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Expansion Meets Only 6 Percent Of Target

Jul 17, 2010 3:06:24 PM - thesundayleader.lk
  • M.R.’s goal of 2.5 mn. tourists by 2016

Ajit Gunewardene, Krishan Balendra, Dilip Mudadeniya, S.Kalaiselvam and Hiran Cooray

The country’s   major hotel operators have planned to build hotel rooms meeting only 6 percent of President Mahinda Rajapaksa’s target of getting 2. 5 million tourists by 2016.
Hiran Cooray, Chairman Jetwing Group, one of the country’s leading hotel investors, in response to a question, told participants at a seminar in Colombo last Friday, that to accommodate the presidential target of 2.5 million tourists by 2016, the industry would require the additional construction of 35,000 rooms at a cost of US $ 10 billion or Rs. 32.5 million per room (1 US $=Rs. 114).
However, some like Ms. Shiromal Cooray, Managing Director Jetwing Travels and Hiran’s sister, speaking at another seminar recently, estimates such costs to be much lower, at Rs. 8 – 10 million per room.
When the question of the presidential tourism goal was raised, the industry passed the ball to Sri Lanka Tourism Development Authority Director General S. Kalaiselvam who was among the panelists. He was seemingly unable to give a clear answer.

However, it was said at this seminar that it was good to reach for the stars, “At least we shall hit the moon then.” Nevertheless, as revealed at last week’s seminar, some of the country’s major industry players plan to add only 2,000 hotel rooms, as opposed to the additional 35,000 rooms required to cater to 2.5 million tourists, with investments amounting to only a few hundred million dollars, far short of the US $ 10,000 million target.  Those industry players who unveiled their future plans were Aitken Spence, the group which has the largest number of hotel rooms in the country, John Keells Holdings plc (JKH) which has the most number of city hotel rooms, the Jetwing Group and the Amaya Group of Hotels. However, a representative from the Hemas Group, another key player in the industry, was not among the participants.

JKH plans included investing in some 679 rooms, the Amaya Group (460 rooms) at a cost of US $ 100 million on various hotel projects which will be on stream in another four years time, i.e. by 2014, Jetwing Group, overhauling two of their resort hotels and to have those ready by December and the Aitken Spence Group infusing Rs. nine billion (US $ 79 million) on various hotel projects which they have lined up.

“Building a hotel needs a lot of money, an 80 room 4 star hotel will cost US $ 10 million (Rs. 1.1 billion),” said Cooray, who believed that Sri Lanka was more suited to accommodate the 4 star hotel category, where a room could be sold for U.S.$ 60 a night.

“On top of that, approvals take a year and to build a further two years. So you are waiting till three years till your money starts reaping the dividends,” he said.

Lalin Samarawickrema of the Amaya Group said that they got their fingers burnt by investing in a five star resort hotel, The Fortress in Koggala. To attract that type of tourist Sri Lanka needs to get its infrastructure right, like having proper roads, he said. Such high net worth tourists don’t want to waste four hours on the road, to travel from Katunayake airport to Koggala, he added.

“But with the end of the war, hopefully, seaplanes and helicopters would once again be permitted to fly to reduce commuter time,” said Cooray.

He said that the industry currently has some 14,000 rooms and at a 70-75 percent occupancy ratio it could cater to some 700,000 tourists annually. Sri Lanka at present gets around 500,000 tourists annually. The highest number of tourists Sri Lanka has so far got is 566,000; i.e. in 2004.
With the war end, Sri Lanka has seen a 48.5 percent year on year increase in tourist arrivals in the first five months of the year to 239,922. The challenge is to sustain these numbers next year as well, Duleep Mudadeniya, Sri Lanka Tourism Promotional Bureau Managing Director told The Sunday Leader.

Another problem facing the industry is the seeming tussle between the Central Government and the provincial councils, particularly in the East is to get lucrative investments in the hotel sector to get going, and the apparent lack of bona fide investors in that locality, with several of those allegedly acquiring hotel  lands in the Eastern coast not for purposes of investments, but for the purpose of trading, with such land prices shooting up. “Taking into account budgetary constraints, the way to go is to make their (tourists) stay here memorable,”  said Mudadeniya.

The industry last year, invited 250 foreign journalists to visit the island, with the number going up to 400 this year. The bonus was the New York Times reporter writing an article to say that Sri Lanka is the best destination to travel. “That type of promotion goes stronger than a paid advertisement,” he added.
Cooray said that the industry, anticipating higher growth this winter, has upped their room rates by 20 percent.

Krishan Balendra Corporate Finance and Strategy Head, JKH said that Colombo has 3,000 hotel rooms of which 2,000 of those are two star and above. “In contrast, Kuala Lumpur alone has over 40,000 hotel rooms,” he said.

Balendra further said that their five star city hotel Cinnamon Lakeside which was selling a room at US $ 40 a night before the end of the war, was now selling at US $ 70. The hotel, which was having a 40 percent occupancy before the end of the war, now has an over 80 percent occupancy. Similarly their other city hotel Cinnamon Grand which had a 40 percent occupancy before the end of the war, now has an over 80 percent occupancy, while room rates have gone up from US $ 50 to US $ 90 a room. They were expecting an 18 percent return on their capital (r.o.c.) in tourism investments, while Amana’s expectations were lower, at a 12.5 percent r.o.c. It was also said that lower cost of funds for tourism investments was possible, after getting Central Bank and Treasury approval to borrow in foreign exchange rather than in rupees, where, in the latter case, the cost of funds is higher, due to the prevailing high interest rate regime in the island. Cooray said that branded hotels don’t invest, they only manage already invested properties.

JKH Deputy Chairman Ajit Gunewardene said that the key was to build indigenous brands and then go global. He cited the Shangri La hotel brand as an example.