Sri Lankan hotel margins under pressure

EconomyNext – Intense competition in Sri Lanka’s hotels sector, where new properties have mushroomed on a post-war recovery, has put profit margins under pressure, a report by a stockbroker said.

“The industry’s fragmentation is thinning the existing margins,” said Bartleet Religare Securities (BRS) in a report on the hotel industry.

“The number of smaller to midsized hotels is increasing around the country. This leads to a mini price war whereby the existing operators are pushed to lower their room rates at the cost of occupancies in order to maintain yields.”

The island’s tourism sector has seen a boom with the number of visitors increasing and several new hotels being built after the 30-year ethnic war ended in 2009.

BRS said they believe brand loyalty would affect occupancies of the local hotel operators in the future, in the high end segment with several international brands entering the industry.

Several global hotel chain like Hyatt, Shangri-La and Sheraton are entering the country with high end properties.

The report said the entry of these new luxury properties would increase the overall service standards of the industry.

But their brand strength and efficiencies would also enable them to attract inbound tourists away from the local operators.

“With the increase in supply in the city of Colombo mainly, we believe there would be a downward price adjustment,” the report said.

(Colombo/July 13, 2015)
 

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