Hotels in IQCY show income growth with better arrivals

Sri Lanka’s hotels sector in 1Q CY18 have benefitted somewhat from the better tourist arrivals in the January to March period with their top line performing reasonably well, analysts say.

“The Kandy riots happened in early March, so there would’ve been only a marginal impact on the results. Also, 1Q CY17 ( same quarter last year) saw the airport being partially closed, so 1Q CY18 visitor numbers show good increases which is why the top line should be good,” an analyst told the Business Times. This should help the profitability as well, because the profitability is linked largely to the revenues, he added noting that however, individual hotels may have varying results based on their issues with costs.

While resorts segments thus far recorded an improvement in room rates and maintained occupancies, they added that city hotels are the ones that are getting hit the most. On a going concern, they are far below their net asset value. The hotel sector witnessed a decline in occupancies in many conglomerates in the last quarter primarily as a result of the increase in room inventory within Colombo.

“The competition is catching up with additional rooms by international chains coming in which is the main reason many want to exit the hotels and possibly sell them to foreigners,” the analyst said. He said that certain hotels were impacted due to the decline in room rates and occupancy during the quarter arising mainly due to price competition from their counterparts and a significant shift in guest preferences to informal stay experiences. Demand for rooms of listed hotel operators has been enough to drive an increase in average room rate (ARR) to US$87 from $ 70 between 2014 and 2016, while occupancy stabilised at around 75 per cent during the same period, according to research by analysts.

The country has 22,000 star class hotel rooms in the formal sector which is expected to grow further by 6,500 rooms by 2020. At present the total investment is over $3 billion and is expected to further increase by $ 1.5 billion by 2020. This, by far is the highest investment any single sector has made in the country. The net earnings from tourist arrivals have now exceeded $3.5 billion (annually).