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Sri Lanka Equity Forum » Stock Market Talk » Hotels face tough time --- Drop in tourist arrivals predicted/so many new hotels are opening

Hotels face tough time --- Drop in tourist arrivals predicted/so many new hotels are opening

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Sri Lanka's Hotel Industry will face a number of challenges in the next four years as tourist arrivals to the country slows down, according to a prediction made by the internationally well-known ratings agency, Fitch Ratings.
In a comprehensive report on the industry, Fitch Ratings said, Sri Lanka will lag behind most developed tourism destinations.
"Indian traffic, which accounted for around 17% of tourist inflow during 2016, was the main contributor to growth in arrivals for the purpose of visiting family and friends," the firm said.
"Consequently, we believe Sri Lanka will continue to lag behind most developed tourism markets, which generate over US$ 500 in daily earnings per tourist," the firm said.
Despite the growth of tourist arrivals slowing down to 2.9%, the leading international rating agency expects visitors to Sri Lanka to grow at a compound 15% rate during the next four years.
Further, Fitch Ratings also expects the average yield to record an average compound growth rate of 5% during the next four years, missing the Government's US$ 210 yield target by 2020.
According to the firm, Sri Lanka will fall short of its 2020 target of 4 million arrivals by nearly 400,000 visitors, as the expected compound growth rate will only bring in only 3.6 million travellers.
Fitch Ratings says that the 15% growth will be driven by the rapid increase in arrivals from Indianand Chinese markets.
They expect the delayed US$ 21 million destination-promotion campaign, which will kick off in January next year, to focus on Asian markets to boost arrivals to outpace European traffic over the medium term.
According to Fitch Ratings, "earnings growth is to be limited due to slower growth in tourist spend over the medium term. This is in light of the rising inflow of low-spending Asian tourists, especially from the Indian and Chinese markets."
"The limited array of exclusive niche tourism products which would entice high-spending up market tourists is also a driver. For example, MICE remains significantly under-exploited, accounting for less than 1% of tourist arrivals in 2016," the firm said.
After falling short more than 150,000 tourists for the revised target and 450,000 tourists for the original target for 2016, the Government expects to welcome more than 2.5 million visitors this year.
However, during the first three quarters of this year, tourist arrivals to the country reached 1.55 million, up 2.9% from 1.5 million in 2016. For the country to achieve the ambitious growth target however, even more tourists are needed during the next three months.
Tourism earnings during the first eight months of this year increased 2.5% to US$ 2.41 billion from US$ 2.33 billion a year ago. This year, the Government hopes to earn more than US$ 4 billion from the sector, requiring more than US$ 1.59 billion during the last for months of this year.
The Government has planned a Rs 200 million four-month digital promotional campaign, which will be followed by a US$ 20 million 2-year comprehensive marketing programme, expected to kick start next January.
Arrivals from South Asia increased 2.9% to 335,105 this year, despite arrivals from China declining 2.1% to 208,635, while arrivals from South Asia declining 0.2% to 360,355, despite arrivals from India increasing 6.1% to 267,601.
Fitch also said that the established hotel sector will be challenged by the informal sector such as home-stays and Air b-and-bs.
Another possible challenge will be a shortage of skilled labour, it said.

Read full report on Page 4 of the FT.

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