Tackling trials and targeting triumphs! Sri Lanka Tourism

Sri Lanka Tourism Development Authority Chairman Priantha Fernando
PIC BY PRADEEP PATHIRANA

From the tumultuous decades of conflict to the devastating Easter attacks, Sri Lanka’s tourism industry has weathered storms but with unwavering spirit no doubt. A new chapter unfolds as the island nation steps into the post-pandemic era and emerges from the worst economic crisis in history. Sri Lanka Tourism Development Authority (SLTDA) Chairman Priantha Fernando recently sat with Mirror Business for an exclusive interview, where he outlined the sector’s dynamic trajectory, plans and challenges. Hurdles are many but Sri Lanka’s tourism industry is emerging stronger, poised for growth and ready to get back to what it was pre-pandemic. 
Following are the excerpts from the interview.

How would you characterise the current status of the tourism industry, particularly in light of the recent global events?

Examining the global recovery, it has surpassed 80 percent of pre-COVID levels. Additionally, the South Asian region has demonstrated a notably higher rate of recovery. Despite facing various challenges over the past few years – from the Easter attack to the pandemic and economic crisis – as well as issues with electricity and fuel, all directly impacting the tourism sector, Sri Lanka has fared quite well. The most detrimental factor was the negative media coverage in key tourist-generating markets, accompanied by travel warnings and advisories. It took seven to eight months into 2023 for us to witness a shift towards a more positive sentiment. In this context, I believe Sri Lanka has performed admirably.

In terms of arrival numbers, we seem to be doing well but are you content with the revenue generated?

While our year-end average spend per visitor is estimated at about US $ 180, it’s crucial to consider this figure in context. Previously, when the visitors spent US $ 165 per day, the conversion rate was around Rs.170 per dollar. However, the rupee has since depreciated against the dollar, significantly increasing their buying power compared to two years ago. Despite this, there’s ample room for improvement. To encourage higher spending, we need to create more opportunities for visitors, such as gourmet experiences, entertainment and expanded recreational facilities.

We are actively targeting the high-end tourist segment. With approximately 8,500 to 10,000 available rooms for high-end tourists in Sri Lanka, these properties boast impressive occupancy rates, ranging from 90 percent to 95 percent, often at high rates. Ensuring the right match between tourist segments and the quality of available accommodations is crucial. Misplacing tourists in properties with subpar standards could adversely affect the destination’s reputation.

Setting a target of five million tourists by 2029, with a focus on attracting 2.5 million high-end tourists, spending an average of US $ 500 per day, emphasises the need to align supply with demand. This targeted approach involves marketing efforts and product development geared towards meeting the specific demands of the destination. Collaborations are also underway with countries such as Japan, South Korea and Bangladesh.

Despite the challenges and uncertainties, the overall outlook for the tourism industry in contributing to the national economy remains optimistic for the year

Revisiting a previous issue, there seems to be a problem with hotels arbitrarily assigning star ratings to themselves. How is the SLTDA addressing this matter?

Currently, we have around 107 classified hotels, ranging from one to five stars. However, the challenge arises with the online travel agencies (OTAs) and booking engines, each employing its own classification system, predominantly based on user reviews, often not aligning with our established criteria.

Numerous guest complaints have surfaced, where establishments advertise themselves as five-star, failing to meet the expectations. This is indeed a concern for us. We are actively engaging with the OTAs, emphasising that they should not promote classifications other than those officially designated by the SLTDA. Efforts are underway to synchronise these classifications with our essential and non-essential criteria.

Sri Lanka’s tourism sector includes a significant informal accommodation sector. These properties were granted until last year to register with the SLTDA. For those continuing to delay registration, we are prepared to take legal action. The government is also experiencing a revenue loss, due to the non-payment of the Tourism Development Levy associated with the persistently large informal sector.

Will there be stringent legal measures to ensure compliance?

Absolutely, it is imperative. The SLTDA houses an enforcement unit but unfortunately, it has been non-operational for the past one to two years, due to adherence to the government procurement procedures. The unit, consisting of three former police officers, was tasked with identifying unregistered establishments and initiating legal action.

Regrettably, their operational period coincided with the onset of the COVID pandemic, limiting their impact. The delay in recruiting officers for the enforcement section is attributable to the stringent procurement process.
The enforcement unit collaborates closely with the Standards and Quality Assurance Division, which too, is currently understaffed. While the organisation has an approved cadre of 232, only 202 positions have been filled, leaving numerous vacancies. This shortage in manpower is noticeably affecting our operations.

Over the past year, the government restrictions prevented us from recruiting, despite the available funds, citing the country’s economic situation. However, we have formally approached the ministry, seeking special approval to proceed with recruitments, even if on a project or contract basis. Hopefully, this measure will enhance our effectiveness in ensuring compliance.

Competing globally requires maintaining quality standards and without such support, we risk losing our competitive edge

You touched on this slightly but in terms of activities, nightlife in the Colombo city is not as great as it should be. There is so much talk on making it vibrant but frankly, nothing much has happened. What are the efforts taken here?

The potential for local investors in this regard is enormous and the same holds for foreign direct investment. We are closely monitoring the situation concerning foreign investments, not only in tourism but also in any sector entering Sri Lanka.

To attract foreign investors, it’s crucial to establish a favourable environment, assuring them that their investments are secure in Sri Lanka. Previously, via the Board of Investment, numerous foreign investments were facilitated and treaties were signed with various countries. Unfortunately, recent times have seen Sri Lanka falling short in offering sufficient incentives to attract foreign investments. We need to reevaluate our overall policies to make the country more appealing to investors.

In the area of entertainment, several companies express interest in entering this segment, akin to what Singapore does, by bringing in foreign artists for concerts and shows. However, they are cautiously observing the situation. With the revival of tourism and improvements on the ground, we anticipate an upswing in foreign investments in tourism.

Another avenue is to encourage local investors but it’s crucial to acknowledge the challenges faced by the industry players over the past three to four years. The industry is burdened with debts, totalling about Rs.800 billion. Approximately half of them qualify for concessions to restructure their borrowings at a preferential interest rate, facilitating product upgrades. Competing globally requires maintaining quality standards and without such support, we risk losing our competitive edge.

Investing in the industry’s stakeholders, providing them with the needed working capital and assistance, is essential. Rather than solely relying on foreign direct investors, supporting the local investors ensures that profits remain within the economy, fostering a multiplier effect that benefits various sectors and grassroots levels.

Since the latter part of 2019, Sri Lanka’s tourism has been adversely affected by factors beyond the industry’s control. What challenges do you anticipate for the industry in the current year and how are these challenges being addressed?

In 2024, a major challenge lies in the competition posed by the other countries, such as Thailand, which is eliminating visa requirements to attract more Chinese tourists. While we are unable to implement such measures immediately, due to the economic need for those funds, we must strike a balance. Making investments to yield returns is essential but we also need to assess how we can best contribute to the economy. These are crucial aspects that require concerted efforts.

Marketing is another significant challenge. Over the past decade, we have lacked a comprehensive global marketing campaign, which was only recently launched. Our historical weakness in digital marketing has now been addressed through this new initiative. It’s imperative that we remain vigilant not only in observing competitors but also in staying abreast of global trends.

Product development is another area where we need to accelerate our efforts. Some countries, like Thailand and the Maldives, are quick to seize opportunities in specific markets. We need to enhance our agility and efficiency in this regard to remain competitive on the global stage.

Challenges remain, including the need to create employment opportunities and address skill migration concerns. The continuous training cycle is imperative, with efforts to increase the output of skilled professionals by at least five to six times

Air seat capacity remains a challenge. What measures are being taken to address this issue?

Despite the hotels being at near-full capacity until March, there is untapped potential to attract more visitors from specific markets. Unfortunately, the limited air seat capacity constrains our ability to capitalise on 
this opportunity.

To address this, the aviation policy is undergoing a review, with the aim of adopting a more open skies policy to encourage additional airlines to operate to and via Sri Lanka. The objective is to enhance the freedom to operate through Sri Lanka, fostering increased connectivity.

SriLankan Airlines currently handles around 35 percent of total tourist traffic and with privatisation looming, there is a concern about maintaining this share. The target for this year is to increase this percentage to at least 45 percent, although the realisation of this goal depends on various airlines. While we can advocate for the importance of increased capacity, the decision ultimately rests with the airlines and ongoing discussions are being held with them.

Reflecting on 2020, when fewer than 30 airlines operated in Sri Lanka, efforts have been made to increase this number to around 40 airlines. However, the aim is to surpass the 2019 figure of 52 to 53 airlines operating in Sri Lanka. The objective is to reach, at a minimum, 55 airlines operating to and from different points 
in Sri Lanka.

How many new airlines can we expect to commence operations this year?

Anticipated this year are at least six to eight new airlines, encompassing both regular and charter operations. Discussions are ongoing with charter operators from China and efforts are underway to entice European airlines that discontinued operations in Sri Lanka over the past couple of years.

Taking a macro view of the industry, what are the key trends influencing the tourism sector in Sri Lanka and how is the country adapting to these changes?

Sri Lanka is actively promoting itself under approximately 18 distinct themes, including sea, sun, sand, wellness, marine and wildlife, among others.
One noteworthy trend is the exploration of sports tourism, particularly in the realm of cricket. While groups are already visiting for cricket-related activities, there is a recognition that more can be done to capitalise on this potential, especially from markets such as Australia, the UK, India and Pakistan. To facilitate this, the advantage lies in having the same minister overseeing both sports and tourism, allowing for a close collaboration with the sports authorities. Efforts are underway to tap into this intersection between sports and tourism for 
mutual benefit.

In the current volatile global environment, how has Sri Lanka Tourism fortified its crisis management and preparedness strategy to mitigate the potential impacts?

Constant vigilance on global events is paramount and we must be swift in adapting to changes. For instance, during the Ukraine and Russia conflict, opportunities emerged as Russia listed certain countries its citizens could visit, with Sri Lanka being among them. This contributed to our success in the Russian market.
Similarly, in the case of China, we are among the 20 countries included in its pilot project for tourism. It underscores the need to remain alert to opportunities and capitalise on them when they arise. The ability to recognise and act on such openings is a crucial aspect of our crisis management and preparedness strategy.

Speaking about crisis, during the previous crisis events, we came together. But after the imposition of the Minimum Room Rate (MRR), we see a bit of a division. Can you shed some light on this?

They will give you a different story now altogether. Those who were criticising then are the very same who are praising the decision today. 
The implementation of the MRR has led to increased occupancy rates at higher price points. The positive effects are extending to areas like Negombo and Bentota, allowing them to sell their rooms at elevated rates. Overall, the MRR has brought substantial benefits to the industry.

The commission-based structure of the destination management companies (DMCs) has also played a role in the positive reception. Previously, the hoteliers were somewhat at the mercy of the DMCs and the terms were often dictated by the flow of tourist traffic, creating a biased market. The introduction of the MRR has provided a degree of protection for the vulnerable groups within the industry. However, it’s important to note that the intention is not to maintain the minimum rates indefinitely. While the measure is in place to address the current needs, it is not a long-term strategy. The plan is to phase it out once stability is achieved.

Sustainability is becoming very popular in the global tourism space. So, what are we doing in that regard?

We are doing a lot. But having said that, it is not enough. There’s much more to be done. The sustainability of our tourism industry is crucial, encompassing wildlife, nature and our beaches. Notably, Sigiriya has become the first certified sustainable destination and Sitawaka is set to follow suit. This marks the beginning of our journey into certifying other areas 
as well.

Efforts are also directed towards sustainable certification for the DMCs and hotels. Currently, around 140 establishments in the accommodation sector have received certification, with ongoing efforts to expand 
this programme.

To foster greater awareness and devise solutions, collaboration with the United Nations Development Programme and Asian Development Bank has been sought. The demand for sustainable products by visitors aligns with our commitment to these efforts. While progress will take time, it is anticipated that with sustained support and collaboration, significant strides can be made within the next five years.

What is the outlook for Sri Lanka’s tourism in 2024?

Despite setting a target of 2.3 million tourist arrivals with earnings of US $ 4.7 billion a few months ago, the current situation suggests that we may surpass these projections. However, challenges remain, including the need to create employment opportunities and address skill migration concerns. The continuous training cycle is imperative, with efforts to increase the output of skilled professionals by at least five to six times.

To address skill migration, discussions have taken place with the United Nations World Tourism Organisation to establish a specialised university in Sri Lanka focusing on fields such as aviation, travel agency and hotel management. Additionally, efforts are being made to establish a partnership with Saudi Arabia to set up this university in Sri Lanka, with the intention of sharing the talent pool between the two regions.

Despite the challenges and uncertainties, the overall outlook for the tourism industry in contributing to the national economy remains optimistic for the year, with hopes for stability and resilience against the potential shocks.