Sri Lanka Tourism: A Step Forward in the Growth Story - Case Study Example

Sri Lanka Tourism: a step forward in the growth story Introduction A study was published by HVS in 2011 giving an overview of the position and trends of tourism status in Sri Lanka and gave various ways that can be used to improve on the tourism income as the war had ended in 2009. The study highlighted the improvement in the sector for the past two years. It showed improvement in hotel industry, number of tourists and infrastructure improvement. From the study, it is believed that there will be a steady improvement in the hotel industry and this article tries to give the Colombo and Southwest coast resort evaluations to gauge the impact and the speed of the growth. Economic overview In the past three years there has been noticed a steady improvement in the economy of Sri Lanka. The year 2011 recorded the highest GDP of 8.3% since the country got independence in 1948. Inflation rate was got to be 6.7% and the unemployment rate was 4.2% dropping from 5.8% in 2009. According to the intelligence unit forecasts, there will be a growth of 7.4% from 2011 to 2016. The following gives the main areas of development that will help Sri Lanka to grow economically. Infrastructure developments Sri Lankan government is trying to see into it that the entire infrastructure in the country is up to date even as the number of tourists visiting the country increases. The major projects that are either underway or have already been finished are highlighted below. Highways and expressways: It was in November 2011 that Sri Lanka’s first ever access controlled expressway was opened. This project cost US$700 million. It runs from Colombo to Galle. The hotels in the Southwest Coast of the country witnessed a tremendous growth in their income. This was due to the accessibility of Galle by tourists through the expressway. The remaining stretch of the expressway in due in 2013. The Colombo to Katunayake expressway is expected to be due by mid of 2013. It will be connecting the international airport in Katunayake to Colombo city. Highways from Katunayake to Anuradhapura, Colombo to Kandy and Anuradhapura to Jaffna are in the planning stage. A map showing the major highways in Sri Lanka; both planned and finished. Airports: Sri Lanka is currently building its second international airport in Mattala in the southern Hambantota district. This will provide an alternative means of travel and will enhance accessibility of other parts of the country. It is designed such that it will have one runway and one taxiway to handle a 1 million-passenger capacity. This is expected to be finished in 2012. The government is planning to increase the total passenger handling from 6 million in 2011 to 12 million in the year 2016. Many airlines have also showed interest in starting flights to Sri Lanka as the existing ones double their frequency of flights. In the past two years, there has also been a commencement in seaplane operations to cater for the rising demand for transport. This facility connects Colombo to 12 destinations and there is a plan on increasing the number to 16. Port projects: In June 2012, the Hambantota port was opened for international shipping. The facility is estimated to have cost US$800 million. This project is followed by the expansion of the Colombo south port, which involves addition of another 600 hectares of land with three terminal and berthing facilities. Tourism infrastructure The one stop shop mode of tourism was started in 2011 by the Sri Lanka tourism development authority. This project helps to give information to the potential investors regarding tourism projects and to help in obtaining such incentives as tax breaks and exemption of the project from import duties. The Electronic travel authorization system was also introduced in 2012 to grant visas to foreign nationals from 78 countries. A double entry visa for Sri Lankacosts US$10 for an individual. The government is also promoting hotel and resort projects so as to boost tourism. This includes giving 530 acres in Kuchchaveli, Passikudah, Kalpitiya and Deeduwa comprising of 1800 acres of wetland near river Madhu. This improvement in infrastructure has attracted a god number of investors. There are many international hotel operators coming in such as; Avani, Six Senses, Hyatt, Marriot, Movenpick, Starwood, Onyx, Shangri-La and ITC. Tourism trends There has been noticed a tremendous improvement in tourism in 2011 with a 45.7% growth. Income was recorded to be US$840 million in 2011 as compared to US$576 million in 2010. The target of the number of tourists of 750,000 was not only achieved but was also doubled with a yearly tourist’s growth of 31% in tourist arrivals. The growth continued in 2012 with the first half having a 19% growth. The target for 2012 is set to be 1.5 million arrivals and HVS sees this to be very optimistic as it is very achievable. MONTHLY GROWTH IN TOURIST ARRIVALS – 2012 OVER 2011 2011 2012 Growth % Jan 74197 85874 16% Feb 65797 83549 27% March 75130 91102 21% April 63835 69591 9% May 48943 57506 17% June 53636 65245 22% Jan-June year on year growth 19% The main purpose of the visitors in the years remained the same. 80% of the travellers visited the country for pleasure in 2011 similar to 79% of the visitors in 2010. Business related tourists declined from 12.7% in 2010 to 8% in 2011although the numbers of leisure and business tourists increased. The source markets for the country remained unchanged with India with the most arrivals. The United Kingdom was the second then France being the third. TOP TEN SOURCE MARKETS AND PERCENTAGE SHARE – 2010 AND 2011 2010 2012 Market Total arrivals Percentage share Market Total arrivals percentage share India 126882 28 UK 105494 23 Germany 45727 10 Maldives 35791 8 Australia 33456 7 France 31285 7 Canada 21123 5 U.S.A 19093 4 Netherlands 17861 4 Japan 14352 3 Total 451066 69 India 171374 20 UK 106082 12 Germany 55882 7 France 48695 6 Maldives 33456 5 Australia 31285 5 Canada 21123 3 U.S.A 19093 3 Netherlands 17861 3 Russia 14352 3 Total 519203 66 It is also important to note that there was a decline in the major contributors to the market share. To add to this, there was also an increase in new market sources from new countries. The hotel industry has also exhibited a growth in the performance and income levels. To evaluate the impact of the improvement in tourism to the hotels, we have analysed two hotel markets; Colombo and Southwest coast up to Gelle. Colombo The analysis done here includes only the major international and domestic branded hotels. It excludes smaller hotels and three-star rated hotels. This analysis takes into account approximately 2700 rooms in the city and airports. We considered the following factors. Hotel market overview: As a capital city, Colombo has high chances of attracting investors and a large number of tourists, government officials and corporate representatives. It also has the advantage of being near the only international airport in the country. The government has also done improvements in the city. This includes; widening of roads, cleaning of the Beira Lake and the development of areas around the Beira Lake. Customer segments: As seen above, the hotel industry in Colombo has many customer segments. These may include things like; leisure, commercial activities, meetings and conferences, extended stay and airline. As the number visitors increase, we look forward to a tremendous growth in the percentage of commercial segment as investors are increasing. Conferences and meetings are also seen to improve together with leisure and extended stay. Hotel market performance and occupancy: In 2010/2011, Colombo recorded occupancy of64%. This was a 7% increase over the 2001/2010 occupancy. However, Colombo exhibited a 3% decline in the percentage of occupancy in 2011/2012, which was not the case to the rest of the country. This decline however did not affect the overall revenues as the markets witnessed a significant increase in rates. Hotel market performance: The Colombo market average rates for rooms witnessed an increase of 26 % in 2010/11 over that in 2009/10 and a 40% increase in 2011/12 over that in 2010/11. The rates for the rooms are controlled by minimum rate policy introduced by the Colombo government in 2009. The rate per room in a five-star hotel in Colombo in 2009 was US$75. This figure was however increased to US$125 in 2011. This scenario affected the countrywide occupancy as most visitors chose to relax at the beech after the meetings instead of the hotels. Future outlook: The future outlook in terms of hotels in Colombo city in expected to be so good. This is so because major hotels have announced great hotel projects in the city over the next years. A majority of these projects are actually underway and we are just waiting for the completion. Approximately 5000 rooms have been planned for set up. We expect around 65%-75% of these projects to be complete over the next 5 years. There is an expected decline on the rate of growth due to the government mandate to increase the minimum rates charged by hotels. Colombo is also expected to witness the development of several iconic features such as the Lotus Tower, the tallest telecom tower. Southwest cost (Up to Galle) In this region, we included the major beach destinations south of Colombo up to Galle. These will include, Wadduwa, Kalutara, Bentota, Hikkaduwa and Galle. Our analysis is based on around 2000 rooms of major three, four, and five-star resorts including smaller resorts. These are the outcome of the research. Hotel market overview: This area has access to beaches and the Galle fort, a UNESCO World Heritage site. Other sceneries include turtle hatcheries in Kosgoda, gems, local handicrafts and jewellery shops. This area of market however is seasonal and witnesses an increase in the number of tourists from October to March. In this season, there are better weather conditions, calmer seas and increased travel from European countries due to the harsh weather. Low season is experienced from April to August. The market however had a decrease in the total assets for use in 2011/12 over that in 2010/11 as several resorts were closed for renovation and refurbishment. Customer segments: 81% of the market share is taken by leisure. Among the group, 55% come as a group and 26% come as individuals. Booking are done mainly by agents located at the various places in the world. The main source of visitors in this area is seen to be Europe. There has also been noted an increase in travels from Asia and Middle East. Hotel market performance-occupancy: Despite being a seasonal market, this region has recorded high occupancy in the last two years. There was occupancy of 70% in 2010/11. This was an increase of 17% over that in 2009/10. There was also a 3% increase in the year 2011/12 to reach occupancy of 72%. The increase in the number of occupancy in 2011/12 can be attributed to a high visitor turnaround during the low season and the reduced number of inventories in the region due to closure of resorts for renovations. The region also attracted visitors from other countries such as India while domestic tourists came from other parts of the country. Hotel market performance: The average hotel performance rates for this region have always been noted to be low. This is attributed to the few numbers of five-star resorts and attractive pricing offered to the visitors by the resorts. These rates have however, grown since the end of the war in 2009. An increase of 37% in the market rates was noted in 2010/11, and then a 22% increase was noted in 2011/12 over that in 2010/11. Future outlook: From statistics, we expect to have a number of branded four and five star resorts to open in the region. There is an expected 1500 rooms to be put up in the next five years. The average rates for the rooms are expected to increase. This is due to the influx of tourists to the region and the construction of new branded resorts. In the next two years, the rates are expected to grow to 10% or 15%. After the completion of the southern expressway, there has been noted an increase in the number of tourists as tourists can now drive directly to the beach instead of going via Colombo. In general, Sri Lanka is seen to be in a good strategic position to attract tourists from the neighbouring countries of India, China and Singapore. It is also clear that there is a good improvement in the infrastructure, which supports tourism. This attracts several investors in the country, which together with tourism will improve on the country’s economy. As the country remains an attractive centre for tourists, it is expected that the northern and the eastern parts of the country will develop tremendously. Read More