By Nirmalan Nagendra
Being a hotelier for 36 years having worked in many destinations, it has helped me realize the importance of being commercial in any venture that you do. (Do not spend if you do not get a good return).
In many countries investing your funds in a bank will give you a reasonable return proportionate to the investment with little or no effort.
When I began my career, a hotel would give you a return on investment within 8 – 10 years, which is not so at present. Presently the destination, location, the management expertise, the service rendered, market positioning will determine the return on investment.
Spending millions of dollars in a trophy hotel to satisfy one’s ego does not make sense. I have worked in trophy hotels which were very beautiful, have wonderful amenities, but gave a Gross Operation Profit (GOP) return of just 12% to 20%.
We have to do a proper feasibility and invest wisely. A 40% GOP return is vital for a hotel before charging depreciation, management fees and finance charges.
In hotels the room rate is also vital. A good business hotel should yield a department profit between 80% to 85%. This cannot be achieved without a reasonable room rate. In Sri Lanaka to achieve such a department profit, the room rate must be at least USD 125 net to the hotel.
For an owner the Rev PAR (revenue per available room) is more important than the average rate. This indicator shows the owner, the occupancy as well. An owner wants the hotel occupied at all times with a reasonable room rate.
For the country a tourist must spend at least USD 200 per day on Room, F&B and Transport. He must take a taxi from the airport, use three wheelers and stay in reasonable hotels (three stars and above).
This will generate indirect employment and the country will also benefit. This segment who spend at least USD 1400 per week should be 50% of our tourist arrivals. I’m not saying tourists who arrive as a group and spend USD 500 per week are bad, but this should be a limited segment. Say 10% of the pie.
Sri Lanka is a beautiful island with Southern beaches, cultural triangle in the center, beautiful tea estates, awesome surfing in the East, and North is Sri Lanka’s final frontier. We should be able to target the upper middle class tourists who will have a wonderful time and also benefit the country.
The government’s target is 4 million arrivals by 2020. To achieve this we have to look at BIA as a hub with strong direct air routes. We must have a strategy to service the tourists and have a win win situation for all the stake holders.
(– The writer is a hotelier with 36 years experience in five-star chain hotels in the Middle East, Caribbean, USA and Singapore, having been Director Finance and Deputy General Manager. He can be contacted at nirmalan_nagendra at yahoo.com –)