industry players should take a step back and re-think what they can achieve on their own to develop a world-class product to take Sri Lanka to the world and whatever the Government does is a bonus.

In response to a question on whether Sri Lanka will be able to market itself strongly as a wellness destination using the positivity gained from how well the authorities have dealt with COVID-19, Vickum was of the view that Sri Lanka has less than 175 proper wellness rooms and possibly 200 quasi wellness rooms, which is not enough to revive the industry. However, the positivity of how well we have managed the situation should be used to promote the overall destination. It’s a competitive advantage we have, and we should leverage it in every way. 

Wellness of course will have high demand but with high demand comes higher scrutiny. 

Therefore, he also cautioned on hotels placing a few spa beds and identifying it as a wellness property as it could lead to Sri Lanka being branded as a quasi-wellness destination that is trying to profit from the pandemic. 

He also mentioned that there is an idea about attracting high spending tourists to revive tourism even though the country has less than 300 room nights that can sell over $ 400/500 per night. The industry can adopt what he identifies as extreme targeting, covering not only the high-end but also the lower end backpackers, who are more prone to travel during this period. It is about targeting early adopters both consumers and logistics/marketwise. What is important is not high end or low end but differentiated products covering all end. Many high-end products are not profitable. We need to understand competition at each price point and provide alternatives that are truly Sri Lankan so that we don’t have to compete on price.    

Thilan responding to views on Government support schemes and what policymakers can do to support the industry explained that in such a situation all the concerned stakeholders should look at the individual sacrifices needed to be made by all stakeholders for the tourism businesses and the industry as a whole, to survive. 

He also highlighted that the Government needs to relook at laws that are inhibiting local and foreign investors from taking over dysfunctional or bankrupt properties and reviving them. These laws may include taxation issues relating to private equity funds, non-availability of REIT and Limited Liability Partnership legislation and restrictions on foreigners owning properties.

The Government should also be flexible in terms of the application of labour laws pertaining to retraining and redeploying those who are going to lose jobs. “The Government should not just give people handouts, but to get them enrolled in micro-level projects that can place the industry in a stronger position when tourism revives. The Government should also seek the assistance of agencies like the World Bank. The World Bank for example had proposed a one hundred-million-dollar fund for a sustainable tourism development project, and that can be re-allocated to these micro-level projects.”

Thilan also emphasised the need for Government to focus on tourism competitiveness in Sri Lanka, “even though as a country many magazines have ranked Sri Lanka in the top five for its attractiveness, our ranking for tourism competitiveness is 64th in the world out of 136 countries according to the World Economic Forum. Sri Lanka’s IT competitiveness is ranked 100, and this is because for example tourists are still unable to buy an online train ticket or a bus ticket and book a seat to go from point A to point B”. 

He also listed several projects to improve competitiveness including; repositioning Colombo, expanding Bandaranaike International Airport, expanding domestic aviation, restructuring Sri Lankan Airlines including Sri Lankan Airlines collaborating with a budget airline, and improving service delivery and sanitation at tourist touchpoints such as Sigiriya, train stations, etc.

Nalaka explained that COVID-19 is the third hit the inbound operators as an industry has had to face in the recent past. In addition to last year’s Easter Sunday attack, the Inbound Tour Operator industry had to deal with a zero VAT rate issue which was fortunately corrected from 1 April 2020. He emphasised the importance of Destination Management Companies (DMCs) towards the tourism industry by indicating that it is the DMC’s that fill up hotels with tourists wherein certain hotels, DMC’s contribution can be up to 60% of the hotel mix.

DMCs are also responsible for overseas promotions whilst online travel agencies (OTAs) do very little to promote the country. He also explained that the biggest problem for DMC’s at this time is their small operating scale which doesn’t provide any headroom to absorb the sudden loss of revenue generation until tourists start visiting Sri Lanka. 

Nalaka indicated that DMCs require a lifeline to hold on to until tourist travel returns to some form of normalcy. He also touched on the importance of Sri Lanka be ready with the health and safety requirements which will be a prerequisite post-COVID. This should cover not only the formal sector but also the informal sector which is very important and will not be an easy task. Nalaka expressed that as a country we should be ready to welcome any guest from any country and if the necessary health and safety prerequisites are met, we don’t have to limit our options. 

The webinar led to several absorbing discussions between the speakers, sharing ideas and thoughts that would immensely benefit the tourism industry in Sri Lanka.