Minimum room rates to be abolished next year

Minimum room rates currently enforced in Colombo will end from the first quarter of 2017 under a new decision made by the Tourism Minister to make the industry more competitive.    

Minimum room rates of city hotels will be abolished with the end of the next winter season, Tourism Development, Lands and Christian Religious Affairs Minister John Amaratunga said in a media statement yesterday, with the decision to be implemented from 31 March 2017.

This decision was taken by the Minister based on a recommendation of the Tourism Advisory Council which comprises of key players in the hotel and travel trade. The Council was of the view it was time to do away with the minimum rates as it has “now served its purpose”.

Tourism Advisory Council Convenor Felix Rodrigo said the Council had arrived at a unanimous decision to recommend to the Minister to abolish the minimum room rates as soon as possible.

The Tourism Advisory Council was appointed by Amaratunga to appraise him on issues facing the tourism industry and is chaired by business tycoon Harry Jayawardena. The Gazetted minimum rates are applicable to all star class hotels ranging from one to five stars in the Colombo city limits.

Amaratunga, considering the forward contracts already entered into by many hotels, decided to abolish the minimum rates with the end of the next winter season. 

“We need to respect the contracts already entered into for the coming season which is why it will be abolished from end March 2017,” Amaratunga was quoted as saying in the statement. 

“Almost all the hotels have been calling for the abolition of the minimum room rates and to allow market forces to decide prices. By sticking to the minimum rates we have been pricing ourselves out of the lucrative MICE market and losing out to our regional competitors. As a result we have been uncompetitive in the MICE market,” said Amaratunga.

The minimum room rates were imposed during the height of the war to prevent hotels from undercutting each other and causing a price war. With the end of the war and the influx of tourists the rates have been seen as a stumbling block to making Colombo an attractive destination for tourists.

“With the abolition of the minimum rate regime hotels are free to charge what they want. They can charge $50 or $500 dollars depending on the quality of the product. The market will decide the prices and as a result tourists will get value for money,” said Amaratunga.

Colombo city has over 5,500 quality accommodation units for sale in the formal sector, ranging from five star to one star rooms at price points from $ 125 to $ 50 excluding Government taxes, catering to different segments of the market at different price points.

Under the Government directive in 2009 which enforced a minimum rate five star rooms go at $ 125 plus taxes ($ 152), four stars at $ 95 plus tax ($ 121), three stars at $ 75 plus tax ($ 95), two stars at $ 55 plus tax ($ 65). 

Industry analysts have been calling for the abolishment of the minimum room rate since last year but hoteliers have resisted insisting with 70% occupancy across all hotels the prices were sustainable.