One million tourists arrivals – the story behind the numbers

There has been great publicity in the press celebrating the arrival of the 1 millionth foreign tourist to Sri Lanka for the year 2012 during late December 2012.

There has been great publicity in the press celebrating the arrival of the 1 millionth foreign tourist to Sri Lanka for the year 2012 during late December 2012. While certainly this is a great milestone that Sri Lanka tourism has reached, what does this really mean strategically for Sri Lanka tourism?

The Magical 1 Million Milestone
Certainly arrival statistics are one of the most important tourism data that is tracked the world over. The maximum arrivals that Sri Lanka ever achieved, during the past hey-days of tourism was around 550,000. Subsequently, it dipped to around 450,000 during the past few years of the conflict. Hence, there is no question, that there has been a spectacular increase of arrivals in the past 3 years, returning double-digit increases year-on-year, to reach the magical 1 million figure.

It is interestingly coincident that world tourism figures are also following a similar trend and timing as that of Sri Lanka, where world tourist arrivals reached a record of 1 billion around the same time that Sri Lanka reached 1 million.

Is this Growth Sustainable?
In the post-war era, as already mentioned, Sri Lanka tourism grew spectacularly, recording YOY growth of 46% in 2010, 30% in 2011, and 17% in 2012.

These double-digit growth figures are much higher than the norm, and it is attributable, quite clearly to the cessation of hostilities, which ravaged the country for more than two decades, stiffening tourism growth. This pent-up tourism demand is typical of a destination which has had strife, and been in the news (most often for the wrong reasons), and being inaccessible for a long period, suddenly opening up to the world. A similar trend has been recorded in Cambodia and Vietnam, where, when the war in those countries was stopped, tourism grew dramatically.

Hence, it is quite obvious, therefore, that this pent-up demand will naturally, slowly reduce overtime, leaving the destination to grow in the normal organic fashion – unless, of course, there is a strong destination branding and promotional campaign to take advantage of this situation and stimulate demand further.

Sri Lanka’s monthly growth in the post-war era already is beginning to show this typical declining trend, and serious promotional and destination branding interventions will urgently be required to sustain this growth in the long term.

Beyond the Numbers

There has also been controversy about whether the arrival numbers reflected, are actual foreign tourists. The writer has on a previous occasion, analyzed this phenomena and concluded that there is definitely a “diaspora leakage element” in the arrival figures. The writer’s research, utilizing published tourist arrival figures and comparing it to foreign guest nights, as recorded by registered tourist hotels, indicate that there could be an error margin of 15-20%.

[ http://www.ft.lk/2011/09/26/food-for-thought-on-tourist-arrivals/#more-49319 ]

These “tourists,” as recorded by the Department of Emigration, are foreign passport holders, but are actually Sri Lankan expatriates returning to visit friends and relatives (VFRs) who would normally not patronize hotels, but stay with “friends and relatives.” In these “leakage” figures there is also a component of Maldivian visitors coming across for short business trips, who, though counted as tourists, are not really the conventional leisure tourist.

However, the important factor is that this error margin has been inherently prevalent over the years, and, therefore, the variance has been fairly consistent.
Therefore, quite possibly the actual foreign leisure tourist arrivals could well be in the order only of 800,000 for 2013.

Revenue
Any tourism professional knows that numbers alone do not make any business sense. We can have 1 million tourists paying US$50 for a room, while 500,000 tourists paying US$100 will also bring in the same revenue. Hence, while tourist arrival numbers are important, it must always be backed up and compared with the revenue that has been achieved.

On this count, Sri Lanka is doing pretty well, because the overall corresponding revenue figures have also shown strong growth, increasing from about US$400 million a few years ago, to close upon US$1 billion 2012. This is also borne out from the per night tourist spend which has also increased from around US$80 per tourist per night, to around US$100 per tourist per night. This is indeed a very healthy trend, where both arrivals and revenues have kept pace.

However, one must guard against being complacent, since there has been a dramatic hotel rate increase in the post war years, which is probably accounting for this high growth in revenue. The devaluation of the rupee also would have had an effect. Certainly a price correction was needed in the post-war period, given that for decades Sri Lanka was an undersold, cheap destination. There are some indications, however, beginning to emerge that perhaps there has been an over-correction, resulting in Sri Lankan hotel rates becoming uncompetitive in the region.

Revenue and Arrivals… but What About Profitability?
Most bigger hotel chains, while reporting an overall drop in occupancy during the high season YOY today, are earning higher revenues due to the afore said reasons.

However, most interestingly, this revenue growth is not producing a corresponding growth in profit, which indicates that profitability margins are being eroded due to Sri Lanka’s very high cost of operations. Hence it appears that the gains in revenue growth are not really translating into gainful profits.

It is a known fact that Sri Lanka in general has a very poor record of productivity, and the tourism trade is no exception. With greater demands for properly-trained staff, and the tourism education/training output “supply” not keeping pace, there is a great demand for staff today in all areas. Most often hotels have to “make due” with poorly-trained staff, but still have to pay higher than normal wages due to the demand.

Electricity and other energy rates are some of the highest in the region, with the hotels being charged a premium electricity tariff, instead of being treated like any other industry to enjoy the standard industrial tariff.

Changing Market Mix
Another factor that needs to be studied within the overall numbers is the market mix. Over the years, Europe has been the main source of tourists to Sri Lanka, but there is now steady erosion of that trend, with only UK still maintaining a dominant 2nd highest arrivals position to Sri Lanka. Like all over the world, Asian tourist arrivals are on the rise, as well as other new emerging markets, such as the Middle East. Hence, it is important that development of tourism products, and marketing and promotional campaigns, be focused to target the correct individual markets that are becoming strategically important for Sri Lanka tourism.

At the same time, there seems to be a shift in the market mix of tourists to Sri Lanka, towards a lower end of the spectrum. Previous research carried out by the author, indicated that a major portion of the increased arrivals for 2011 were to the lower-end tourism establishments, such as guest houses, home stay,s and other 1-star classified hotel accommodation. This is borne out from the numerous small homestay/B&B establishments that have sprung up around major tourism areas such as Nuwara Eliya, Deep Coastal Belt, and Yala, who are having very good business.

[ http://www.dailymirror.lk/business/features/19533-where-have-all-the-tourists-gone.html ]

[ http://www.ft.lk/2012/07/23/where-have-all-the-tourists-gone-a-post-script/ ]

It was estimated that as much as 80% of the increased arrivals for 2011 was recorded in this SME sector.

Hence, this reinforces the thinking that currently, upper-grade hotel pricing seems to be on the high side, forcing more tourists to seek out these smaller establishments.

To counter this, the star-class hotel establishments will have to refurbish and upgrade their products and add value to their overall product offerings and aggressively market their higher-end products to enhance their occupancies and growth rates.

Are Tourists Looking for More Flexibility?
Another aspect to consider in this new trend of the growth of the informal SME sector, is whether this category of tourists are looking for adventure, experience, and flexibility, rather than being overly price sensitive. Some very basic informal investigations carried out by the author during recent visits to Yala and Nuwara Eliya, indicate that most of these tourists are young, adventure-seeking individuals, who are not necessarily “cheapie back-packers.”

They are happy to pay US$40 or 50, for a good clean room and breakfast (which most of these small establishments provide), and spend more of their money on excursions and sight-seeing on their own, armed with a destination guide, such as Lonely Planet. Maybe they are a new breed of tourists, wanting to break away from the shackles of the stereotype hotel facilities and offerings, for a more fulfilling, flexible, and multi-faceted experience.

Conclusion
Hence, while achieving the 1 million arrival milestone is certainly a great achievement for Sri Lanka tourism, it is clearly evident that there are many other important and salient aspects that impact strong and sustained tourism growth that has to be analyzed and addressed in a strategic manner if Sri Lanka tourism is to really grow to become a mature and strong competitive destination in the Asia Pacific region.

The writer of this article is a senior tourism professional, who is a Past President of the Tourist Hotels Association of Sri Lanka (THASL). He is now attached to the Ceylon Chamber of Commerce as Project Director of the Greening Hotels SWITCH ASIA project. He is a keen environmentalist and wildlife enthusiast.

About the author

Avatar of Linda Hohnholz

Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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