Sri Lanka is becoming a pricey destination for tourists
Elephants at Pinnawala
The tourism industry makes a significant contribution to the national economy by directly contributing to the government’s budget, foreign exchange earnings and employment generation, it contributes both direct and indirect benefits in the provision of goods and services. Tourism as a single industry has been able to generate substantial foreign currency earnings with relatively low reliance on imports of inputs. Therefore, tourism has a key role to play in maintaining the country’s resilience on external sector pressures.
Sri Lanka’s declining foreign currency inflows and increasing outflow due to outpacing exports, decline in less money from worker remittances and the devastation of the tourism sector have contributed in the devaluation of the rupee. When, the country’s currency is devalued the goods should be cheaper to the foreign buyer. Therefore, the benefit of the weak domestic currency should be passed on to the consumer (tourist) which will make Sri Lanka more competitive in global markets, which will result in an increasing higher volume of tourists and spur our economic growth. The recovery of the industry will depend on how well we can cater to the needs of the modern traveller in offering attractive, value-for-money holiday packages compared to peers in the region.
Sri Lanka’s annual inflation rate surged to more than 70 per cent in August 2022, and struggles with its worst economic crisis over seven decades. Therefore, the tourism industry is expected to provide an impetus towards the economic recovery despite the impact of the global and domestic challenges.
In general prices tend to fall during recession, since customers become increasing aware of prices and are more price sensitive. The people are also more likely to increase savings while deferring to non-essential travel. Recession, inflation and other economic fallouts affect people’s ability to afford luxury accommodation, but at the same time they also lead to a higher demand for budget accommodation, thereby increasing certain verticals of this industry.
The hotel partners, in Sri Lanka regrettably have not taken into consideration the above facts, when establishing a price for their product for the forthcoming season which is a major concern in achieving the desired result.
The Sri Lanka rupee in November 2021 was around Rs.183 per USD and following the floating of the rupee against the USD in March 2022, the exchange rate today is Rs.360 to a USD which is 100 per cent depreciation. The hotel rate which was at $100 per room @ Rs.183 / fetched Rs.18,300 is today being quoted at the same USD rate yielding Rs.36,000 in Sri Lanka currency.
The devaluation of the rupee, will have an impact on the cost of operation of the hotel, as energy, water, maintenance, consumables other overheads, and taxes would have increased, including inflation. The increases highlighted herein will not be more than 50 per cent of the room rate quoted in November 2021.
A comparative hotel rate survey of the region was conducted, and we were able to ascertain, that our hotel rates are higher than the average hotel room rates in November 2022; in Phuket $70, Pattaya $50, Penang $65, Langkawi $55, Bali $90, Vietnam $65 and Cambodia $65.
With Sri Lanka being the world’s finest island, for memorable authentic and diverse experiences; the authorities have failed to position its place in the global tourism arena. Pre-civil war Sri Lanka was known as “Value for money exotic destination”; we are losing this image.
Hence, we witness a confusion in the marketing strategy to reach out to the consumer, resulting in encouraging the lower end of the market and digital nomads experiencing our valuable products in Sri Lanka.
Just as the COVID-19 travel restrictions are being eased across the region, we observe negatives vibes that have surfaced, which is bound to further impact the upward growth of our industry.
The global travel industry fears that the war in Ukraine could derail the much-anticipated recovery of the tourism dependent economies in the South Asian region, (source IATA), reflecting the demand down by 59 per cent compared to 2019. The Ukraine war, which has brought sanctions against Russia and airspace restriction have dampened the projection. The Russians are considered to be a spendthrift group of visitors to any destination which also include Sri Lanka. Compounding this problem is the strict border control imposed by China (one of Sri Lanka’s key tourist source markets) which is affecting the movement of traffic from that region. Outbound travel from China is still low.
Economists estimate that the impact of the Ukraine war on South Asia, would be felt far more than the COVID-19 pandemic. The most recent development is that the Euro zone, is almost certainly entering a recession, with a survey showing a deepening cost of living crisis and a gloomy outlook that is in keeping with consumer spending.
The European Central Bank is under pressure as inflation is running four times more than its 2 per cent target reaching a record 9.1 per cent in August/September 2022. The sterling pound dropped over 20 per cent against the US Dollar and the Euro dropping below 0.99 US cents, both for the first time in two decades.
The plummeting of the Sterling Pound and the Euro will make destinations more expensive as it could mean a steeper plane ticket too.
The rising inflation, escalation of energy cost and rising interest rate will have an adverse impact on the disposable income of the consumer. We therefore have to be mindful that many countries, particularly around the Mediterranean will offer customers better all-inclusive holiday packages.
In the pricing of products by the respective decision-makers, one should be mindful that a visitor’s choice of selecting Sri Lanka as their holiday destination is to experience the authenticity and the diversity that this friendly island nation would offer the discerning traveler and not just the hotel and its facilities. In the event the pricing policy of hotels is not affordable and competitive, it is the country’s economy that will suffer and deprive the country of much needed forex. It is the norm in this industry once the market share is lost, regaining it will take many years and will incur additional cost.
(The writer is a senior tourism industry professional)
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