Hotel sector to play wider role

The way forward of the tourism industry in Sri Lanka and the hotel sector’s growth prospects appear very promising, particularly in the short to medium term. The outlook on the industry has now completely turned around, and it is expected to play a wider role in Sri Lanka’s future economic development.

With tourist arrivals into the country recording a high of over 650,000 last year, the hotel sector recorded an average occupancy rate of nearly 70 percent. During peak periods, occupancy levels exceeded 90 percent. Increased demand has enabled hotel operators to elevate their room rates, leading to stronger revenues and broader margins for most establishments, the RAM Ratings Report on Hotel Sector said.

There are several key challenges that have been identified the sector may face when attempting to capitalize on the opportunities presented by the tourism boom. While banks are willing to lend to established hotels that are part of larger diversified groups, stand-alone hotel owners, particularly small and medium-sized establishments, face funding constraints over the construction of new hotels and the refurbishment or upgrading of existing facilities.

An additional challenge lies in the area of human resource (HR). At present, employees in the hotel and tourism sector come up to around 300,000; industry experts estimate that close to 1.5 million employees would be required to cater to the government’s targeted tourist arrivals by 2016. Hence, the country needs an integrated framework for HR development in the hotel industry.

According to the report foreigners make up the majority of the patrons at Sri Lankan tourist hotels, contributing nearly 70 percent of their total room nights. In the first half of 2010, holidaymakers accounted for 79 percent of the country’s tourist arrivals, underlining Sri Lanka’s dependence on this segment that is highly vulnerable to global macroeconomic conditions and events.

Business travellers comprised around 17 percent of the tourists that arrived in the same period. Notably, striking a better balance between leisure and business travellers would enable hotels to smoothen out the seasonality factor in their revenue as the number of holiday makers typically peak in November and December. A tourist’s average stay in a hotel, meanwhile, came up to around 9 days in 2009. This has remained relatively unchanged in the past few years.

Hotels had primarily survived on domestic demand, which had somewhat compensated for the lack of tourist arrivals. In particular, domestic patrons had dominated room nights in supplementary establishments. Local demand had also supported hotels’ food and beverage revenue.

“According to plans already announced by local and foreign hotel operators, 1,000 rooms will be added over the medium term; however there is still insufficient rooms to cater to the expected influx of tourists. The completion of hotels for refurbishment could tighten supply further in the short term and against this backdrop, we believe that hotels will continue enjoying high occupancy levels and lucrative rates in the short to medium term,” the report said.

In line with the industry boom, many foreign and local hotel operators have already expressed their intention to build new properties in the country. Hong Kong-based Shangri-La Asia Ltd is building a 500-room luxury hotel in Colombo at a cost of US $ 500 million; China National Aero-Technology Import and Export Corporation is planning another US $ 500 million hotel development adjacent to the Shangri-la’s site.

Several local companies have also announced plans to build new properties as well as to increase their capacity and refurbish existing facilities; these include John Keells Holdings PLC, Aitken Spence PLC, Softlogic Holdings, Lanka Orix Leasing Company and Sierra Cables. On a related note, higher-quality accommodations are necessary for Sri Lanka to attract foreign big spenders; the SLTDA estimates that only around 6,000 of the currently available rooms are of medium to high quality. C de S