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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Tourism: Fast growth or slow burn?

Tourism: Fast growth or slow burn?

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1Tourism: Fast growth or slow burn? Empty Tourism: Fast growth or slow burn? Wed Jul 04, 2012 12:57 am

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Tourism is very much in the news and targets are being bandied around. A magic number plucked from the air of 2.5 million tourists by 2015/16 is often quoted. All this suggests that tourism will see a sustained explosion in growth. What is the truth? Is it fast growth or slow burn? What are the factors that will push it in one direction or the other?

Hotel rooms a limiting factor
The maximum number of tourists we can have at any time is determined by the number of rooms available in the country. The limiting factor is hotel rooms. We cannot get in more tourists than the rooms available!
The number of tourists a single hotel room can accommodate in a year depends on whether it is occupied as a single room or as a double room, the number of days in the year that a room is likely to be occupied and the length of stay of each guest.

To get a firm grasp on all this, let us see what happens if a room is occupied for 70% of the time. This means there are 255 room days. Let’s assume that it is always occupied as a double and that each pair of guests stays 10 days.

The arithmetic is simple. One room can have 25 pairs of guests or in other words 50 guests per room. To cater to an additional one million tourists you require around 20,000 new rooms. This number will decrease if each couple stays a shorter period of time and if hotels do better than 70% occupancy. In a more or less sense this gives the picture.

A formidable challenge
Let’s not kid about this. It is a formidable challenge. We need 200 new 100 room hotels or some permutation of this, to get 20,000 new rooms. The anecdotal evidence suggests that actual building has not started by January 2012 on anything like 2,000 new rooms.

As it takes something over two years from starting building to welcoming the first guests through the door it looks like we will not be able to accommodate another one million tourist by 14/15 in 3,4,or 5 star class hotels.

The Tourism Authority can remove all this guesswork by publishing the actual number of new rooms under construction on 1 January 2012 and then update this number every six months giving the incremental new rooms under construction.

We often quote with envy the 20 million tourists Malaysia gets and the 25 million that Thailand gets when the red shirts and yellow shirts are not bashing each other up.

We have enough rooms for about one million tourists in 2012. To cater to another 19 million to match Malaysia, we will need something like another 380,000 new rooms! This is another 3,800 new 100 room hotels! Matching Malaysia must remain a distant dream. Tourism has to be slow burn.

Tourism a fantastic slow burn opportunity
We may not hit big numbers in a flash but tourism is a great opportunity for Sri Lanka. Even if we do a 25% increase in arrivals each year for ever matched with 25% increase in hotel revenues and profits and a 25% increase in foreign exchange earnings, it becomes perhaps the best growth industry in Sri Lanka!

The beauty about tourism is because of our low base compared with Thailand and Malaysia we can expect to hit these numbers for a very long time to come. Arguably the best prospect for sustainable profitable long-term growth in Sri Lanka has to be tourism.

The beneficial tentacles of tourism reach far beyond the hotels that provide the rooms. In addition to direct employment, it creates a demand for fruits, flowers, vegetables, eggs and very other kind of food and drink.

It creates a demand for transport, from three wheeler drivers upwards. It supports all the little shops serving food and drink around all the tourist sites. It will be manna from heaven for bars. To get a glimpse of this potential, walk around the streets of Bangkok or for that matter London in summer.

To get the best out of tourism we need a two-pronged approach. Get more numbers and get those who come to increase their per capita spend. There has to be a concerted effort to get the tourist to spend by giving value for his money. The latter will encompass everything from gems and curios and to everything else that we can make an interesting buy for tourists.

Are we managing the tourism product?
Just because we build rooms it does not mean that they will get filled. The whole world is trying to attract tourists and we must step in and slug it out to get an ever-increasing share of the global tourist trade.

We have a great product but we must market it effectively. So much will depend on good marketing. Of all the things we have to do the prime focus has to be on marketing Sri Lanka as a destination. If we do not fill the rooms we have and the increasing number that will come on stream, the enthusiasm we see now for building hotels will wither away. If tourism ceases to be perceived as a great opportunity that perception will cause its death.

Building for the future depends entirely on confidence about the future. Tourism is long gestation investment. What happens now will influence the thinking about what will happen in the future. The first signs of concern caused by a perception of a lack of destination marketing are now visible.

The private sector must take the lead.
Tourism is a private sector industry. All parts of it are private sector and all parts it connects to are also private sector. So we see private sector, hotels, private sector destination management companies, private sector tour operators, guides, transporters, etc. All of this connects to private sector providers of food and drink and private sector shops and restaurants and bars trying to increase tourists spend. The private sector must play a major role in managing tourism.

The current act was designed to achieve this, but sadly the private sector input diminished due to a lack of opportunity to flourish. A glaring example is the promotion bureau.

The people who know best are in the private sector because they run the industry on a daily basis. For some time the promotion bureau has been staffed by people in the public sector who, regardless of the quality of their brains, lack what is crucial – a sound knowledge of the industry which can only be gained by working in it.

Private-public partnership
The private sector has to be blamed for their apathy and lack of initiative. For example in the crucial area of promotion we have not seen published a comprehensive private sector marketing proposal on the best way forward.

The leaders in the private sector must stop being only concerned with their own P&L and balance sheets.

They should grow in stature as people who are actively concerned about and participate in the development of the country. They should begin to fill the gaps that exist.

There is no private sector think tank to research the trends and facts and to identify the best way forward to sustain a growth in tourists. No think tank to evolve solutions to the huge bottlenecks caused by the regulatory framework stemming from an array of laws that regulate everything. There is no structure to process and pursue the outputs of think tanks. When the private sector gets its act together, it should maintain a continuous dialogue with the public sector/Government to jointly pursue the best strategies.

There is every reason to believe the Government will welcome such a positive input.
(The writer has a Master of Arts Degree from Cambridge University, UK and the AMP of Harvard Business School USA. He counts over 40 years of board experience having served as a Director of several companies in Sri Lanka and abroad. He was a Director on the main Board at Reckitt Benckiser Plc, UK, where he worked most of his career and at the time of his retirement was Global Director – Pharmaceuticals. He has served as the Chairman of the Board of Investment and Sri Lanka Telecom Limited and was a Senior Advisor to the Ministry of Finance. Currently, he serves as Chairman of Hemas Holdings PLC and First Capital PLC.)
http://www.ft.lk/2012/07/04/tourism-fast-growth-or-slow-burn/

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