“Sri Lanka shouldn’t sell itself cheap”

Thursday, 4 September 2014 00:00 -     - {{hitsCtrl.values.hits}}

  • Starwood sets sights on Sri Lanka’s booming tourism sector, says this is the right time to be here
  • Asserts regional tourism will be Lanka’s bread and butter while European travellers will be the cream
  • Says branded hotels essential to boost tourism
Sri Lanka’s tourism sector has been flourishing since the end of the war and is expected to continue to shine in the backdrop of the ongoing fast-paced development in the country. With the country, and especially the tourism sector, at an exciting growth phase, international players have expressed keenness in being part of Sri Lanka’s success. Starwood Hotels & Resorts is one such player. To gain insights into the plans of the renowned hotel chain, the Daily FT met up with Starwood Asia Pacific Hotels & Resorts Managing Director India and Regional Vice President for South Asia Dilip Puri for an interview during his recent visit to Sri Lanka. During the discussion he shared his views on the tourism and hospitality landscape of Sri Lanka. Following are the excerpts of the interview: By Shabiya Ali Ahlam Q: What are Starwood’s plans in Sri Lanka? A: Starwood Hotels & Resorts has two projects currently under development, Four Points by Sheraton Colombo and Sheraton Colombo. We are actively pursuing several opportunities for Resorts and should have an announcement to make soon. Q: What is your view on the nation’s tourism sphere? A: Due to the civil war, Sri Lanka got passed by as a tourism destination. We have hotels in Mauritius, Seychelles, Phuket and Bali and in the entire Indian Ocean rim and Sri Lanka is such an important part of it. In Sri Lanka there are only a handful of branded hotels, the Hilton and Taj, the rest are all unbranded hotels or local chains. That is why I think tourism has not developed as yet in Sri Lanka and now with more and more international brands coming in we are going to see an explosion. The tourism sector has shown a 25% growth YoY from 2009 to now. When you continue that growth for the next three years you will be able to target three million tourists. This tells you that in the number of rooms in this country the opportunities for the hotel industry are massive. This is the right time to be in Sri Lanka. When we talk to the partners and owners here, they are all very encouraging on how the Government is facilitating the growth of the sector. With that type of infrastructure you will have lot more people coming in. Also there is no real need to promote Sri Lanka with big markets such as India and China right above it. So you don’t have to go the US or the EU to market Sri Lanka. You get your customers from within your own region. It is much cheaper for them. Indians in particular they love gambling. There are no casinos in India. They love water, besides Goa there is no tourism destination in India, and coming to Sri Lanka is easy since there is an almost no visa regime. I think at last count there were 27 daily flights from eight Indian cities into Colombo. So it is a no-brainer. The market is in India. We have such a large presence in India and people are familiar with the brands, so for us developing and putting our brands in Sri Lanka is key priority. We see it as one of our strongest growth markets in Asia Pacific. Q: Is it because Sri Lanka can attract Indian and Chinese travellers that Starwood is coming in? A: I absolutely think Sri Lanka has the potential to attract travellers from these two countries. But currently the nation has no capacity and resorts. What Sri Lanka has is small, unbranded, owner-run resorts. That is why people are not coming. You put a brand like Sheraton and other top hotel brands people will start coming. As an Indian I would like to take a short holiday every two months. I wouldn’t know where to go but I can come to Colombo in three hours from Delhi or a two-and-half-hour flight from Bombay. I don’t need to worry about visa, since it is hassle free. The idea would be to spend one day in Colombo, two days in a resort and back the next day. That is what is needed. It is not about planning a 10-day vacation, that is what the Europeans would do. They are also important as they will spend money. The European travellers will be the cream and the bread and butter would be regional tourism. An example I would give is the Maldives, we operate there as well. When the recession happened in 2009, Maldives was controlled by the European markets. They stopped travelling because of the crisis. Within six months we substituted the entire European business with the Chinese business and today it accounts for 30% of occupancy in Maldives. That same potential is there for Sri Lanka if it can attract the Chinese people into Sri Lanka. For this there need to be international brands in Sri Lanka since they are familiar with that and expect it as well. What happens with a traveller is that if they are familiar with a brand they will look for it since they don’t want to take a risk with something they are unsure of. That is why there is immense opportunity in Sri Lanka. Adding to that, Sri Lanka is not an expensive destination. There is a natural cultural affinity with India and Sri Lanka in any case. What Sri Lanka needs from its Government is the development of a true international convention centre which can cater to the MICE market.  That has real potential here. Visiting delegates can couple work with leisure where after the conference they can head off to casinos and other activities that interest them. There is a convention centre in Hambantota and the BMICH but Sri Lanka is still in need of an international quality convention centre. The issue is that even if you have convention space, you don’t have hotel capacity. Say I want to bring 1,000 doctors to Sri Lanka for a conference, where do you put them up? The room capacity simply isn’t here.It’s a lot of opportunity and potential in Sri Lanka and I think in the next five years the country will just transform itself. Tourism is Sri Lanka’s fifth largest foreign exchange earner and I would like to believe it could become second or third largest. Q: Is there suitable manpower in Sri Lanka? A: To this I would say there isn’t since there are no international companies here. So where do you train the people? For this we are having a discussion with the Sri Lankan training institute where we would be offering them internships in our chain of hotels in India and Maldives. This is an effort to prepare them so that when we have a Sheraton in Sri Lanka we will have trained local staff ready to be with us. They will be exposed to an international environment and would have a good understanding as to what international brands are. I think Sri Lankans have the right attitude but what they lack is skill and knowledge and that is what knowledge transfer can bring to the country. Also as more hotels get built you will find that the hotel education system will get upgraded since there will be knowledge and skills to transfer. When the brands come in, young people will get more excited. It is the same thing that happened in India. At the time when I joined the people used to ask me if I was going to be a waiter for the rest of my life. Today hotels are the most preferred place of work in India and I can see no difference in Sri Lanka. What Sri Lanka has as an advantage is that the people are culturally oriented to hospitality. I say always hire for attitude because you can train for skill, and Sri Lankans naturally have the attitude for service. Tourism should contribute at least 8 to 9% of employment in Sri Lanka. There is a massive opportunity for employment generation in Sri Lanka. Q: How do you find the appetite for real estate development? A: There is huge appetite for real estate development. Since the factories in Colombo are being relocated elsewhere, there is enough land to be redeveloped for commercial purposes. As a result of this, a lot of people want to do hotels. I only caution them from an economic perspective that trying and doing hotels is a part of mixed use development, then you can de-risk just the hotel itself. If you have land, instead of using it entirely for the hotel, it is good to build 10 floors of offices. In India this model is widely applied. That is what I think Sri Lanka needs; to develop hotels as a part of larger mixed use development in the city.  The country had to wait for 25 years for the civil war to be over and in the past five years the world has seen so much development in Sri Lanka. Q:  What is your take on Sri Lanka’s hospitality industry? A: Right now it is very owner-dominated, that is owners manage their hotels. Except for Hilton and Taj, there are no branded players. In that context I think the local industry has not been able to take advantage of the technology and the changes that have taken place with brands. They have yet to truly understand what the international hotel arena is all about. That is what is lacking at the moment and that is why I think it needs to bridge that gap. Right now the local hotel industry is very disorganised. There is no real structure to it. Consolidation will take place in the future. The big players are realising the need to bring in big international companies. Doing that will allow the reputation of Sri Lanka’s tourism market to improve. It comes down to brand familiarity. That is what this country needs. Q: What are your views on the room rates in Sri Lanka? A: In Sri Lanka today a room is sold for an average of $ 100. That is very cheap for an international traveller. The Maldives sells their rooms for $ 800-$ 1,000 per night. I am not saying Sri Lanka is going to get there but even if it gets $ 200 per night it will be better. Five years ago before the war ended the rates were $ 55, a rate fixed by the Government, which was later removed. In four years the rates were doubled and that really happens in any market since it is always a struggle to increase rates. With 35,000 more rooms required in this country, I don’t think Sri Lanka will ever lack for occupancy. The more hotels that will get built, the more demand will get created. In our business we say that there is something called un-accommodated demand. You build a hotel and you create its own demand. Sri Lanka has the most stunning coastline in the world, but there are hardly any hotels there. There are only small hotels, so it is essential to have branded hotels. Q: Can Sri Lanka follow Maldives as an example? They have been highly successful in tourism using hotels alone? A: Sri Lanka cannot use Maldives as an example since they follow a high impact, low volume tourism. This means they don’t get a lot of numbers, they get about 700,000 tourists per year and Sri Lanka is already at 1.2 million. Maldives is getting their 700,000 tourists paying $ 1,000 and you are getting 1.2 million tourists paying $ 100. Sri Lanka needs to target volumes to build up the tourism base. You need to have a mix of hotels as well. In Maldives there are only five star hotels. Sri Lanka need to have branded hotels at all levels, three, four and five star. Q: How can we get about boosting our tourism space? A: First is about attracting investments, an area where the Government has an important role to play. And I have heard that the Government is keen in this regard and they are keen to lease land. The leasing is a good option since there is no need to make that initial capital investment of paying millions to buy just land. You take the land on a long lease from the Government and the latter will get a continuous lease income. The private sector will then build the hotel and operate it at whatever lease period. Due to the potential of the markets there will be enough of profits that the lease can be comfortably paid. The Government needs to facilitate that. They need to open up more land by leasing it to the private sector for development to take place. What the Government is doing well right now is connecting the country. I observe that there are expressways opening up, Sri Lanka is a small country so it is easy to drive. The other opportunity here is sea plane tourism like what the Maldives has. It is an effective way to travel. There is so much of water so that can be put to good use. Sri Lanka is also a hub to go to Maldives, so the opportunity to do a combined destination package will be effective. Sri Lanka can piggyback on Maldives. Q: What are the elements that are in place that encourage participation of foreign players? A: The beaches and casinos. These are the two most significant assets which the country has already. Both Indian and Chinese are gamblers and are now becoming richer. The other this is that with a market like India, there is fantastic flight connectivity. Sri Lanka already has the air capacity to bring people. Its flight capacity is fantastic, not just from India but from the Middle East. I think all the fundamentals exist in the country. There is a desire from the Government’s part, we can see that. It is now just building out and I am certain in the next three years there will be a change in landscape. Q: What elements is Sri Lanka yet to establish? A: To bring in more investment, the Government has to ease some regulations. I am not very familiar with the FDI laws but taxation is a big part of it. Most governments where they are trying to develop tourism products will give a tax holiday, where for about five years they don’t have to pay an income tax. That is a big incentive when developing hotels. They also have to look at offering reasonable rates for utilities, those types of incentives are expected. This is necessary only in the initial stages. The Government needs to create a more conducive environment. A little less risky environment is expected. The constant devaluation and depreciation of the rupee doesn’t help since the investors are bringing in money in an international currency. Financially the Government has to give better schemes and subsidies. Cost of capital is very high in Sri Lanka so the Government could look at building hotels as infrastructure as funds for that is lent at a cheaper rate. Q: With Starwood bringing in a number of hotels, what is its expectation from Sri Lanka? A: My sense is that the country should double its room capacity in the next three years. It is possible. Sheraton for example is 300 plus rooms and that is just one hotel. I know of at least seven to eight such hotels that are coming up in Colombo. That alone is 3,000 hotel rooms in Colombo that will be ready in three years. The country today operates at a 71% occupancy average per year and that for us is very healthy. However the $ 100 rate per night has to increase to $ 200. What Sri Lanka should not do is sell itself cheap. Sometimes you get greedy with your tourism product and start attracting the wrong segment. What you don’t want is backpacking tourism. I don’t think you will want millions of Indians flooding this county because it is cheap. You want high quality, high paying guests.