Financial Times

Hotel sector to outperform in post-war Sri Lanka

By Duruthu Edirimuni Chandrasekera

Though having performed above the overall market the Hotels and Travels (H&T) sector in Colombo's share market has the capability to far outperform the rest in the post war environment, according to sector analysts, but a major issue is that the country is not geared for increased arrivals.

"The H&T in Sri Lanka had been performing well below its true potential during the last few years due mainly to the adverse security situation. With the eradication of terrorism in the island, there is sustainable peace spurring many foreign nations to consider the removal of the negative travel advisory to Sri Lanka which was a major challenge for the tourism industry. These positive improvements have bolstered the tourist arrivals to the country resulting in a 34.3% growth in arrivals during August 2009 compared to the same period last year," an analyst, who didn't want to be named, said.

Tourist arrivals to the country is showing an increasing trend since the war ended and hoteliers say their occupancy rates which were very low during the period of war have started to increase giving revived hope to the hoteliers. The analyst said that additionally, the recent relaxation of travel advisories on Sri Lanka should also help increase arrivals in the longer term, as tourism is sensitive to security situations.

"The major issue is that we do not offer adequate number of rooms. We are not geared (still) for the influx of tourist arrivals and this is catching up fast," Thakshila Hulangamuwa, vice President Business Development at Asha Phillips Securities told the Sunday Times FT.

The (unnamed) analyst said that the high occupancy will facilitate high tourist receipts which will further flourish with the proposed tourism projects. Despite the recent upsurge in the prices in most H&T counters, some are still trading below their Net Assets Value (NAV) leaving room for value investing.
Implementing a Minimum Room Rate for the city hotels, is meanwhile a development which has surfaced recently. Although a similar policy was introduced in January 2008, it broke down towards end 2008 due to declining arrivals forcing the hotels to engage in competitive pricing strategies.

The current policy will take effect from November 2009, and will effect a minimum price based on the 'star' category of the city hotels, ranging between US$ 25 to US$90 for one to five star hotels.

The second schedule will take effect from January 2011, and rates will range between US$ 50 - US$124 for one to five star city hotels. These rates will be applicable for Free Independent Tourists (FITs) as well as tour operator packages.

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