Govt. locks horns with “popular” room tariff
The government remains determined to go ahead with the “popular” call for a removal of the state enforced minimum room rates on Colombo city hotels in the face of growing opposition. Tourism Minister John Amaratunga told the Business Times on Friday that they are going ahead with a decision to abandon minimum rooms from next year, and would not give in to a “handful of people who don’t want to part with it.” The minister believes this would help to overcome issues like the thriving informal sector that were involved in the tourism business without paying any taxes which is currently booming as a result of the minimum rate structure.
He pointed out that this and several other reasons compelled authorities to take this decision and explained that this rate was introduced at a time when they were faced with “difficult times.” Asked for his comments, John Keells Deputy Chairman Ajith Gunawardena said that fixing prices as a government policy is unhealthy and should not be done and is unsustainable. He pointed out that price controls either way – minimum or maximum – should only be done for macro national interests for limited periods of time until certain corrections are made. “If not it will create distortions in the economy, it opens up areas for abuse, for manipulation and most importantly it misallocation resources.
Price controls distort and restrict our vision. They misrepresent reality,” Mr. Gunawardena explained in a note to the paper. A view point that is being propagated that the minimum rate structure had attracted large investments into the hotel sector is misinformation. It is wrong, he said adding that “We have the largest single investment in the industry taking place as we speak and I can assure you it was not conceptualised around price controls.” “In any event this is not a nationwide control. It’s only limited to a few hotels in the City of Colombo. Negambo which is a stone’s throw away with the highway is not covered by this and has seen new investments.
And for some odd reason Mount Lavinia is also not covered by the minimum rate,” he noted. Mr. Gunawardena said there has been significant investment in hotels taking place all over the country and none of these investors is calling for the expansion of the minimum rate net to their areas. They continue to allocate resources on marketing, branding, positioning and allow market forces to determine the rates. It’s a tough game but then that’s the real world, he explained. Sri Lanka Association of Inbound Tour Operators (SLAITO) President Devendra Senaratne said that the minimum rates go against normal economic practices of doing business and pointed out that state intervention in private business was “not fair.”
He explained that due to the minimum rate there was an absence of doing real marketing and hoteliers were not enthusiastic to add value to the different hotels. In this respect, Mr. Senaratne observed that Colombo was not being marketed since prices were too high and the MICE segment was almost non-existent due to places like Thailand and Malaysia becoming more attractive. However, Mt. Lavinia Hotel Chairman Sanath Ukwatte told the Business Times on Friday that room rates in the city would revert to US$40-50 if the minimum rates were removed whereas even the four stars were charging around US$90 plus taxes.
Due to this removal the staff would be severely affected since the service charge would also come down by about 15 per cent due to a reduction in the room rates adding that “in Sri Lanka middlemen were manipulating.” Mr. Ukwatte queried whether Sri Lanka should allow the country to earn “less foreign exchange and staff to earn less or bring in discipline into our price structure and the staff to earn more”. He noted that while the airline crews have been offered special rates at US$60 a similar package could have been worked out for the MICE segment as well. In fact, he pointed out that since leisure travellers were not inclined to stay in Colombo except for about one or two nights due to the available infrastructure facilities they would be able to get to the resorts.
“Since minimum rates only applies to Colombo and suburbs and I would like the authorities to consult the association of stakeholders and get their views before embarking on such a mission,” Mr. Ukwatte said proposing the establishment of “an independent set of audit firm that will do random check on hotels if they are sticking to the minimum.” City Hotels MD Gamini Matthew said removal of minimum rates would affect the small hotels in a big way and lead to a price war resulting in these establishments having to sell rooms by the hour. Kingsbury Hotels Board Member Denesh De Silva also believes the minimum pricing is essential and noted that The Kingsbury brand would get affected by its removal. In fact, he echoed previous sentiments that the profitability, service charges and ability to maintain quality service standards would become an issue.