Undercutting hurts 5-star Colombo hotels

Colombo’s 5-star hotels are divided over compulsory minimum pricing arrangements with accusations flying over undercutting to survive in a turbulent business.

Industry officials agree there are clear regulations in which the Tourism Ministry can penalise hotels for selling rooms below the $80 plus VAT per person and $50 per group but also concede that in a crisis situation it’s impractical to enforce the law.

Nawaz Rajabdeen, Chairman of Hotel Developers Ltd, managing company of Hilton Colombo told The Sunday Times FT that city 5-star hotels have agreed on a minimum rate policy of $90 plus VAT and $50 for groups but he says some hoteliers were slashing prices disregarding the minimum rate policy.

The allegation came as an advisory panel for Colombo hotels headed by Cornel Perera, who brought the Hilton to Colombo, urged city hotels to raise the minimum selling rate and maintain consistency.

Rajabdeen said most hotel chains have agreed on the discounted rates to ensure there will be no undercutting but some of them seem to be now having second thoughts. He suggested that the minimum room rate should be increased to $100.

“It would be an economic crime if these hotels are permitted to engage in reckless undercutting which deprives the country of its much needed foreign exchange, the staff of a better service charge and the shareholders of a reasonable return,” he said.

He suggested amending the Tourism Act to impose stringent penalties on hoteliers who fail to comply with minimum rate policy but agreed that it was ‘worthless’ having a law if it wasn’t properly implemented.

He emphasized the need to implement some monitoring system to ascertain as to whether all five star hotels are following the minimum rate policy.

Commenting on the issue, Deputy Minister of Tourism Faizer Musthapa said that it is better to adopt a self regulatory system on the implementation of minimum rate policy rather than resorting to policing. He suggested that hoteliers should enter into a mutual agreement by signing an MOU on the pricing of hotel rooms otherwise the undercutting will kill the industry Additional Secretary to the Ministry of Tourism George Michael said hoteliers have a responsibility to implement the minimum rate scheme as the country’s tourist industry is facing a crisis due to the security situation.

Head of the Sri Lanka Institute of Tourism and Hotel Management Kamal Hapuwatte said several five star hotels were selling rooms at a very low $30-40 without considering its impact on the industry. However he said enforcement of regulations to control hotel room rates is also not practically viable.

Chairman, Tropical Leisure Management Ltd Prassanna Jayawardena noted that low rates and undercutting has existed for a long period and this cannot be controlled by imposing regulations.

However he noted that top hoteliers should not under value their hospitality services. Citing an example he said that the Elephant Corridor coming under his purview maintains its room charges at a price ranging from $300 to $400.