Mahinda checks in for city hoteliers’ minimum rates

Monday, 26 August 2013 00:00 -     - {{hitsCtrl.values.hits}}

The highly debated minimum room rate issue recently received presidential favour after the Colombo City Hotels Association (CCTHA) made a compelling case for it, though inbound tour operators remain vary. The matter was discussed when President Mahinda Rajapaksa met business leaders for a brainstorming session for Budget 2014. The tourism industry was represented by senior officials of the CCTHA, the Tourist Hotels Association and the Sri Lanka Inbound Tour Operators. Established in 2010 via a Gazette in late 2009, the city hotels charge a minimum room rate ranging from $ 45 (one star) to $ 125 (five star) per night. Of late, there has been some opposition, especially from certain sections of the industry, stating that the minimum room rate was a deterrent to drawing more tourists into Sri Lanka. Fresh concerns have come especially with tourist arrivals losing steam though figures were up 13% to 512,281 until June. At the pre-Budget meeting with President Rajapaksa at which the tourism sector was discussed, SLAITO President Mahen Kariyawasam requested the abolishment of the minimum rate. At this point, CCTHA President M. Shanthikumar stood up and defended the minimum room rate very strongly, listing out its benefits. The President heard these through and had stressed on the fact that the minimum room rate in competing destinations such as the Maldives and India were much higher. Economic Development Minister Basil Rajapaksa, under whose purview the tourism sector comes under, Finance Secretary Dr. P.B. Jayasundera and Sri Lanka Tourism Chairman Bashwara Gunaratne were also present at the meeting. Shanthikumar also commented on and thanked the President for initiating the minimum rate in 2009 and recalled that when the minimum rate came into force, there was severe lobbying by SLAITO against it. However, former Deputy Minister of Tourism Faiszer Musthapha had supported the implementation of the minimum rate which, according to CCTHA, has turned out to be a tremendous success. Countering a SLAITO argument, Shanthikumar said that within the minimum room rate regime, incoming tourists have multiple options depending on their needs as different rates are charged by the respective star-classed hotels. For example, a single star charges $ 45 per night, a two-star $ 50 per night, three-star $ 75 per night, four-star $ 95 per night and five-star $ 125 per night. “If the minimum rate was detrimental, it’s only the city hotels that would have to make an appeal to the authorities. CCTHA members have no objection and they will continue with the minimum rate as per the vision of the President,” Shanthikumar had emphasised. Apart from Shanthikumar and Kariyawasam, among tourist industry leaders  present at the President's meeting were Tourist Hotels President Jayantissa Kehelpannala, Vice President Siri E Goonewardena, Immediate Past President Anura Lokuhetti, and from SLAITO Immediate Past President Nilmin Nanayakkara, and Chandra Wickramasinghe. Industry analysts said that Colombo five-star city hotels for several decades were sold at a gross rate as low as $ 45. In 2007, the average for a five-star hotel was recorded at $ 55 nett. This not only made five star hotels run at huge losses, but impacted the lower star class hotels as they were compelled to offer rates far below the five-star prices. They estimate that via the implementation of the minimum room rate, the incremental revenue in the 22 Colombo city hotels grew by an overall Rs. 2 billion year-on-year. CCTHA has around 22 members whilst there are a further 10 city hotels which have come up in recent years. City hotels employ over 7,000 people. These analysts also said that the five-star city hotels alone recorded incremental revenue exceeding Rs. 1 billion on a year-on-year basis over the past three years. The minimum room rate has benefitted smaller city hotels the most as previously, they were unable to sell rooms due to low prices offered by their five-star class peers. Today, one to four star hotels not only record substantial incremental revenue gains of over Rs. 100 million year-on-year but have also seen substantial growth with increasing occupancy levels in each of  their star categories, the industry analysts pointed out. The overall increase in the average room rate has impacted the bottom line of hotels’ financial performances, enabling hotels to run their operations effectively and profitably. This has also allowed hotels to consider re-investing the money back into the product in terms of renovation/refurbishment. This would not have been possible in the past due to the huge accumulated losses recorded by the hotels over the past 31 years. As per CCTHA calculations, the Government is estimated to have received additional revenue on only room sales, over Rs. 350 million per annum since 2010 via higher value added tax, tourist development levy and cess payments. Additionally, a service charge to hotel staff is paid over and above their basic salary; for example, staff which received Rs. 8,000-9,000 service charge in 2007-2008, now receives a minimum of Rs. 20,000 going up to Rs. 40,000. The minimum rate has helped the stakeholders, the Government and most importantly, the staff, analysts pointed out. Last week, the Central Bank stated that earnings from tourism continue to record sound growth. Earnings from tourism grew by 29% year-on-year in June 2013 to $ 81 million, from $ 63 million recorded in June 2012. Total earnings from tourism during the first half of 2013 recorded a growth of 22.9% year-on-year and amounted to $ 565.3 million, compared to the cumulative earnings of $ 459.9 million received from tourism during the corresponding period in 2012. Such a noteworthy increase in earnings from tourism was made possible as tourist arrivals have continued to increase on a year-on-year basis so far this year. Tourist arrivals increased by 12.8% year-on-year to 73,628 in June 2013, raising the number of tourists who visited Sri Lanka during the first half of the year to 512,281. Accordingly, tourist arrivals during the first half of the year grew by 13.1% year-on-year.