SL listed hotels’ profits low despite rise in tourists
Public quoted hotels of some major conglomerates witnessed low profits in the past quarter, despite tourist arrivals to Sri Lanka being up by 9 per cent last month, analysts say.For the quarter ended 30 September 2015, John Keells Holdings (JKH) leisure sector saw a 23 per cent drop over the same period in the last financial year to Rs. 885 million. “…. the decline is mainly on account of the partial closure of Cinnamon Lakeside,” JKH Chairman Susantha Ratnayake said in his statement.
In the Sri Lankan segment, many coastal properties of large hoteliers continued to witness pressure on ‘Average Annual Returns (ARRs)’ which came from the higher industry inventory.One of the main reasons for this drop in profits for large hotels is the changes in trends in hotel bookings and a shift towards the informal hotel sector, analysts say. Purasisi Jinadasa, Chief Strategist Capital Alliance says that many tourists prefer to stay in unclassified hotels. “Short term rentals, bed and breakfast lodging are becoming popular,” he said.
Meanwhile, there has been a gradual shift in the source markets for the country’s tourism sector, with arrivals from traditional markets of Western Europe declining as a percentage of total arrivals whilst East Asia and East Europe have increased its market share, led by China. Analysts say that these tourists command needs and wants different to their Western counterparts. Also online hotel booking has changed the game for many small hotels. Data showed that the growth of Internet booking services has made it easier for small scale lodging providers to sell rooms to a larger market. Popular hotel reservation engine – bookings.com, lists over 3,500 properties offering accommodation in Sri Lanka compared to around 300 graded establishments in the country.
A top hotelier said that with such a facility, travellers can select from a great catalog of hotels and finally choose what they actually want. “This beats having to go to your vacation destination on a limb and then to scour the place for a hotel you like and also within your budget,” he opined. Small hotels also offer budget deals and nowadays many tourists want to experience the destination. “So many won’t stay for long or care about a hotel. It’s just a clean bed, bath and wi-fi that they want,” the hotelier added.
A sector analyst noted that while occupancies in Cinnamon Grand and Cinnamon Lakeside are falling (the closure of the latter for refurbishment is also a factor) the group’s 3-star Cinnamon Red hotel’s occupancy is high. “This is because the Cinnamon Red prices correspond to the quality it offers,” he said, pointing out that most city hotels are overpriced. Hayleys, in its 2014/2015 Annual Report has said that the hotel sector is challenged due to increase of graded room supply as several new domestic and international players expanding capacity.
“The increased supply of graded hotel rooms has led to severe price competition and margin erosion, particularly given the prevalent shift in spending patterns of tourists,” it says.