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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Lanka needs right hotel mix – Report

Lanka needs right hotel mix – Report

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1Lanka needs right hotel mix – Report Empty Lanka needs right hotel mix – Report Wed Jun 27, 2012 11:11 am


Director - Equity Analytics
Director - Equity Analytics
Development of tourism in Sri Lanka will require stakeholders to strike a proper balance between developing 3-star and 4-star properties on the one hand, and luxury and boutique hotels on the other, in addition to implementing a more liberalized pricing structure, according to a report from Sri Lanka-based strategy consulting firm Vox & Co.

“Sri Lanka is poised for unprecedented growth in tourism, and has set ambitious targets for itself within a highly accelerated time-frame. But a bumbling policy environment and underinvestment in core infrastructure continues to pervade the atmosphere, confusing first-time investors and exasperating existing players.”

“With Colombo’s inflated rates, travellers will seek out alternative accommodation types such as budget business hotels and serviced apartments. Developers seeking to address this market gap are likely to be positioned for the win in the medium and longterm,’ the report stated.

The need for more budget hotels was reiterated by certain large tour operators, it was quoted in the report.

“We honestly need everything. First, we need to balance out the 3-star and 4-star properties, which should comprise around 45% of the stock of hotel assets. We have a huge gap in 3-star properties on the island and that’s a big market gap,” a tour operator had reportedly stated.

Tour operators speaking to Vox had also noted a greater demand for boutique hotels on the South Coast, which is thought to appeal to MiddleEastern tourists looking for high end 4-star hotels.

Nevertheless, the report cautioned against rushing into investments in boutique hotels.

“It would appear that on every patch of rolling green with a waterfront, a new developer builds a boutique hotel. However, all boutique hotels were not created equal, and using them as means to escape restrictive classification standards is more likely hurt proprietors in the longer-term,” the report stated. “Escaping the grade may be temporarily advantageous to investors, but most tourists prefer graded properties simply because they are able to anticipate the value of the offering against international standards,” it added.

Such views were also advocated by another large tour operator, who stated:

“I think if 5% of the hotel formats were boutique hotels that should be sufficient. It’s a reverse situation on tour; places like Sigiriya only have 3-star, and fewer 4-star, so in these highly popular and common destinations we need to balance out some of the accommodation formats.”

In addition to finding the right mix of hotels to cater to a wider base, the report also delved into issues of pricing, in particular concerns over whether Sri Lanka was out pricing itself as a destination.

“Budget and first-time travelers—the most price sensitive segment across the board were consistently enthralled at competitive room rates, inexpensive but lavish restaurants and a good time had by all on a shoestring budget.”

“However, over the past few years Sri Lanka has managed to quite firmly shake off its reputation as an inexpensive destination. Within a decade, Sri Lanka’s accommodation, transportation and food prices have undergone a total inflation of over 80%,” the report stated.

Such high rate of inflation in the industry, whilst serving to bolster larger players, has largely worked to the detriment of budget properties in the 2 and 3-star class however. “At the lower end of the spectrum, pricing has jumped by at least 75%, with little to no proportionate increase in value or service, effectively serving to alienate the price-sensitive traveler. Colombo’s price floors are excellent news for those five-star properties at the top end of the spectrum.”

“Though a modest increase in prices serves to draw in new investment and employment—in an industry that has taken a beating over decades—with inflation of this scale, tourists simply want to understand: what are they paying for? As high prices filter downwards, budget properties and 2 and 3 star class accommodations have been hit the hardest.”

High inflation within the industry has also prompted many stakeholders to criticize the various interventions of the government with regards to pricing.

“Many industry players argue that with compounding our rampant inflation, the imposition of tourism development levies, heinous rate increases and price floors for Colombo room rates, policymakers must realize that pricing growth cannot occur in a vacuum.”“It is more important than ever to bring value back in to tourism rather than growing prices in a vacuum. Once the dust has settled on this period of corrective inflation, there must be allowances for market adjustments which can determine rates through the natural forces of demand and supply.”

Forces of supply and demand would also have to be considered in a more realistic sense, particularly in the context of the on-going shift away from country’s traditional tourist markets.

“There has been much discussion by tour operators on the veracity of arrivals statistics. Many claim that the growth in Asian tourism can be attributed to a surge in traders and wholesalers travelling on tourist visas,” the report stated.

One large tour operator speaking to Vox had stated: “Here is why the numbers look over-inflated. There are several Indians who come on tourist visas, but they are not tourists. They are traders. Apparently we had 110,000 tourist arrivals last year, but all of these don’t use our services. They don’t use our transport, they don’t stay in our hotels. I would say of the 110,000 only around 30,000 are tourists in the real sense.”

The report also noted that many of these visitors tended to visit Sri Lanka on very short stays contributing very little to the overall industry, and preferring instead to “hit the roulette tables hard”.

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