Oct 16, 2017

Sri Lankan city hotels to lose their attractiveness

Sri Lankan city hotels are to lose their attractiveness because of their relatively higher room rates – owing to steep cost structures, Fitch rating agency envisaged. 

The higher accommodation costs – especially star-graded facilities – are due mainly to the prevalence of minimum room rate regulation, higher cost of construction and energy tariffs.

The average per night price of a room in five-star graded establishments in Colombo exceeds USD180 (with taxes), compared with similar accommodation units in Bangkok (USD175), Kuala Lumpur (USD165), Chennai (USD130) and Mumbai (USD168).

The operating costs of domestic hotel operators are also pressured due to escalating energy costs – accounting for around 10%-15% operating expenses – and increased taxation.

Government increased the Value Added Tax (VAT) from 11% to 15% in the budget for 2017, and we expect hotel operators to pass this on to customers. Government also made a proposal in mid-2017 to raise the tax rates on hotel operators by 2% to 14%.

The room price comparison was based on the average prices for the top 10 five-star properties for the booking period of 1-2 October 2017.

Tourist Arrivals to grow but with limited increase in spend Fitch expects tourist arrivals to grow by a CAGR of 15% over the next four years, to 3.6 million in 2020.

However, earnings growth is to be limited due to slower growth in tourist spend over the medium term. This is in light of the rising inflow of low-spending Asian tourists, especially from the Indian and Chinese markets.

Fitch expects daily tourist spending to fall marginally short of the government’s target of USD210 by 2020.