Where have all the tourists gone? A post script

Background

A few weeks ago I wrote an article entitled ‘Where have all the tourists gone’? which was featured in several prestigious daily newspapers. Apparently, judging from the feedback I have received, this publication has caused considerable discussion and debate at various forums.

The thrust of the analysis was to highlight the fact, that while national arrival statistics showed healthy year on year (YOY) growth for May 2012, most star classified hotels all over the country were reporting drastically reduced occupancies. In fact some of the hotel groups reckoned occupancy levels to be worse than even during the war years. Therefore attempts were made to analyse the facts and ascertain whether there was any anomaly.

It was found that there is an inherent “leakage factor” due to transit passengers and the Diaspora segment (visiting friends and relations category) who are also counted as tourists. This error factor is however fairly constant over time, with a marginal increase during December and January which are the holiday months, where this VFR segment is particularly strong.

Over and above this, it was postulated that steep rate increases in star class hotels was driving traffic to the lower category, cheaper establishments. This trend appears to be continuing in June as well where the overall arrivals show a YOY increase of 21.6% for the month of May, although many hotels are still not reporting enhanced occupancy levels.

Update

More data has now become available, to further substantiate this argument. Although the Sri Lanka Tourism Development Authority (SLTDA) has still not published the Annual Statistical Report for 2011, some important data, specially related to the Foreign Guest Nights (FGN) in hotels for 2011,  is now available , which can shed more light on this subject.

While arrival statistics are derived from the Emigration Department directly, Foreign Guest Nights (effectively how many nights foreigners stayed in hotels) data is received directly from all registered hotel establishments in the country. Hence FGN gives a reasonably accurate assessment of the actual foreigners who stayed in SLTDA approved establishments. (SLTDA also receives from hotels, a separate analysis of the Local Guest Nights – LGN)

Hence to derive the actual number of foreigners who have stayed in hotels and other approved establishments, is a simple task, and is obtained  by dividing the total FGN by the overall average stay (nights) per guest (10 days for 2010 and 2011 according to SLTDA statistics).  

Analysis

Based on this, a comparison of 2011 and 2010 reveals some interesting insights.

The leakage/error factor

From the above table it is quite clear firstly, that the ‘leakage factor’ (which was discussed earlier) remains constant at about 15-18%, as expected. This means therefore that only about 85% of the national arrival statistics account for “real foreign tourists”. Hence for example, while 2011 recorded 855,975 arrivals, of which only some 725,889 were ‘real foreign tourists’ who stayed in proper hotels.

Foreign guest nights

Further analysis reveals that the FGN in graded establishments (star class hotels) in 2011 was 5,011,480 as against 4,126,544 in 2010, which is an increase of 884,936, a YOY increase of 21%. This is quite acceptable which really shows the effective occupancy growth in the star class hotels.

However, where the analysis begins to show startling results is in the comparison of the FGN in supplementary establishments (non formal hotel sector, guest houses and home stays, etc). FGN in supplementary establishments in 2011 is 2,247,407 as against 1,249,146 in 2010, which is a 998,261 positive variance, a remarkable 80% YOY increase.

Hence what this clearly shows is that, while star class hotels have increased overall occupancy and stays of tourists by 21% YOY, supplementary establishments have shown a much higher and spectacular increase of 80% YOY.

This therefore confirms the earlier thinking that the increase in arrivals are predominantly more in the lower end establishments, particularly in the off season months of months of May, June and July.

So what does this mean?

Firstly it indicates that possibly due to price increases, tourists who are visiting in the summer months particularly (who are traditionally more price conscious), are choosing the cheaper establishments.

So are we to sit back and accept this fact and allow Sri Lanka to slowly drift back in to a “cheap tourist destination?”

I think, certainly not!  With some good value addition, upgrading and packaging of our tourist offerings, especially during the off season months of May, June and July, and supported and augmented by a strong international advertising and promotional campaign, we would be able to effect a fast track ‘course correction’. The tourism industry has been clamouring to have a proper advertising campaign to market and brand the destination for the past few years. The argument that has been presented against this has been, that given the cessation of the war, and the ‘enabling’ environment that has been created subsequently, will automatically drive tourism arrivals on an increasing demand.

This analysis proves beyond doubt that this assumption is proving to be wrong. It appears that the pent up demand for Sri Lanka is gradually waning, and tourists are slowly drifting towards cheaper options, given the steep increase in rates.

Therefore, unless urgent action is taken to come up with a comprehensive strategic marketing and branding plan for ‘destination Sri Lanka’, one could possibly see us losing out, on the excellent platform and launching pad that was created for tourism a few years back – in short the Honeymoon seems to be coming to an end!