Wednesday August 15, 2018

Sri Lanka hotels association defends minimum room rate policy

Feb 11, 2016 13:10 PM GMT+0530 | 1 Comment(s)

ECONOMYNEXT – Sri Lanka’s hotels association believes a minimum room rate policy for star-class Colombo city hotels helped attract more investments and needs to be continued for several more months to prevent a rate war.

At the time the government imposed the minimum rate city hotels had lost confidence and were not making money, Hiran Cooray, president of the Tourist Hotels Association of Sri Lanka, told a tourism forum in Colombo.

"When the government imposed the minimum rate policy, suddenly hotels started making money and they did invest money," said Cooray who is also Chairman of Jetwing Hotels.

City hotel standards improved and some properties like the Kingbury were “completely transformed,” he said. “And they are making money.”

The hotels association believes the minimum room rate policy should be kept for at least another 18 months, Cooray told the Tourism, Hotel Investment & Networking Conference (THINC) organised by HVS, a hospitality consulting firm.

"If not, rates will come crashing down, profitability will go down, there will be a rate war, which we don’t want."

Sanjeev Gardiner, Chairman of the Gardiner Group, which owns the Galle Face Hotel, said minimum rates were considered during the ethnic war when violence deterred investments.

"Bombs were going off, people were not investing," he told the forum. "At that time electricity costs, labour costs, food and beverage costs were rising," he said. "So the minimum rate was something almost mandated to happen – because if it did not, one would not know where it would go."

Analysts say after the war, the floor rates probably helped drive investments into a host of new good quality non-star properties by making it easier for them to compete against 5-star hotels, and win business if they wanted to.

Therefore a lot of new capacity after the war came from outside the established star class hotels who could free ride just below the floor rate or flexibly go lower and draw new visitors to Sri Lanka helping them fill capacity.

Analysts say larger hotels also have banquet and restaurant revenues to supplement lower occupancy that comes from government mandated floor rates.

A top official of John Keells Holdings said minimum rates were unhealthy and should go. "If not, it will create distortions in the economy, it opens up areas for abuse, for manipulation and most importantly it misallocates resources,” he told the conference.

Gunewardene said the imposition of a minimum rate and not allowing demand and supply and price competition to work had led to the proliferation of informal establishments not governed by the floor price.

"Today the informal sector in Colombo city outnumbers the so-called formal sector," he said. A viewpoint being propagated that the minimum room rate structure had attracted large investments in to the hotels sector was misinformation, Gunewardene said.



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  1. Soma February 11, 07:22 AM

    Srilanka needs to understand they need to compete with countries like Thailand, Malaysia, Bali, Vietnam and Burma in the future.Sl is a small country with far less attractions compared to countries mentioned. The hotel and food prices are very cheap.Why should a tourist visit SL when they can get more value for money in those countries.I visited and stayed in basically 1 star hotel few times for 35 for Ac room and that same Hotel for the same room charges 95 now.. I do not stay anymore in Hotels in Srilanka instead stay in apartments.So the hotel is loosing a customer...When their is competition ,its good for the economy .SL needs to attract customers by providing quality hotel at lower prices.The most visiting tourist are from China, India and Europe.People from these countries are on budget.To attract more tourist from USA,Australia, Japan need to offer value for money. Speak to a shop owner in Thailand ask what type of tourist come over most...and they will mention the 3 countries ...SL open your eyes...

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