Minimum room rates need of the hour
View(s):The hotel industry is the single largest investor in the tourism sector in Sri Lanka. Colombo has seen some of the highest single hotel investments in the country, with city room strength being over 30 per cent of the entire country’s room inventory. It is predicted that in the next three years over 40 per cent of Sri Lanka’s inventory will be in the capital Colombo.
But until such time the city hoteliers are today grappling with a burning issue – the minimum room rate – that has been removed since February this year and which city hoteliers are trying to reinstate. Travelling back in time will reveal its importance and how things have turned out today.
During the conflict years in Sri Lanka tourism was the most affected industry for almost three decades. Hotel rates were very low not only in Colombo but all over Sri Lanka and went to the extent of not being able to meet even the day-to-day operational cost paying salaries, wages and maintaining the product.
Colombo City Tourist Hoteliers Association (CCTHA) was the most affected during this period that along with the Tourist Hotels Association of Sri Lanka (THASL) made many representations to successive governments asking for assistance by way of soft loans, rescheduling loans, duty free concessions, and tax reduction, etc.
Soon after the conflict ended, the city hotels were once again appealing to the government with concessions for refurbishments with soft loans. Even though the government helped at the beginning and informed hoteliers that they would not be in a position to assist any further.
As a result, hoteliers in a bid to ensure their businesses remained commercially viable, at this point of time there was a severe undercutting amongst the city hoteliers to the extent that five star hotels brought down their rates down to almost $50.
This severely affected the four, three and two star hotels that were compelled to come down to as low as $25.
This is the very reason the best interest of survival of the smaller hotels the CCTHA made an appeal to the government to introduce the concept of minimum rate and it should be noted that the proposal was submitted to the authorities by the CCTHA members without any deviation and every single member supported this.
The minimum rate was initially gazetted in October 5, 2009 under the Tourism Act No 38 of 2005. Thereafter, rates were revised in 2011 March by Extraordinary Gazette No 1622/1.
The success of the minimum rate reflected within a year which tremendously benefitted the country by way of taxes and levies and the stakeholders, most importantly the staff by way of service charge, which increased twice or thrice over.
However, the minimum rate was always opposed by the Sri Lanka Association of Inbound Tour Operators (SLAITO) from the time it was introduced and implemented.
At a meeting held on Thursday August 23, with over 25 Colombo star class hotels, the majority excluding two members clearly stated that they want the minimum rate policy continued and predicted doom in the Colombo city if the Government decide to revoke the Gazette notification at this juncture. However, the members clearly requested for a robust monitoring mechanism to be put in place by the government authorities to control the violators.
During the meeting the financial benefits to hotels in factual terms post the introduction of the minimum rate in 2009 were highlighted. It was mind boggling to see returns not only to the owners, operators but the financial benefits to the employees of the hotels in terms of monthly service charge pay outs which has doubled or tripled.
The minimum rate not only benefited the private sector but gave a huge boost in its contribution to the government in terms of taxes and levies.
Since 2011 to date the minimum price stipulated has not been revised and remains the same. However, hoteliering cost of operations has increased dramatically over the last seven years.
With the economy not seeing any type of boom nor is the destinations leisure sector including the MICE business, Colombo hotel occupancy too is on the decline. With the large number of new inventory coming into operation in Colombo with no demand growth to compliment the inventory growth, there is definitely a reason for concern as voiced by the leaders of the Colombo City Hotels.
Members opposed to the minimum rate, voiced concern regarding the lack of an aggressive promotional campaign to drive demand to the destination. Whilst Sri Lanka Tourism Promotion Bureau (SLTPB) has started initiating activities in different parts of the globe, it is also a known fact that a promotional campaign unless a tactical promotion needs at least a lead period of a year to generate numbers.
A strong voice also came in on the threat of losing employees to West Asia as their earnings will come down dramatically when the price war begins. Some hoteliers predicted that hotels through desperation will begin to sell rooms as low as $50 or less. These are the five star rates that prevailed during the conflict period.
The results of the annual reports released by some of Sri Lanka’s leading leisure companies is a testimony to the pressure in business of the tourism sector in Sri Lanka. Isn’t it the duty of the government to assess the success and the need for a gazette notification to be invoked from the hoteliers themselves as one single decision can have drastic repercussions? We only seek the assistance of the government to introduce a proper monitoring mechanism on the minimum rate.
Let us accept reality! Colombo is not a buzzing capital city for tourists to throng to the capital for holidays. Until such time this happens, let hoteliers survive and sustain their business with the support of the government.
The minimum rate has been a success and a robust monitoring mechanism should be in place. The Colombo City Hotels are heading for a crash in its earnings if the minimum rate is removed. The President THASL Sanath Ukwatte and I have discussed with the Tourism Minister John Amaratunga the importance of maintaining the minimum rate where the Minister has agreed to extend the minimum rate with a solid monitoring mechanism.
(The writer is President of the Colombo City Tourist Hoteliers Association. Most of the views expressed here are that of members of the association)
| Rates when first introduced in 2009 (excluding taxes): 1. Five star hotels – $75 2. Four star hotels – $60 3. Three star hotels – $45 4. Two star hotels – $30 5. One star hotels – $20 Revised rates as of March 17, 2011: 1. Five star hotels – $125 2. Four star hotels – $95 3. Three star hotels – $75 4. Two star hotels – $60 5. One star hotels – $45 Special rate for airline crew: 1. Five star hotels – $65 2. Four star hotels – $55 3. Three star hotels – $45 4. Two star hotels – $35 5. One star hotels – $25 | |