Assistance to formulate sustainable rates for city hotels, need of the hour: stakeholders

Whilst we thank Palitha De Alwis for his opinion published in Daily Mirror of September 22, on the ongoing debate on minimum room rates in Colombo city hotels, in which he has described the mechanism as “a regressive and archaic way of controlling prices”, Colombo City Tourist Hotels Association President M. Shanthikumar would like to bring to the attention of the public the benefits the minimum price mechanism has brought about – stabilised room rates resulting in being able to offer a better product and service to the guests, increased foreign direct investment, higher staff retainment within the industry and additional foreign exchange earnings to the national exchequer.

One must understand the reasons behind introducing such a mechanism in the first instance. When the rooms in the Colombo five-star hotels dropped down to as low as US $ 50 a night and the employees in the city hotels were complaining of low service charge earnings as a result of price dumping by a section of the hoteliers, the Colombo City Hotels Association made a formal request to the government in 2009 to help address this deteriorating condition by introducing a minimum floor price for fivestars at US $ 125, four-stars at US $ 85 and three-stars at US $ 65, in order to be able to sustain the high standards required of a hotel, prevent leakage of foreign exchange earnings and help attract and retain Sri Lankan expatriate employees from the Middle East and other overseas employment, by offering a higher service charge, in addition to their salaries.

The government at the time took the bold decision to put the industry on track; by doing so, it also helped to restore Sri Lanka’s tourism image as a mid-scale destination rather than a cheap backpackers’ paradise. It also helped to attract new foreign direct investment to the country as investors saw a reasonable return on the investments.

Palitha de Alwis in his article also calls hoteliers to come up with creative ideas to compete with the informal sector.

The hoteliers who have invested heavily on capital expenditures and providing employment for thousands don’t require any more innovative ways to compete against the informal sector, which conducts business by providing accommodation for tourists without paying a single cent as taxes and employ minimum staff numbers with no actual training or space for career development. Hotels already are constantly upgrading and implementing new strategies to keep ahead. Today’s clientele selects the hotels they stay only after an intensive search online and after consideration of guest reviews. This gives them confidence regarding the quality of their hotel experience. Their decision depends not solely on the price but also on a host of other factors. Hotels are challenged to improve their facilities and services every day. This does not permit them to rest on their laurels.

The inevitable result of the removal of the minimum rate mechanism is unhealthy competition and reduced room rates. This does not make business sense; reducing room rates arbitrarily will give rise to severe undercutting as we have seen in the past and will only deprive the country of the much-needed foreign exchange and the industry of the resources, which are needed to provide lucrative employment opportunities for our youth, especially women, who are otherwise driven to seek employment abroad, often with distressing results.

Sri Lanka today is one of the most expensive countries in the region to operate hotels. Even outsourcing is a great challenge for hotels. Hoteliers opt to produce everything they want from the pastry to sauces used for cooking to laundry and cleaning, as they are too expensive to outsource and the consistency of quality of these vendors is not reliable.

The governments world over take meaningful steps from time to time to regulate the prices of commodities and services by way of directly or indirectly giving out subsidies, introducing minimum floor prices, increasing or decreasing custom duties on imports or through taxation. Tourism too needs to have such regulations and safeguards, not only to protect the investors but also to make Sri Lanka attractive and sustainable for the future, whereby generations to come can reap the benefits.

We would urge, therefore, that the answer is not to do away with the minimum room rate mechanism and create a free for all carnival but to help formulate hotel rates sustainable for the hotels and their stakeholders, the way city states like Singapore and Dubai have done by developing new products such as MICE facilities, recreational, entertainment and theme parks, etc. and support the industry with a vigorous marketing campaign to position Sri Lanka globally.