Tourism sector to enjoy further growth in 2011 – JKSB

The tourism sector will enjoy further growth in 2011 on top of a record 2010, according to John Keells Stock Brokers (JKSB). This forecast is contained in aax sector update by JKSB, excerpts from which are as follows:

Tourist arrivals to the country saw a sharp increase in CY10 with 654,476 tourists visiting the island – the highest the country has ever seen, representing a yoy increase of 46%.

  Sri Lanka recorded the highest ever monthly arrivals figure of 84,627 guests in December 2010 with the beginning of the Winter season despite closure of several airports in the European countries due to adverse weather conditions.

For  the  first  time  since  2005,  Western  Europe  topped  the  list  overtaking  Asia  as  the  leading  tourism  generator  for  Sri  Lanka  in  CY10  with  arrivals  totalling  to 256,861,  accounting  for  39%  of  total  arrivals,  growing  51%  yoy.  This  was  the  second highest  figure  posted  by  the  region  with  the  highest  being  recorded  in  2004  with  284,440  arrivals.  

Asia,  on  the  other hand,  accounted  for  37%  of  total  arrivals  with  244,124  tourists;  the  highest  ever  figure  the  region  has  recorded.  Arrivals from Asia indicated a yoy growth of 40%.

In terms of country of origin, India was the largest tourism generator with 126,882 in CY10 growing 52% yoy while UK came in second with 105,496 tourists, representing a yoy increase of 29%. UK’s complete removal of travel restrictions to Sri Lanka coupled with the removal of office travel warning to Sri Lanka’s North and East by Canada contributed significantly to the 46% growth in recorded in CY10.

The increase in arrivals boosted average occupancy which reached 67% compared to 47% recorded in CY09. The 4QCY10 alone recorded over 200,000 tourists and an average occupancy of 74%. The South of Colombo is estimated to have enjoyed an occupancy of 92.8% in December 2010 while the North of Colombo recorded 86% in occupancy.

Outlook

With most economies around the world recovering from recession, we expect Sri Lanka’s tourism industry to enjoy further growth in the current year while the room supply likely to remain a constraint. Sri Lanka has declared 2011 as ‘Visit Sri Lanka’ and expects to receive over 700,000 tourists in CY11.

Most operators having closed for soft refurbishments have reopened with the beginning of the Winter season but the industry is yet to see brand new establishments joining the room supply. These include the construction of a new 190 roomed four-star hotel on a 10 acre block in Beruwala by John Keells Hotels Plc (KHL) at a cost of Rs. 2 billion and the redevelopment and re branding of Coral Gardens which are scheduled to be made available for tourist by Winter 2011.

Aitken Spence Hotel Holdings Plc (AHUN) also has drawn up plans to develop the 10.86 acres of freehold land adjacent to Heritance Ahungalla in a joint venture with Six Senses Resorts & Spas a resort and spa management and development company operating in countries including Oman and Maldives, to develop this property along with a spa.

The hotel is expected to be operational by 2012. The group is also considering the development of a 4-star hotel in Jaffna city comprising of around 80 rooms and it is likely that this will join its portfolio of hotels by FY13.

Among the city hotels, the Hong Kong based Shangri – La Asia Limited acquired six acres in the heart of Colombo facing the Galle Face Green promenade to build a 500 room 7-star property with high end retail facilities and deluxe apartments at a cost of US$ 500 million while construction is expected to begin in 2012. In addition, the group is also planning to develop a second property with 300 rooms in Hambantota on approximately 100 acres of land.

Citrus Leisure Plc (REEF), formerly known as Hotel Reefcomber Plc is expected to construct a 4-star resort comprising 150 rooms and 28 water front villas in Kalpitiya on a land extent of 78 acres. The exclusive water villas are expected to be leased out on 99 year leases to foreign / local high net worth individuals.

Amaya Leisure Plc (CONN), another leading hotelier in Sri Lanka intends on developing its six acre property on the Wadduwa beachfront into a luxury resort hotel. The group also plans on developing Amaya Residencies which will own or manage small boutique type resorts in selected locations in the country.

A significant proportion of the above mentioned projects are expected to be operational by Winter 2012/2013 which would help narrow the gap between demand and supply.

The Government of Sri Lanka expects to achieve 2.5 million tourists by 2016 and it is estimated that 58,000 rooms are required to cater to such demand. Consequent to this shortage, we expect the already established properties to enjoy significant growth on ARR along with occupancy.

In addition, 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.