Govt. to review Colombo city’s minimum hotel rates
File picture of a group of tourists
The government is currently reviewing the policy pertaining to minimum rates applicable to Colombo city hotels which the industry believes needs to be continued for at least two more years. The minimum rate is under consideration as there are differing opinions on the subject, Tourism Minister John Amaratunga said in an interview with the Business Times on Wednesday. He noted that some sections of the industry believe that the minimum rate should be applicable during the season but others opine that it is required throughout the year. In this regard, the minister said that the tourism advisory committee was currently trying to obtain the opinion of the industry to understand what the best option is.
A decision should be reached within two months, the minister said adding that while they would first be considering what the industry wants to do in Colombo, the ministry would later take into account how it could be applicable to the hotels in other cities and high tourism-generating areas. City Hoteliers President M. Shanthikumar told the Business Times on Thursday that they believe the industry would need it for at least two more years after which they could let it go. “You can allow market forces to dominate but with increased inventories the SMEs will suffer,” he explained adding that the staff that currently receives a reasonable service charge would get reduced rates if the minimum rate is not in force.
Mr. Shanthikumar noted that based on past experience they have found the minimum rates to work well for the industry as opposed to the undercutting that took place before the rates came into force. Commenting on undercutting inspite of the minimum rates in force, he said that it was however minimal and pointed out that it was not monitored asserting that a proper monitoring mechanism would not allow for this to occur. Asked why such a time frame was required he explained that with the proper marketing carried out the tourism industry would be able to position itself accordingly to the market without the minimum rate charges applicable.
He noted however, that other cities in the country which were catering mostly to the leisure mass market operated on a different model as a result of which such a minimum rate was not necessary in those areas. On the other hand, Mr. Shanthikumar said the Colombo city hotels were catering to the corporate and MICE and airline and shipping sectors. If minimum rates were to apply to cities outside Colombo then there should be a proper monitoring mechanism, he explained. However, the minimum rates it is believed which was imposed in a bid to overcome the war situation in the country was a necessity about six years back in order to give the hotels a boost at the time in terms of price.
But today market analysts think this stance should change and that market forces should determine the rates as opposed to the government imposing minimum rates. The basis of the minimum rate which is currently at US$125 +++ allows any hotel to offer that class of service; on the contrary those that cannot offer those services tend to flout the rules and give various other offers, analysts said. The problem with the minimum rates is that the prices continue to rise within a short period of time and if the hoteliers could lay claim to high occupancies then the minimum rates could be removed. It was pointed out how some new hotels in Negombo that started at high rates reduced it due to the fact that the market forces determine the prices in these areas which do not have a minimum rate.