MRR likely to reduce Colombo’s competitiveness in MICE tourism – FCR

By Nishel Fernando
The introduction of Minimum Room Rate (MRR) for star hotels in Colombo is likely to hurt Colombo’s competitiveness in MICE tourism while impacting smaller star hotels, a tourism industry update by First Capital Research (FCR) highlighted.
“The implementation of the MRR is likely to disproportionately affect specific segments of the tourism industry, particularly the MICE (Meetings, Incentives, Conventions, and Exhibitions) sector, which is one of the fastest-growing segments in tourism,” it said.
The MRR, initially enforced for Colombo city hotels from 1st of October last year was aimed at ensuring fair competition and repositioning the country as a high-end holiday destination to boost foreign earnings.

However, FCR noted that Colombo has become more expensive in terms of average cost per room when compared to its regional competitors such as Ho Chi Minh City, Bangkok, Jakarta, and Kuala Lumpur in four-star and three-star room categories.
“Arguments have surfaced suggesting that the implementation of the minimum room rate has hindered the growth of Colombo hotel occupancy rates and deterred numerous MICE groups from choosing Sri Lanka due to the comparatively higher MRR of Colombo city hotels compared to regional peers,” it added.
 Given bookings’ bulk nature, FCR noted that the higher MRR in Colombo compared to regional competitors may deter MICE groups from choosing Sri Lanka as their destination, potentially impacting the growth and development of this lucrative tourism segment.
Meanwhile, the implementation of the MRR has significantly affected smaller star hotels and boosted traffic to alternative accommodations which could potentially include the informal sector.
“Lower-star class accommodations are experiencing reduced demand, as customers, particularly those who are price-sensitive, seeking alternatives such as home stays or hostels,” FCR stated.
Overall, the MRR has resulted in reduced occupancy levels among Colombo star-class hotels, however, with a significant jump in revenues. FCR noted that star-class hotels located close to Colombo have jumped to cater to the price-sensitive tourists who are looking at alternative accommodation.
“City hotels in Colombo are losing occupancy to Negombo hotels due to the latter’s significant discounts on room rates. Travellers, who typically spend two nights in either city before embarking on round trips, prioritize affordability over luxury for their short stays. This trend underscores the importance of cost-consciousness in travellers’ lodging decisions during the visits,” FCR stated.