The Sri Lankan government has announced the removal of a nine-year-old minimum room rates scheme for hotels in Colombo, a move that is expected to be boon for five-star hoteliers in the capital city.
The scheme was unpopular with five-star hotels, which believed their competitiveness was diminished as a result, but found favour among lower hotel categories.
Minimum room rates of US$125++(or around US$185, inclusive of taxes) for five-star hotels were enforced in late 2009 at the end of Sri Lanka’s bloody internal conflict, in anticipation of increasing tourist arrivals and following complaints by small hotels of price cutting by five-star hotels.
For four-star hotels the minimum room rate was US$95++ and three-star US$85++.
The scheme was a fitting move at the time it was imposed as room rates then were as low as US$40, said Hiran Cooray, a veteran hotelier whose family owns the Jetwing Hotels chain.
“But it’s high time this is removed as market forces should now determine prices,” he noted.
On Monday, chairman of Sri Lanka Tourism Development Authority (SLTDA) Kavan Ratnayaka announced the removal of the minimum room rates to “allow market forces to decide the room rates rather than (have) the SLTDA dictate terms to them”.
Harith Perera, president of the Sri Lanka Association of Inbound Tour Operators (SLAITO), welcomed the move, saying “we have always said (minimum rates) won’t work and were opposed to it.”
According to a spokesperson for the Sri Lanka Convention Bureau (SLCB), minimum rates also hindered progress in the meetings and business events sector as they were unable to get competitive rates from city hotels for delegates.
“Now with the freedom for the market to dictate rates, our MICE market can be more competitive,” she added.
Two years ago, tourism minister John Amaratunga announced that the scheme would be abolished in 2018. While this was not made official until now, some industry players told TTG Asia that the government has been lax about enforcing minimum rates in recent months.
The SLCB spokesperson shared that the gazette notification enforcing the minimum rates was allowed to lapse on March 31 this year and was not renewed.
In fact, she said the SLCB had sought and won government approval for special five-star rates of US$100++ for MICE travellers and US$90 ++ for four-star accommodation.
A Colombo hotel manager added that for the past few months, city hotels have been offering their own rates. “The authorities have not been strict on the minimum rates.”
Meanwhile, managers at two three-star hotels in Colombo, who declined to be named, expressed fears of an ensuing price war due to oversupply in the city.
Over past two years, more than 600 new rooms have been injected into Colombo’s supply while several hotels including the Sheraton and Grand Hyatt are due to open in the next two years.