United States Washington change
Sri Lanka Breaking News
Sri Lanka parliament
vivalankaSri Lanka newsSri Lanka businessSri Lanka sportsSri Lanka technologySri Lanka travelSri Lanka videosSri Lanka eventssinhala newstamil newsSri Lanka business directory
vivalanka advertising
Menu
Stay Connected
facebooktwittermobile
Popular Searches
T20 World Cup
Sponsored Links
Sri Lanka Explorer

What is the Sri Lankan hotel average room rate?

Dec 10, 2012 1:30:30 PM - www.ft.lk

By Srilal Miththapala
In the post war period, Sri Lankan hotel rates have increased, and quite necessarily so. Having gone through over two decades strife, which depressed the tourism market, Sri Lanka hotel rooms were being grossly undersold at very low rates. Hence, quite rightly, there had to be a radical ‘price correction’ once peace and tranquillity returned to the destination, and tourism started flourishing. However, there is a school of thought that Sri Lankan hoteliers have continued this price escalation strategy, over and above ‘correction levels’ and they are now over-pricing the product.

However, if one were to speak to most hoteliers, they would bemoan that prices are still low, and that their overheads are rising. On the other hand, if one were to talk to a tour operator or a Destination Management Company (DMS), you would hear an angry chorus saying that Sri Lankan hotels are overpriced.
So, what is the correct picture? What really is the overall Sri Lankan hotels national average room rate?

 

Average Room Rates and Average Daily Rates
The assessment of the real effective overall Average Daily Rate (ADR) of a destination is arrived at by computing the total room or accommodation revenue for a given period, net of all taxes, and dividing that by the number of room nights of occupation. On the face of it seems a rather easy arithmetical task, but in reality it can be somewhat of a complex undertaking. There are many variables and options that make this computation difficult, and unless there is good co-operation among hoteliers to share the necessary information, and work on a uniform basis, the calculation of this index at a national level can be a rather daunting task.
In some destinations where there is still a prevalence of packaged tours, such as in the Caribbean Islands, Dominican Republic and also Sri Lanka, hotels rates are often quoted inclusive some meal component, as an example a guest can have the option of booking on the basis of room only (RO), bed and breakfast (BB), half board (HB-breakfast and lunch only), full board (FB-all three meals included) and all inclusive (AI-all meals and selected beverages, snacks).  
In addition, the booking could be a single (SGL one person to the room, single occupancy), Double (DBL two persons to the room, double occupancy) or even triple (TBL three persons to the room, triple occupancy).
However, there is a lack of uniformity in assessing the quantum of food revenue that is inbuilt into these packaged room rates. Hence extracting the actual ‘net room revenue’ of different hotels is often done on an arbitrary apportionment of a component of food revenue, yielding ADR comparisons futile.
If a HB DBL price of a hotel room is Rs. 25,000 in two similar hotels A and B, it means that for a single day, in addition to the room revenue, there is revenue from four meals (two persons having breakfast and dinner for one day) also included in this price. Hotel A could assess their breakfast and dinner revenue as Rs. 600 and RS. 900 respectively, while B hotel can assess it as Rs. 800 and Rs.1,200:

This means, that:
Hotel A – net room (only) revenue would be     = Rs. 25,000 – (600 + 900) x 2    =  Rs. 22,000
Hotel B – net room (only) revenue would be     = Rs. 25,000 – (800 + 1,200) x 2   =   Rs. 21,000

In most western countries, and also some destinations such as Singapore, Malaysia and Bangkok, the more preferred booking option is RO or on BB basis, making the extraction of the effective room rate fairly easy (since the number of meals inbuilt into the rate is only one breakfast or nil in the case of RO). These destinations usually offer a range of restaurants outside the hotel circuit, where the guests then have the flexibility of a greater choice for their meals.
In Sri Lanka, this peripheral restaurant infrastructure is woefully inadequate out of Colombo, and hence the predominance of a packaged price being quoted in all the resorts and circuit hotels outside the city. As a result, some of the resort hotels still continue to assess hotel room revenue on the basis of the entire package, where a certain food component is also included. This is often called Average Room Rate (ARR).

 

Other measurement indices
For more effective yield management of room inventory, there are other more complex indices such as RevPAR (Revenue per Available room) derived by dividing the net room revenue by the total available rooms for the period, and not the occupied rooms. This is often considered as one of the most powerful tools for the measurement of hotel room sales performance, since it takes into account seasonality and demand.
There are other newer measurement techniques now such as GOPPAR (Gross Operating Profit per Available Room) derived by dividing the gross operating profit by the available rooms.
These indices are obviously more complex, and more relevant to a more mature tourism destination. Hence in most cases, the overall simple ARR will suffice, to give a very rough indication of hotel pricing, even though there is a food component effectively included in this index, especially in a Sri Lankan Hotel context.

 

Source data
Therefore, to try and analyse Sri Lanka’s effective hotel ARR, the only available and reliable data source is the Sri Lanka Tourism Development Authority (SLTDA) Annual Statistical Report. While, certainly some indications of room rate can be determined by specific surveys done on selected hotels, such analysis will always be doubted due to the lack of transparency and possible inaccuracies.
Therefore, working with the published SLTDA 2011 statistics, one finds the following information.
1.The total foreign exchange revenue earned by hotels = US$ 545.3 M
(This is not to be confused with the overall earnings from tourism which, for 2011 was US$ 838.9 million)
This figure is the revenue hotels’ divulge to the SLTDA, against which the Tourism Development Levy (TDL) of 1% is levied. Therefore, one must accept that this figure, which by and large, represents a fairly accurate estimate of the total hotel revenue earned from tourists.
2.Total foreign guest nights in the  formal hotel sector =  5,011,480
3.Foreign guest nights in guest houses and other establishments =  3,548,270
4.Hence the total Foreign Guest Nights ( FGN) in all sectors =  8,559,750
5.Therefore, the overall average hotel revenue per foreign guest night    = Hotel Rev/ FGN    = US$ 63.7
6.In general, the ratio of single occupancy to double in Sri Lankan hotel is  1:1.8
7.Therefore, the average revenue  from a room per night  (ADR) =   63.7 x 1.8 =  US$ 114.66

Thus, an indicative ARR for Sri Lankan hotels in 2011 would be USD 115
Limitations and accuracy

  • However, the average total earnings (from all sources) per tourist per day for Sri Lanka for 2011 as recorded by the SLTDA is US$ 98.
  • While certainly this is not a very accurate assessment of the ARR of Sri Lankan hotels, this gives some indication of the approximate range of the rate structure.
  • Hence the estimate of US$ 63.7 as a component of this, for hotel related expenditure including accommodation, per person per night, derived from this analysis, seems reasonably acceptable.  

Are we competitive?
Due to the complexities in calculating a standard measure and the lack of a cohesive data, there is very little reliable published data available for destination ARR or ADR. Some approximate ARR indicators are available from different sources
Thailand     US$ 100     (ref: Bangkok Post August 2011)
Malaysia    US$ 123     (ref: Hotels.com Asia)
India         US$ 135    (Business Standard November 2012)
Singapore     US$ 195     (ref: Singapore Tourist board)
Vietnam    US$ 80    (ref: Hotel Price Index 2011)
Cambodia     US$ 69     (ref: Hotel Price Index 2011)
Philippines     US$ 100     (ref: Hotel Price Index 2011)
Observations
nWhat has been derived as an ARR of US$ 115 for Sri Lanka is an overall year round average for all hotels (approximately 15,000 rooms) and registered guest houses/ supplementary establishments (approximately 6,000 rooms).

  • The city hotels realise a higher ARR due the price control mechanism prevalent in Colombo.
  • Some of these smaller establishments have ARR’s in the order of US$ 40 or even less, which will have an impact on depressing the overall average, since it is a straight averaging process that is used, and not a weighted one.
  • Hence the actual ARR of star grade establishments would certainly be higher than US$ 115.
  • Rates for Sri Lankans (or local) charged currently for a  decent four star hotel would be around Rs. 20,000 for a HB DBL (US$ 150),which is effectively a comparison with the above ARR of US$ 115 (since this ARR also has a food component for two people effectively included in it).

 

Conclusions

  • Hence without substantial upgrading of the hotel product, steep price increases in the future may slow down growth.
  • On the face of it, the Sri Lanka ARR seems to be on par, or in some cases slightly higher than some competitive destinations in the region.  
  • The quality of the hotel product in these competitive countries, are in most cases superior to ours.
  • The Sri Lankan (or local) rates currently being charged are on the high side.

This is an initial attempt to try and establish some form of index for a Sri Lankan Hotel ADR. The writer is open to opinions and criticisms of this analysis.  Please feel free to write in to srilal.mith@gmail.com