Abolishing minimum rates will disturb Sri Lanka hotel investments: hotelier

Aug 22, 2016 (LBO) - Sharp fluctuations in hotel revenues will prevent long term planning and investment in Sri Lanka's hotel sector, especially if minimum rates are abolished, says Sanath Ukwatte, chairman of Mt. Lavinia Hotel. Tourism Development ministry said last month it plans to abolish the minimum room rates for both luxury and normal rooms imposed on city hotels with effect from 31st March 2017. This was following a recommendation by the Tourism Advisory Council that minimum rates had “now served its purpose.” "I concede that state intervention should be few and far between and they should be seen as the exception rather than the rule. However, there are some areas in which the State has a necessary role to play in order to correct market distortions or undercutting and ensure a more equitable distribution of resources and income," Ukwatte said writing to the Sunday Times. Ukwatte says sharp fluctuations of hotel revenues will "prevent long term planning and investment in the hotel sector." The minimum room rates were imposed on both luxury and standard hotels after the end of a separatist war in the island to prevent aggressive and unsustainable price competition. Now, with tourist arrivals reaching a record high in July, the ministry believes an environment for healthy competition is in place.
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With flexible rates, Sri Lanka can also better compete in the lucrative MICE market, the ministry said. Price competition could increase innovation and service diversification within the industry, according to some analysts. But Ukwatte believes a rate structure is required to support the significant human resources deployed by some hotels and to ensure this investment is sustainable. "It must also be remembered that the open economy can also open up opportunities for grave abuse as we have witnessed prior to implementation of minimum rates and it needs to be corrected in order to provide a level playing field.”