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Where is Sri Lanka tourism going

Srilal Miththapala, eTN  Aug 27, 2010

Just over a year ago, I penned an article entitled “Sri Lanka Tourism - Quo Vardis” where I raised the issues and challenges Sri Lanka was facing in developing its tourism Industry. Of course, that was during the latter stages of the war, and now after the ending of the war, there has been a dramatic turn-around of the industry. Hence it may be worthwhile re-visiting the issues.

For the last seven months that ended July 2010, arrivals are up almost 50 percent year-on-year (YOY) (341,991), with earnings also keeping pace at 69 percent growth (Quarter 2; US$ 244.5 million). The hotel and travel Colombo Stock Exchange (CSE) index increased by 199 percent for 2009. Today tourism is on everyone’s minds, and it is difficult to open a local newspaper without seeing at least one article on tourism. There are tourism “experts” cropping up at the rate of a-dime-a-dozen, as everyone tries to hitch a ride on the bandwagon.

All this euphoria gives rise to the question about whether Sri Lanka Tourism is well on the way to recovery and growth or not.

The answer is a very emphatic “yes” - in the short term. There is no doubt that pent-up demand for the destination, which has been inaccessible for many years, is driving growth.
At the cost of being labeled a pessimist and a devil’s advocate, I am of the view that all this spectacular growth we see is definitely short term. In my mind, the challenge is whether these growth patterns can be translated into long-term sustainable growth. Even if we sit back and rest on our laurels, tourism will certainly chug along growing at a leisurely pace of 5-10 percent YOY. But if we want to play catch up with our competition, grow exponentially, and propel Sri Lanka tourism to be in the forefront of our economy, then there are many complex challenges ahead.

Competition from the Region
With the global financial crisis now petering out, very soon our Asian neighbors, such as Thailand (who had their own series of problems), Malaysia, Singapore, Bali, etc. will get their act together and join the fray, with strong promotional campaigns strengthening their already solid differentiated brands and positions as prime tourism destinations. Singapore is already re-branding from their squeaky clean image to a relatively more exciting destination with casinos opening up. July of this year saw their highest arrivals ever for a single month at 1 million visitors. The product offering of these countries is far superior than what Sri Lanka can offer on a one-to-one comparison.

Hence as a first step, the ageing Sri Lanka hotel plant has to be refurbished and upgraded on the fast track. It is good to see that some 1,500 existing hotel room stock is currently under refurbishing and upgrading.

With hotel pricing being rapidly readjusted to reflect a more internationally-accepted base (we were selling at cheap war-time rates until recently), we run the risk of seeing dissatisfied clientele. When tourists begin to pay higher premium rates, their expectation levels rise, and the product offering has to be of international standard. Otherwise we may end up over-promising and under delivering.

Engine of Growth
Almost everyone talks about Sri Lanka tourism being the engine of growth and expects it to play a pivotal role in the economy. This is nothing new, and we have heard this through the past decade. However, it has never really translated into action by successive governments and never has it being given its rightful place in the national mindset.

There are many examples as to how the government pays lip service in positioning Sri Lanka tourism as the engine of growth. For example, it is now 4 years since the annual Presidential Awards for the Tourism Sector was set up, but never have the awards been presented by HE the President. In fact, it has been gradually downgraded from the initial presence of the Prime Minister as the chief guest, now relegated to a Deputy Minister to do the honors.

However, perhaps for the first time we see some signs of steps in the right direction in the consolidation of tourism along with other related subjects under one powerful ministry. The results of the exercise are still to be seen.

Tourism Earnings
Earnings from tourism amount to only about US$326.3 million annually (2009 CBSL) , having slipped down to the sixth position among Sri Lanka’s foreign exchange earning sectors. However, current trends show a dramatic increase because of the hotel rate price correction that is taking place in the market now. Given the current trend, it should easily surpass US$500 million this year.

Tourism, especially in the Asian region, has a huge multiplier effect, which has a great bearing on the livelihoods of a very large proportion of population. In a study done and quoted by Air Asia, it was revealed that while tourism earnings of Malaysia and Thailand amounted to some 6-8 percent of their respective GDPs, when the multiplier effect, which is about 12 times, is applied, the impact on GDP shoots up to close to 35 percent! In Sri Lanka, tourism accounts for less than 1 percent of the GDP, but will certainty increase with the development of tourism in the post-war scenario.

Growth Targets
Sri Lanka tourism was suddenly put into somewhat of a spin about an year ago, when HE the President came out with a target of 2.5 million tourists by the year 2016. We certainly do not know how this number was arrived at, and even now, no one has really questioned it. There is certainly no harm in setting out Big, Hairy, Audacious Goals (“BHAG,” to borrow from management parlance ref. James Collins & Jerry Porras).

There are two schools of management theory in goal-setting and planning. One is the conservative method of taking stock of where you are, what your resources are, what opportunities there are, etc. (SWOT Analysis) and then deciding on your goal. The other school of thought is where the analytical assessments are enhanced with and tweaked with an element of emotion and gut feeling, where the leader, using his in-depth experience, plants a much bigger and more ambitious (audacious) goal. Subsequently, the planners and operational experts somehow try to muster up sufficient resources and work out strategy and plans to achieve this goal. So for Sri Lanka, it is the latter that has taken place, and for better or worse, a 2.5 million target of tourists (or something very close to that) by 2016 is now an accepted fact among everyone in the industry.

Arrivals vs. Earnings
It is obvious that arrival figures alone do not give the correct picture. Earnings from tourism is also important, or in fact, more important than arrival numbers.

There are two ways of “skinning a cat:”

- we can have 1,000 tourists spending US$50 per day bringing in US$5,000; or

- we can have 50 tourists spending US$1,000 each, bringing in the same US$5,000 revenue.

One needs to, therefore, take a good hard look as to where Sri Lanka tourism would like to position itself – does it have to play the numbers game, or can it go down the qualitative route. The answers are not easy.

The qualitative route calls for the attraction of the high-end market. While all of us would like to follow this strategy, one must pause to take stock of the practical realities. This will require not only high-quality hotel rooms, but it will require a whole horde of other specialized infrastructure requirements and improvements in the supply chain to cater to this discerning clientele. It will require a paradigm shift and re-positioning of the entire fabric and delivery of the tourism product and service in the country. Other than for the small boutique hotel segment, none of the more conventional higher-end properties can really cater to such top-end discerning clientele currently, given the fact that they are still catering to the mass-market segment as well.

Such a changeover may be possible over a considerable period of time, to completely shift the perception of the destination in customers’ minds, and to completely change the product offering . (Currently Sri Lanka is perceived as a value-for-money, cheaper-end destination.) The question is do we have the time?

If we need to fast track development and reach for high, sustainable growth (and BHAG’s), we will have to look at higher numbers who may be somewhat less demanding. This has been the success story of most Asian countries in the forefront of tourism development today, such as Singapore, Malaysia, Thailand, Vietnam, and Cambodia, who drive millions of visitors per year. Certainly there will still be room for the high-end boutique hotel clientele and other niche markets, but that will only constitute a part of the overall market mix and will not be the predominant segment.

The Room Requirement Controversy
There has been a lot of controversy generated by the estimates put forward for the number of rooms that needs to be built to sustain 2.0-2.5 million tourists annually. Calculating and forecasting the number of rooms required is somewhat complex, because it is depended on many factors. The main drivers are: occupancy, average length of stay per tourist, seasonality, and dispersion of occupancy into different regions.

Currently, the mix is predominantly weighted towards the leisure traveler seeking a beach holiday, which results in a longer average stay of 10 days per visitor. There is strong seasonality, with the months of January and February having sharp peaks, calling for larger number of rooms during this period, while the months of May and June have a very low occupancy. Currently occupancy is generally concentrated around the southern and western coastal areas where the largest number of hotel rooms is situated.

If these parameters are slotted into the equation, the room requirement works out to around 50,000. Thus to achieve the 2016 target, some 35,000 more rooms will have to be built by 2016 (currently we have approximately 15,000 rooms in stock).

Assuming an average of 100 rooms per hotel, this will translate into building another 360 hotels in the next 6 years. Firstly, it is difficult to envisage where such vast amounts of land suitable for tourism development, to build some 300+ hotels, can be found in the country. Even if we can find the land and fast track such developments, a fully-fledged conventional hotel will take at least two years to build and commence operations. It does not take too much expertise to realize that this will be virtually impossible, and, therefore, we have to look at a different model.

After some in-depth analysis and study of emerging tourism trends, especially in the Asian region, the tourism private sector came to the conclusion that the mix of tourists should move away from dependence on “sun and sand” and attract more visitors seeking entertainment, conventions and incentives, and specialized interests. This would then drastically change the market mix of visitors to the country and reduce the average stay to around 6 days per tourist.

With the development of tourism in the east, seasonality will be evened out, and the tourism product will be spread more equitably around the country.

When these new parameters are worked into the equation, the total room requirement reduces dramatically to a more manageable total of 28,000 odd rooms, which then calls for the development of only a further 13,000 new rooms. This is certainly a more manageable and feasible option.

Environmental Issues
In reaching for these large arrival numbers, there has to be careful thought given to environmental sustainability issues. If some 13,000 extra rooms are to be built in the country (which will translate into 100 or more new hotels) with over 2 million tourists unleashed annually in the country, without proper planning, there is bound to be serious environmental and sustainability issues. Such large-scale and fast track growth has to be carefully planned and managed within specific tourism zones to prevent environmental and cultural degradation. This is the reason that the private sector has suggested large-scale zonal development of tourism in building these additional 13,000 of rooms on the fast track.

This will require large-scale resort developments on a planned basis in at least 4-5 designated zones in Sri Lanka. Individual hotel developments will not suffice. Such well-planned, large-scale tourist resorts can be designed to encompass sound sustainable environmental practices (eg., common self-contained sewage disposal facilities with recycling of water, solar lighting for resort public areas, no-build green belts within resorts, etc).

Such organized and well-managed, large-scale developments contained in several designated zones will help mitigate most of the possible negative fallout of the socio-cultural and environmental aspects. Building and subsequent maintenance should be under strict environmentally-sustainable guidelines. Large numbers of small-scale development strewn all over will not be a viable proposition to maintain Sri Lanka’s environmental sustainability nor will it be sufficient to drive the exponential growth required.

Need for Outsourced Resort Development Model
In the ideal scenario, these developments should be outsourced to foreign or foreign/local collaborations (perhaps with a greater bias towards local participation) to develop, market, and operate these resorts on a BOT/PPP basis, under a special set of incentives and laws (similar to an economic investment tourism development zone). These mega BOT/PPP developers should be called upon to undertake the provision of all internal infrastructure activities within these designated resorts, including the required sustainable environment practices within government guidelines, and then attract local and foreign hotel companies to undertake individual development within these zones (already identified development areas such as Kalpitiya, Kuchcheveli, Pasikuda, Arugambay, etc., should be included).

Public–Private Sector Partnership and Tourism Reforms
For over a decade, the private sector lobbied, quite legitimately, for a greater say in the affairs of tourism , given the fact that the entire hotel infrastructure is privately owned and funded. Proposals for such a partnership between the state and private sector was formulated , debated, modified by successive governments, and finally a landmark legislation was passed unanimously in Parliament in 2007, laying the framework for a private sector-public sector collaboration framework. Four distinct entities were set up to run the affairs of Sri Lanka tourism, somewhat along the lines of a corporate structure, with both private sector-public sector board members. The private sector voluntarily offered to partially fund this exercise through the payment of a new 1 percent CESS and the Tourism Development Fund was set up under the Finace Ministry Act No. 25 of 2004. A good foundation was laid, and the new frame work began to work very satisfactorily. Multiple changes of ministers in quick succession, followed by the inevitable changes in individual chairmen of the institutions, disrupted the smooth development of this process.

The initial success of this private sector-public sector partnership was seen as a model that could be duplicated in other sectors as well, and even donor agencies such as the World Bank considered this an important example to be emulated in other developing countries.

However, there are currently far-reaching structural changes being contemplated to this success story, which will effectively limit private sector participation in the future. There has been no discussion or consultation with the private sector regarding the proposed changes. It is important, therefore, that the private sector is consulted and made a part of this evaluation and development process.

Promotion and Branding the Destination
Reaching towards large ambitious goals is certainly quite good and commendable. But at the same time, we must know exactly what Sri Lanka tourism stands for. How do we as a nation want Sri Lanka to be seen and portrayed as a tourism destination? Without deciding what our competitive advantage is and planning out our strategic position, we will not be able to sustain exponential growth targets.

At a recent public forum on tourism, the leading local exponent of positioning, Dr. Uditha Liyanage, who was very closely associated in the now defunct branding exercise for Sri Lanka tourism, very clearly brought out the need for Sri Lanka to decide what it stands for”as a tourist destination or even, for that matter, as a nation.

Unless and until we have a clear idea of what Sri Lanka’s strategic position is in the market, no amount of infrastructure development, marketing, and promotions will be successful in the long term. We need to figure out who we want to be and what our competitive position is.

Our deliberations a few years back revealed that the ideal positioning for Sri Lanka tourism was “Asia’s authentic and compact island providing a diverse array of natural and other attractions and experience.” From this stemmed the vital brand architecture of:

- diversity … unique
- unspoiled … traditional
- compact … authentic
- indigenous … exotic

Therefore, even if the “small miracle” has fallen by the way side, it is important that we retain this brand architecture in all our proposed developments to ensure environment sustainability.

- Sri Lanka needs to see tourism grow rapidly and provide the impetus to drive the economy forward and play an important part in improving the livelihood of Sri Lankans.

- In doing so, there will be a price to pay, but we have to carefully minimize the impact on the environment and on our culture.

- There has to be a clear branding and positioning of Sri Lanka tourism, and these key attributes should be maintained and safe guarded in all developments that will be undertaken.

- Large-scale, mega-tourism developments, which unfortunately will be necessary, must be limited in order to carefully zone selected tourism areas in the country under strict environment planning guidelines.

- A strong private sector-public sector task force must be mandated and authorized to drive the development of Sri Lanka tourism under these guidelines.

Where is Sri Lanka tourism going
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