Colombo’s minimum room rates and MICE tourism

The minimum room rates in Colombo hotels have been a hot topic in the tourism industry for some time. There are many proponents of it, and too few opponents.

What neither of these parties publicizes is that all of them break the regulation—which was introduced in 2009 to provide a revenue boost to city hotels. They undercut each other below the regulatory price floor when selling to corporate clients or through long-term partners, while offering guests ‘complimentary’ meals and services when selling to retail clients during the off seasons. In peak seasons, they operate as cartels, setting high prices.

In such a context, why the government allows Colombo hotels to continue to lobby for this nonsensical regulation is confusing and why the cash-strapped government hasn’t taken any action on these detractors—a fine of US $ 1,000 and the difference between the selling price and regulated price per violation—is further perplexing.

The Tourism Development and Christian Affairs Ministry on a couple of occasions over the past two years had communicated that the minimum room rate would be abolished in early 2017 since the market forces best determine the intrinsic value of a product. However, on each occasion, within a period of days, various lobby groups managed to get these policy decisions reversed.
The main argument of the few, who oppose the regulation, is that the minimum rate hurts the city’s MICE (Meetings, Incentives, Conferences and Exhibitions) 
market opportunities.

Around 65 percent of Colombo hotel demand was from business and MICE tourism, according to JLL research, in 2015. While businessmen attending small meetings may tolerate high prices and may entertain clients and pay for various other services at a hotel, MICE tourists in general—except for the incentives segment—tend to pick value-for-money, lean-mean luxury options.

After all, a firm or an organisation tends to cut costs when paying for hundreds or thousands of its members going abroad for official visits. Even profit-making MICE event organisers tend to cut costs to make profits. This status quo is fine with the participants, who spend perhaps eight or nine hours enjoying the hotel, all of that sleeping or having hurried meals and the rest of the time engaged in their main purpose for travel—official business at the event location.

Numerous foreign studies show that revenue for a country from MICE tourism, per tourist per day, ranges from one-and-a-half up to four or even eight times compared to a leisure tourist when considering the various expenses related to organising events, while MICE tourists themselves spend much more in the country than leisure tourists, during the various brief excursions organised around the event destination.

There is no better way to raise the country’s economic and tourism profile faster than through MICE tourism, given that MICE tourists are key decision makers and influencers. Given the short stays of MICE tourists, much greater volumes of them can be accommodated per year, compared to leisure travellers. Research in other countries has also shown that MICE visitors tend to revisit event destinations in the future.

If Colombo has a minimum room rate above what the MICE customers are looking for, the competing destinations in India, Thailand, Malaysia and Singapore, which offer much more attractive prices for MICE tourism, will continue to prosper. Further questions can be raised as to whether such a minimum price is justified, given the continuously falling or at best complacent, Sri Lankan hospitality standards, especially within Colombo, where the hotels aren’t pushed by the market forces to deliver better services. Even with international brands entering, the existing players will continue to lean on this protection.

The argument of the Colombo hoteliers supporting the minimum rate with regard to the MICE market is that there aren’t enough MICE infrastructure facilities in Colombo to sustainably cater to 
MICE tourism.

The city’s largest MICE centre, the BMICH—which is of archaic design compared to the modern facilities, which are empty halls that can change their configurations in a moment’s notice—can host just over 1,600 conference delegates, while the Sands Expo Grand Ballroom—in the largest of Singapore’s many MICE centres—can handle 8,000 in a similar configuration. Sands Expo could provide over 120,000 square metres in exhibition space to the BMICH’s 4,500 square metres.
The BMICH or the other limited number of venues in the city also have bookings up to six to nine months in advance for the various wedding shows and other trade fairs, which rarely generate any tourism. According to the official statistics, the BMICH held just six international events in 2016, attracting 1,350 foreign delegates, compared to four events in 2015 attracting 750 delegates. In comparison, 994 domestic events were held during 2016.

The US $ 15.3 million 1,500-delegate capacity Hambantota Conference Hall is the only conference venue available throughout the year due to being abandoned, but is situated 240 kilometres away from Colombo and is also based on an archaic design, two problems arising from the short-sighted economic planning that persisted during the previous regime.

Instead of complaining about the lack of infrastructure facilities, the Colombo hoteliers could have, as a joint venture, pooled in the super profits earned above the actual market rates through the price floor, as well as other debt financing, to construct a modern 
MICE centre.

After all, the country’s leading tourism provider John Keells is constructing a 4,000-delegate capacity conference centre within a mixed-development project, all by itself.
Instead, these risk-averse Colombo hoteliers are waiting for the government or some other investor to construct such infrastructure, under budget proposals.

However, Sri Lanka’s research in tourism, let alone MICE tourism, is so lacklustre, that informed decisions cannot be made and due to the lack of such credible research, industry experts, who have so far been going with the flow, cannot be reasoned with.

The industry lobby group’s leader, The Hotels Association of Sri Lanka President Sanath Ukwatte, asks questions such as, “Why are we looking at cheap MICE tourism to drive 
our business?”  

Perhaps the hoteliers are justified in asking such questions since MICE organisers look for the lowest luxury room rate, but if they collectively invest in a MICE centre, some of the MICE revenue would trickle back to them.