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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Are our hotels overpriced?

Are our hotels overpriced?

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1Are our hotels overpriced?  Empty Are our hotels overpriced? Sat Jul 27, 2013 10:31 pm

kavi84


Senior Equity Analytic
Senior Equity Analytic
In 2012, Sri Lanka received a million arrivals. The target for 2013 is to attract 1.25 million visitors. Arrivals in the first half of this year totalled 512,281, which is up 13.1 percent over the 452,867 achieved last year for the same period. The task at hand if we are to meet the set target is to now generate 737,719 ‘would-be arrivals’ during the second half of this year.

In other words, the challenge is to accelerate the growth momentum between July and December this year, to a dauntingly high 33.5 percent over the 552,748 arrivals accounted for the same period in 2012. In this backdrop, the prospect of reaching 1.25 million visitors by the end of the year appears remotely doubtful and the reality of the situation is altogether not lost upon those who wrote the script on tourism.

As reported recently in the newspapers, the Investment Promotion Deputy Minister claims, “The room rates of many Sri Lankan hotels are very high, with some as much as US $ 600 to US $ 800.” Speaking further, he remarks, “The people in the industry should adhere to self-regulatory mechanisms not to overcharge and send the tourists to Thailand and other places when Sri Lanka can be a competitive nation.”

He goes on to lament, “Today, one of the complaints from tourists is that our room rates are very high and that had we provided rooms for US $ 60 to US $ 70, we could have benefited by other means.” Sadly, the Deputy Minister fails to shed some light on what these “other means” are? I guess, he was echoing what the Investment Promotion Minister is reported to have said whilst addressing the media, where he faulted hoteliers for the difficulty in achieving the ambitious target of 2.5 million tourists by 2020, due to exorbitant prices.

In the news release he had also noted, “Hoteliers upped the floor rates of their hotels by 200 percent – 300 percent, making Sri Lanka’s hotels the most expensive in the region and if not for this huge hotel room charges, we could have met the 2.5 million tourist arrivals before 2012.” He opined that under the prevailing conditions, achieving of the target is doubtful even in 2020. So, there it is … the seeds of doubt are being insidiously planted...!

Get Sri Lankaned
Seemingly, coinciding with the remarks made by the Investment Promotion Minister and his deputy, a Sunday newspaper release captioned ‘Sri Lankan hotels pull brakes on price’, states that whilst tour operators believe prices would dip by at least 10 percent – 30 percent for the winter season, the Hoteliers Association President asserts that there is price stabilization and any decision to reduce rates could be taken only by each company and in line with each of its operational costs.

On the other hand, tour operators complain that hoteliers were increasing prices without considering the market conditions or the prices in competitive destinations. The managing director of a travel company is quoted as saying, “Hotels need to be competitive in their pricing” and believed they should take it up and work together and formulate a policy. It is all ‘déjà vu’.  Hoteliers think otherwise and believe that tour operators need to work hard to lure the tourists to stay in local hotels, with a chairman of a family-owned group of hotels pitching in “that the right marketing could bring in the numbers to fill in the rooms.”

Does this translate to saying that the marketing done thus far can be better? What happened with all that hype that was tossed around, with the ‘Mega Tourism Road Show’ that all stakeholders embarked upon in March/April? It was kicked off in India with a huge amount of fanfare under the banner ‘Get Sri Lankaned’. If I recall, the initial reaction from Sri Lankan travel agents and hoteliers who attended these promotions was that ‘it was a resounding success’.

At that time, I considered calling it a resounding success, a trifle premature – after all success is measured with results not merely by a flurry of activity and razzle dazzle!  Interestingly, as of June 2013 year-to-date (YTD), we had 1,452 less Indian visitors than during the same period last year and mind you, last year several conferences ‘emanating from India were dropped’ as claimed then the Sri Lanka Convention Bureau (SLCB) chief, “due to insufficient rooms, owing to refurbishment of hotels in Colombo, Negombo and Bentota.”  

Getting back to the Sunday paper article, I am in sync with the same hotel chairman who explains that those who increase rates without improving on quality were likely to suffer and where he exhorts the travel agents to “stop grumbling, jointly market the destination and have the confidence to market the hotels not just the price.” Quite true, after all it is the hotelier who has put his money where his mouth is by literally spending millions of rupees to build and operate his hotel/s.
In my article ’Sri Lanka’s progress and fluctuating market fortunes’, published by Daily Mirror on February 5 this year, I  cautioned that the 2013 target of 1.25 million visitors will be challenging and may prove difficult to achieve unless there is a tremendous cohesion in what all stakeholders say, do and deliver. It does look like the chickens have come home to roost.

This winter of discontent
Where does all this lead to from here? During the media briefing, the Investment Promotion Minister stressed, “What Sri Lankan hoteliers must do is to try and penetrate non-traditional Russian and Chinese tourist markets as they are huge and they are ready to spend an extra buck for their pleasure. We must attempt to increase the income in tourism not through hotel charges alone but from other services such as competitive leisure facilities, inland travel, food and beverages, etc. that will meet the expectations of the tourist.”

Sage words indeed! After all one cannot allow the monkeys to run the zoo. The conclusions one could draw from the underlined message is that hoteliers will need to rethink their pricing – at least the out-of-Colombo local lot! Between now and December, in order to get to that magical 1.25 million visitors, the minister and his deputy knowingly or unknowingly want you to adapt what is termed a ‘Contributory Pricing Technique’.

This is a technique widely used in the hotel sector but equally valid in all markets. In this case, the operator will calculate exactly what the variable costs associated with each sale are.  In the case of a hotel room, this might be the total cost of cleaning, linen, towels, amenities and an element for the TV licence, water and electricity and something for wear and tear, etc. Having calculated this, the operator knows exactly how much it costs to operate and service the room, therefore, so long as he covers the costs – he loses nothing!

If, however, the guest who rents the room, eats breakfast, buys a couple of beers, orders food from room service, gives his shirt to launder and hires a surf board from the hotel plus buys some trinkets and takes an excursion or a boat ride, the hotel operator and the community will generate profit from the additional sales at an inflated rate. The extra profit which is generated will then make a contribution (hence the name) to the fixed costs which the hotelier would not have had if he had not sold the room.

This is widely used by hotels to sell rooms at short notice. And with the winter season around the corner- is by far the easiest and quickest way to fill your entire hotel. However, several hoteliers may need to persuade their bank to carry the ‘non-performance’ on the loan (NPL) taken to build or refurbish–until the next season or beyond…!                
   
Those who believe that the single most important criterion of success in any business, including hotels, is profit, might not quite agree with the ‘Contributory Pricing’ technique. Such hoteliers must remember that the basics of pricing come down to understanding the value of a hotel and what consumers are willing to pay. Hotels can influence the customers’ perception of value by modifying the rate, so always keep in mind your price and value relation.
You never want to overprice your hotel for what it is and have a customer come in and expect five-star service at a 3.5-star hotel. Also make sure you aren’t cutting price too much in certain markets. Customers can say what’s wrong with that hotel if it’s so far below the others in price? “Your price and value have to match.”

Source:- http://www.dailymirror.lk

2Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Sun Jul 28, 2013 11:42 pm

Gaudente


Senior Equity Analytic
Senior Equity Analytic
@kavi84 wrote: Are our hotels overpriced?
Definitely YES
http://www.tripadvisor.com/ShowTopic-g293961-i8983-k5750344-o30-High_Rates-Sri_Lanka.html#43758088

3Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 11:14 am

Hawk Eye

Hawk Eye
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
When there is economic crisis all over the world hotels are competing with prices under cutting each to fill their capacity.

What is this Hotel Association is doing?



4Are our hotels overpriced?  Empty Look at the root causes. Mon Jul 29, 2013 12:45 pm

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
One of the problems is that Sri Lanka is a high cost country as compared to its competitors (Thailand, Vietnam, Malaysia) Everything is expensive here.

For instance take construction. Construction is expensive in Sri lanka. Why? Basic inputs such as cement, sand and steel are expensive, Other products needed such as furniture, beddings and sanitaryware is expensive. Construction trade is inefficient and expensive. Bank interest rates are high. End result, hotel rooms are more expensive to construct.

Hotels are more expensive to operate.  Food costs are high (both locally produced and imports-because of high duties), transport costs are high (vehicles are expensive-high duties, spares and maintenence is costly, bank interest rates are high. End result, hotel rooms are more expensive to operate.

This has always been the case. We only realize it now because our competitors can cut costs and still be profitable where as we cant.

Its not only in the hospitality trade alone. Its in the country as a whole.

Just think about it.  high interest rates, high import duties, inefficiency in the system, level of waste etc etc all have to show up in the economy somewhere. And they do- making Sri Lanka a "high cost" country.

When the whole world economy is going well, we don't notice it. But when times get tough, we are the first to feel the pinch. As we are right now.

And then we indulge in scape-goat-ism. Hotel rooms are expensive- oh its the hoteliers overcharging.

We choose not to look at the root causes.

5Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 12:59 pm

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
One of main reason for the above situation is unproductive employment
in public sector

How many people in the public sector getting very high salaries from govt
and do not make any contribution

Best example is expenditure uncured by govt to maintain SENIOR MINISTERS OFFICES
most of the ministers do not need security But see the expenditure
How many people in govt offices with out any work

everything is expensive due to unnecessary expenditure of govt



6Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 1:28 pm

Hawk Eye

Hawk Eye
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Exasctly to the point.

Therefore our prices are reasonable

7Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 8:38 pm

Gaudente


Senior Equity Analytic
Senior Equity Analytic
@kukumarx wrote:
Hotels are more expensive to operate.  Food costs are high (both locally produced and imports-because of high duties), transport costs are high (vehicles are expensive-high duties, spares and maintenence is costly, bank interest rates are high. End result, hotel rooms are more expensive to operate.

This has always been the case. We only realize it now because our competitors can cut costs and still be profitable where as we cant.

Its not only in the hospitality trade alone. Its in the country as a whole.
BULLSHIT ! Evil or Very Mad 
One coffe in Kandy costs 30 rupees . In Pattaya between 20 and 40 baht (90-180 rupees). One scoop ice cream costs 30 rupees in Kandy , between 40 and 60 baht (180-270 rupees) in Pattaya. Internet point 60 rupees per hour in Kandy , 30-60 baht (120-240 rupees) in Pattaya. Bus Negombo -Kandy 143 rupees , bus Suvarnabhumi - Pattaya (which is actually a shorter distance) 134 baht . As you can see , the things Sri Lanka people buy are way cheaper than in Thailand, nor it could be any different as Sri Lanka is a way poorer country than Thailand. What costs more are services sold to tourists , so along the Negombo beach 1 hour of internet costs 300 rupees (5 times more than in Kandy) and 1 scoop ice cream 220 rupees (7 times more than in Kandy). Hotel rooms in Negombo all above 4000 rupees for a room in Thailand no one would dare to charge more than 500 baht , and this in spite of the fact minimum salary in Thai is 300 baht per day while I don't dare to imagine how much Lankans staff get paid.
So you see your claim of higher costs is laughable, it is all a matter of higher greed and in the end utter stupidity, as tourists keep coming back to Thailand (and some even move there like myself) while for sure once experienced Sri Lanka they delete it forever off their travel list.

8Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 8:55 pm

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Not only hotel charges .our sexpots prices also not competitive in the world market

Why?

May be due to high labour cost high labour cost is mainly due to
unproductive employment at higher payment

9Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Mon Jul 29, 2013 9:14 pm

sahan8896


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Gaudente wrote:
@kukumarx wrote:
Hotels are more expensive to operate.  Food costs are high (both locally produced and imports-because of high duties), transport costs are high (vehicles are expensive-high duties, spares and maintenence is costly, bank interest rates are high. End result, hotel rooms are more expensive to operate.

This has always been the case. We only realize it now because our competitors can cut costs and still be profitable where as we cant.

Its not only in the hospitality trade alone. Its in the country as a whole.
BULLSHIT ! Evil or Very Mad 
One coffe in Kandy costs 30 rupees . In Pattaya between 20 and 40 baht (90-180 rupees). One scoop ice cream costs 30 rupees in Kandy , between 40 and 60 baht (180-270 rupees) in Pattaya. Internet point 60 rupees per hour in Kandy , 30-60 baht (120-240 rupees) in Pattaya. Bus Negombo -Kandy 143 rupees , bus Suvarnabhumi - Pattaya (which is actually a shorter distance) 134 baht . As you can see , the things Sri Lanka people buy are way cheaper than in Thailand, nor it could be any different as Sri Lanka is a way poorer country than Thailand. What costs more are services sold to tourists , so along the Negombo beach 1 hour of internet costs 300 rupees (5 times more than in Kandy) and 1 scoop ice cream 220 rupees (7 times more than in Kandy). Hotel rooms in Negombo all above 4000 rupees for a room in Thailand no one would dare to charge more than 500 baht , and this in spite of the fact minimum salary in Thai is 300 baht per day while I don't dare to imagine how much Lankans staff get paid.
So you see your claim of higher costs is laughable, it is all a matter of higher greed and in the end utter stupidity, as tourists keep coming back to Thailand (and some even move there like myself) while for sure once experienced Sri Lanka they delete it forever off their travel list.
Thailand is a different story.Wink Wink Wink .Slowly we are heading that way.BTW way it's not the cost that tourists hate more  they hate the way our people try to suck money from them whenever possible.Other thing it's not a matter of high cost,it's price discrimination here in sri lanka. Sometimes 30 times more charged from them.

10Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Tue Jul 30, 2013 12:46 pm

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
@Gaudente wrote:
@kukumarx wrote:
Hotels are more expensive to operate.  Food costs are high (both locally produced and imports-because of high duties), transport costs are high (vehicles are expensive-high duties, spares and maintenence is costly, bank interest rates are high. End result, hotel rooms are more expensive to operate.

This has always been the case. We only realize it now because our competitors can cut costs and still be profitable where as we cant.

Its not only in the hospitality trade alone. Its in the country as a whole.
BULLSHIT ! Evil or Very Mad 
One coffe in Kandy costs 30 rupees . In Pattaya between 20 and 40 baht (90-180 rupees). One scoop ice cream costs 30 rupees in Kandy , between 40 and 60 baht (180-270 rupees) in Pattaya. Internet point 60 rupees per hour in Kandy , 30-60 baht (120-240 rupees) in Pattaya. Bus Negombo -Kandy 143 rupees , bus Suvarnabhumi - Pattaya (which is actually a shorter distance) 134 baht . As you can see , the things Sri Lanka people buy are way cheaper than in Thailand, nor it could be any different as Sri Lanka is a way poorer country than Thailand. What costs more are services sold to tourists , so along the Negombo beach 1 hour of internet costs 300 rupees (5 times more than in Kandy) and 1 scoop ice cream 220 rupees (7 times more than in Kandy). Hotel rooms in Negombo all above 4000 rupees for a room in Thailand no one would dare to charge more than 500 baht , and this in spite of the fact minimum salary in Thai is 300 baht per day while I don't dare to imagine how much Lankans staff get paid.
So you see your claim of higher costs is laughable, it is all a matter of higher greed and in the end utter stupidity, as tourists keep coming back to Thailand (and some even move there like myself) while for sure once experienced Sri Lanka they delete it forever off their travel list.

I dont know about Kandy and Pataya but I can compare Bangkok and Colombo.

I feel you are comparing  apples and oranges. The Rs 30 coffee is probably a nescafe from a machine (perera & sons) . The closest equivalent to that that I have experienced in Bankok is the instant coffee from a vending machine at a seven eleven. Price 9 bhat to 11 bhat. Much better coffee much bigger cup.

Look rather at the cost of good instant coffee in Sri Lanka Vs Thailand. Walking into any supermarket will give you an idea.

Also look at the price of electricity, VAT etc which are inputs to that Cup of Coffee.

That said, It is unfortunate that price gauging of tourists takes place in Sri Lanka. Its very shortsighted.

11Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Tue Jul 30, 2013 6:49 pm

Gaudente


Senior Equity Analytic
Senior Equity Analytic
@kukumarx wrote:
I feel you are comparing  apples and oranges. The Rs 30 coffee is probably a nescafe from a machine (perera & sons) .
exactly
@kukumarx wrote:
The closest equivalent to that that I have experienced in Bankok is the instant coffee from a vending machine at a seven eleven. Price 9 bhat to 11 bhat. Much better coffee much bigger cup.
I have never noticed that here in Pattaya, but perhaps that's because I make my nescafe' in my room and don't need to look around. I will check next time I go to a 7-11
@kukumarx wrote:
Look rather at the cost of good instant coffee in Sri Lanka Vs Thailand. Walking into any supermarket will give you an idea.
True, Nescafe and other imported/licensed goods (Coca Cola and all soft drinks , just to make an example) are about 20% more expensive in Sri Lanka. Yet if the nescafe' costs 7 baht at P&S against 9-11 baht at 7-11 in spite of ingredient being more expensive , that means the service component of the cost is much lower. And hotel costs are practically all of service nature

12Are our hotels overpriced?  Empty Re: Are our hotels overpriced? Wed Jul 31, 2013 11:44 am

Hawk Eye

Hawk Eye
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Its not only the Hotels, all the Industry faces the same.

wrong people climb up to the wrong place. Inefficiencies and corruption creeps in, coz they have to sustain in their post.

To cover all these, wrong policies will be implemented. Public burdened with taxes....


Eg 1: How many of our big projects have become useless, non economic and waste.

Eg 2: Why couldnt we export the over produced rice and tomato.

Eg 3: Why didnt we pass down the benefit of low oil prices

Good governance needed, Good leaders needed.

We need Lee Quan Yew, Kim Dae-jung,Luiz Inácio Lula da Silva kind of people not leaders like our M.Silvas and D.Silvas

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