Post Tsunami Sri Lanka : Damaged, But Not Defeated

By Saurabh Gupta | HVS International

One of the tourism industry’s biggest handicaps is its vulnerability to changes in the immediate environment. It is among the first to get affected, in the incidence of an adverse event, but among the last to recuperate, given that tourism is primarily a leisure activity and not among people’s most important priorities, especially at the time of crisis.The Indian Ocean tsunami of December 26, 2004, triggered by a huge undersea earthquake off the coast of Sumatra, has laid bare this very characteristic of the tourism industry. The gigantic killer waves affected fourteen countries causing unprecedented loss of life and property.

The island nation of Sri Lanka was one of the worst-affected regions in south Asia. An estimated 31,000 people lost their lives and about 1.5 million more have been displaced. The loss of property has been estimated to be to the tune of US$1.3 billion.

Tourism is a major player in the economy of this island nation of 19.7 million people, contributing to around 10.8% of its estimated US$18 billion gross domestic product (GDP). Sri Lanka counts on tourism to support its retailing industry, which has grown to an estimated 20% of its GDP since a cease-fire ended a civil war in 2002.

The country has been witnessing spectacular tourism growth: more than 96 per cent in the past two years, owing to the declaration of truce between the LTTE (demanding an independent homeland for the Tamil Hindu minority) and the Sri Lankan government. In 2003, Sri Lanka earned US$424 million in tourism receipts from the arrival of an estimated 501,000 visitors. The performance further improved in 2004 with the country earning US$430 million in tourist revenues from the visit of 550,000 tourists. Had the unfortunate event not happened, Sri Lanka would have played host to its highest-ever number of tourist arrivals, an estimated 575,000 visitors in 2004.

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The hotel industry in Sri Lanka is primarily based on the leisure segment. Thus, places of tourist importance like Kandy, Anuradhapura, Sigriya, Nuwara Eliya, Yala West, Hikkaduwa have the major concentration of hotel rooms. Typically, visitors from overseas disembark at Colombo, the capital city, and then visit the hill country of Kandy. They make a stop at cultural centres like Anuradhapura and finally move on to the hugely popular beaches. Sri Lanka’s beaches are, in fact, central to most travelers’ itinerary, and any negative bearing on them translates into a dip in the total number tourist arrivals and, thereby, the tourism income of the entire nation.

There are approximately 14500 registered hotel rooms in Sri Lanka, of which only 5600 have been physically affected by the disaster. A major share of these hard-hit hotels is spread across the six cities of Galle, Bentota, Beruwala, Kalutara, Ekkadu and Arugam Bay.

Colombo: Colombo is the capital city and the commercial hub of the country. At present, the major share of revenue earned by the city’s hotels are from diplomatic visits and ministerial delegations; international aid workers and their NGOs; representatives of the UN; military personnel and TV crews. Currently, most of the city’s star category hotels are operating at full capacity. This is expected to be the trend till around mid February. Typically, hotels in Colombo expect to fill about 75% of their rooms in the period between January to March. Occupancy was expected to have improved this year, had it not been for the tsunami calamity.

The balance 25% of revenue earned by Colombo’s hotels is from the leisure segment, which could fall by one-third this season. The revenue loss is sure to pinch hotels in the city, since the period January to March adds a lion’s share to their revenues. There is, however, the possibility of a rebound theory on the economy where a short dip is followed by a long term recovery due to enhanced spending on infrastructure and the subsequent creation of jobs. Hotel companies will certainly see the increased presence of corporate travelers in city hotels. It is estimated that this incremental business will be able to offset 25% of the loss in business which has come about due to heavy cancellations in the month of February and March by leisure tourists groups.

Kandy: The region was largely spared the massive destruction witnessed in other areas, but is victim to the after-effects of the tsunami on the tourism of the entire island. More than 80% of the business of hotels in Kandy is generated by group holidays, organised by tour operators in the Europe, especially the Scandinavian markets. Kandy has always been a destination for the leisure traveler. It has been a pivotal point for tourists to embark onto their journey of cultural centres in Sri Lanka. With negligible earnings being attributed to the business segment, the outlook is rather grim for hotels in Kandy, which may struggle to achieve average occupancy levels of 25-30%.

Hotels in cultural centres like Anuradhapura and Polonnaruwa or hill areas like Nuwara Eliya and Badulla are, like Kandy, essentially tourist destinations, and will see a major loss in revenue. Hotels will try and focus their marketing efforts on the domestic market, once the situation stabilizes. Adverse travel advisories by several nations have made matters worse for regions like these that have not seen direct physical damage. The spur in cancellations led WTO to urge the national governments to draft their travel advisories in a responsible manner and to update or withdraw them in a timely manner.
South Coast: This region has some of the world’s best known beaches. The extent of damage is severe in this region, and has resulted in the partial or complete closure of the hotels in Kalutara, Galle, Hambantota and Matara. The hotels are putting up a brave front, and are focusing their efforts on completing necessary repairs and getting back into shape as soon as they possibly can. Of the 48 hotels affected, more than half are operational. In Bentota, most of the hotels are already up and running. The present occupancy is in the range of 15-20% but the situation is improving.

A majority of the star hotels on the south coast depend on overseas tour operators for a major share of room nights. The better hotels, with up-market clientele, are not scaling down room rates as they see no positive outcome of doing so, and instead, and preferring to adopt a wait and watch strategy. They expect average occupancy to touch 40-45% in the next two months. Some well-known hotels like the Saman Villas in Bentota are planning to tap into their European target market by way of aggressive marketing campaigns. It might, on the other hand, be a good idea for the hotels with higher room inventory to look at changing the target market mix till the arrival of the next tourist season. Taj Exotica in Bentota plans to concentrate on the Indian market since business from India will help them through the lean summer months of 2005. However, it will be some time before hotels in Galle and beyond are able to be completely ready to receive guests.

East Coast: The east coast stretches for more than 300 km. The strong hold of LTTE in primary areas like Tricomalee and Batticaloa has always been an obstacle for the development of tourism along the east coast, despite its tremendous potential. The tsunami waves crashed directly onto the shores of the east coast, causing heavy damage to life and property. Ampara, renowned for its ancient Buddhist shrines and archaeological sites, was the worst-affected region, where about 10,000 people died. Most of the hotels on the east coast have closed down, owing to heavy casualties.

Overview: The summer season has always seen low tourist movement in Sri Lanka from Europe. However, regional traffic has been more than a good substitute. The marketing departments of a number of hotels are turning to India as their target market for the remainder of the current season. Tie-ups with airlines for attractive holiday offers and aggressive marketing in India, it seems, will be central to their sales strategy, at least for now. It remains to be seen whether this would yield the desired results. A lot would depend on the pace at which normalcy returns to the region.

The government of Sri Lanka, on its part, has moved in swiftly. The central bank is offering soft loans to many resorts along the coastline for repairs. Sri Lanka Tourism Board (SLTB) has earmarked US$7.5 million for promotional campaigns to cope with the tsunami aftermath. The country now needs to pay attention to rebuilding and re-establishing the entire infrastructure that supports tourism activity in the region. Sensible redevelopment via ample monetary assistance can help the Sri Lankans achieve world class tourism facilities. Countries like Thailand have already embarked onto ambitious development projects in their worst-affected regions.

We do feel that the impact of the tsunami will be short lived. There is little doubt in the fact that this year’s peak period for hotel business will be a dismal season, and will pass with a major dent in the revenues of the hotel companies. It is heartening, however, to see the affected hotels fast springing back into shape. Generous foreign donations and the incredible resilience shown by the people of this island nation indicate that Sri Lanka’s hotels will attain their previous levels of occupancy in the following season, that is, November 2005 to March 2006
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