A Look Back On 2018
Sri Lanka has been recording a steady YoY growth in arrivals in the post-war period; 2017 saw 2.1 m arrivals, with a CAGR of close upon 19% over the past five years. Total arrivals for 2018 reached 2.33 m arrivals, with a marginal 10.3% increase over 2017, missing the target of 2.5m arrivals set by the government. In the absence of any strong and cohesive marketing campaign, which the private sector has been clamouring for over two years now, the YoY growth percentage has been slowing down.
Foreign Exchange (Forex) Earnings
Forex earnings decreased slightly down to USD 3.48 Billion from 3.9 Billion USD in 2018, with average tourist spend per night now standing at USD 170. From sixth place among the leading foreign exchange earning sectors a few years ago, tourism has now come down to third place, and today it accounts for about 4.5% of the country’s GDP. However, in real value added terms, it could perhaps beat the apparel industry, which has a higher value added component, to the second place.
Minimum Room Rate
The government withdrew the imposition of a minimum rate structure for star class hotels in the city, which had been in operation for about seven years. This has met with a mixed reaction, with travel agents welcoming the move and many hoteliers opposing it. This price control mechanism was imposed immediately after the end of the war, to correct the depressed price structure, which was prevalent at that time.
In the meantime, many new hotels are being built, and consequently room stock is rapidly increasing. As at September 2018, there were 530 conventional hotel units, with 36,190 rooms, while the supplementary sector (boutique hotels, guest houses and home stay units) accounted for 1,809 units with 13,236 rooms. Thus, the total room stock stands at 49,426 while another 5,192 new ones are expected to come on line in the next few years. (SLTDA). This has fuelled wide spread concern of possible over-supply in certain areas, and consequent price wars.
Marketing and Promotion
In late 2018, a long waited digital marketing initiative was finally launched at the WTM under the slogan ‘So Sri Lanka’. There has been a mixed reaction to the concept with some controversies related to the content.
Whatever that may have been, the launch itself was a damp squib, when the political turmoil in the country hit the industry hard. Not only did this affect the launch but also caused cancellations to trickle in, and new bookings slowed down for the peak season, fuelling serious concerns of a sharp downturn.
Ironically, Sri Lanka certainly received a big boost for 2019, just before the political crisis when the Lonely Planet designated Sri Lanka as its No 1 destination for 2019. This would have certainly augured well for Sri Lanka, and efforts should have been made to make the most of this exposure and leverage greater awareness in more diverse and newer markets worldwide.
This great exposure was also overshadowed by the political turmoil, with some international experts querying the wisdom of choosing Sri Lanka for the award.
Thankfully, following the resolution of the political issues, there seems to be a good and rapid rebound of tourist arrivals, making the fears of a possible bad tourist peak season unfounded. Most hotels today are reporting a healthy 90%+ occupancy level and everything seems to be back on track—hopefully.
The informal Tourism sector
There is strong growth in the unregulated informal sector as well as the registered smaller home stay units and guest houses. These two sectors together, termed the non-conventional accommodation providers, now account for about half of all arrivals in the country. (Miththapala 2018: The detailed figures for 2018 are still not available. Hence the 2017 figures are used in the analysis)
There is a strong perception that the informal sector is slowly ‘sucking the lifeblood’ of the tourism market in Sri Lanka, and possibly having some detrimental effects on the overall real growth of tourism in the country.
The lament of the formal operators is that these smaller units operate outside the proper legal framework, without conforming to regulations and without paying proper taxes to the state. There could be some truth in this, where currently with the service charge (S/C), which is levied by the formal sector, a good 31% of the top line revenue is reduced due to S/C and taxes. Which means that for every USD 100, charged by the formal sector, the effective net revenue to the institution is only about USD 69. Many of the informal establishments which operate outside the jurisdiction of the SLTDA pay these levies and thus have an immediate price advantage.
However, the other side of the coin is that these smaller operators are providing an exciting, rustic, authentic, value for money and more experiential product offering, which seems to be one of the main drivers of Sri Lanka tourism currently.
There is evidence of rapidly developing ‘over tourism” (when there are too many visitors to a particular destination) in specific tourism sites.
Some 600 Jeeps enter the Yala National Park each day during the peak season, carrying over 2,000 visitors per day while another 250 or more enter the Uda Walawe National Park. (Miththapala 2018)
On the average some 3,500 people (both local & tourists) climb the Sigiriya rock every day. (SLTDA Annual statistical report 2017)
Over 73% of all tourists to Sri Lanka visit Kandy (SLTDA departing Guest Survey 2017), the most popular tourism destination of the island. This means that approximately 1.7 m tourists (excluding locals) visit Kandy and the visits average 4,660 a day. The severity of traffic congestion in and around Kandy is only too well known.
These are just 3 examples of severe over-visitation which is beginning to dent the product and experience provided and causing serious issues regarding environmental sustainability
In 2017, there were 146,115 people employed in the hospitality industry (SLTDA). Of this, 15% were in senior operational management, 51 % in supervisory levels, and 34% in manual operative areas. A chronic lack of proper trained staff continues to plague the industry. With the 5,000 odd rooms expected to be added to the stock, industry experts estimate that there will be a shortfall of about 100,000 trained staff within the next few years. Young persons, especially women, are reluctant to join the industry, due to misconceptions. The training institutes, currently, operating in the country have limited capacity and could supply not more than 15,000 trained staff every year, which is far short of the need for 100,000 within the next three years. Added to this is the continued demand for Sri Lankan hospitality staff for employment abroad. It is estimated that some 30,000 leave annually for employment abroad (Miththapala, 2018)