Sri Lanka to enforce minimum hotel room rates with fines: Minister

ECONOMYNEXT – Almost all hotels in Colombo have sold rooms below the regulated minimum rates and violators will be severely punished going forward, Sri Lanka’s Tourism Minister said amid concerns that price floors were making dynamic pricing difficult.

In recent months many hotels have violated the floor prices, Tourism Minister John Amaratunga said.

“An audit has been done, a report has been produced," he said.  "All have violated it."

Amaratunga said even the hoteliers backing the minimum room rates have violated the regulation and the government is pushing for answers.

"They are giving various excuses," he said.

The minimum room rates were introduced in 2009 following lobbying by 4-star hoteliers, so that they can compete easily against 5-star rated hotels.

Economic analysts say as a result 4-star hotels are able to compete against 5-star hotels in East Asia, but Sri Lanka’s product at the price is not the same. Minimum rates may also contribute to tourists leaving Colombo as fast as possible for new hotspots which offer more activity at competitive rates.

Price controls also make it difficult to dynamically price hotel rooms, especially online, which has become a key feature of Asian tourism over the past decade.

It may also make it more difficult to flatten peak by developing the off-season.

The price floor can benefit the newer hotels by blocking competition from older hotels by forcing them to sell at unrealistic rates, and can also help lower rated hotels win business from higher rated hotels. 

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The lobby has managed to influence the government on many occasions in the past two years to reverse policy decisions to remove the minimum rates.

Amaratunga had initially supported market forces over the price control.

Shangri-La, an international hotel chain which opened a 5-star Colombo operation in November 2017 is backing the minimum rates, according to the state-run Daily News.

Each violation under the regulations is liable to a fine of 1,000 US dollars and the difference between the minimum price and the rate at which a hotel room was sold.

Amaratunga said past violations will not be fined.

"They (hoteliers) are crying that they’re running at a loss," he said. "Of course, no hotelier admits that they’re making money."

Most 5-star hotels in Colombo are publicly listed companies, with transparent finances.

When questioned how a regulation can be in place without enforcing the punishment, Amaratunga who is a lawyer by profession, said that the government will sporadically audit hotels and punish violators more severely in the future.

"Now I’m going to implement it," he said. "We will fine them and suspend their liquor license for 6 months."

The 2009 gazette on the minimum room rates expired on 31 March 2018. However, Amaratunga said that the gazette could be renewed and he is still enforcing the minimum rates.

The Prime Minister has been pushing for the private sector to compete in the market. However, minimum rates discourage competition and distort the market.

Amaratunga was questioned on the differences between overall government policy articulated by the Prime Minister and the anti-competitive policy in the tourism sector driven by special interests.

"That is the debate we are having," Amaratunga said. "We’re trying to reach a compromise that is best for the country."

He said that minimum rates shouldn’t be removed if that makes hotels run at a loss.  However, he said that according to hoteliers who back the minimum rate, tourists stay in Colombo for a very short duration.

M Shanthikumar, a backer of price controls denied that Sri Lanka was losing tourists due to the price floor.

In other regional cities such as Bangkok and Kuala Lumpur hotel prices are lower than in Colombo, and they manage to attract more leisure and business tourists to their cities. (COLOMBO, 29 August, 2018)

 

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