SRI LANKA: TOURISM INDUSTRY DECIMATED BY CONFLICT

UNCLAS SECTION 01 OF 02 COLOMBO 002104 SIPDIS SIPDIS DOL/ILAB FOR TINA MCCARTER DRL/IL FOR LAUREN HOLT STATE FOR SCA/INS MCC FOR S GROFF, D NASSIRY AND E BURKE GENEVA PASS USTR E.O 12958: N/A TAGS: ECON ELAB ETRD PHUM SOCI CE SUBJECT: SRI LANKA: TOURISM INDUSTRY DECIMATED BY CONFLICT ¶1. Summary. Sri Lanka's tourism industry has suffered dramatically in recent months as incidents of terrorism have increased and western countries have ramped up their travel warnings for Sri Lanka. Hotel companies are responding to the drop in business by implementing severe cost cutting measures, including staff reductions. The Hotel Association of Sri Lanka (THASL) has appealed to the Ministry of Tourism for relief, including the release of industry funds from the Sri Lankan Treasury and the signing of new tourism legislation. Although hotel executives are confident that Sri Lanka's tourism industry will bounce back, some of Sri Lanka's biggest hotel operators are expanding into India while they wait for the Government to put the peace process back on track. End Summary. ¶2. Sri Lanka's tourism industry has suffered dramatically in the last several months as incidents of terrorism have increased and western countries, including the U.S., have issued tougher travel warnings for Sri Lanka. THASL reports that the travel advisories have resulted in vast cancellations of confirmed bookings. The hotel industry is experiencing a 60 percent drop in occupancy compared to last year, and most hotels expect to have only 40 to 50 percent occupancy rates over the next few months. This is a significant drop from the 80 to 90 percent occupancy rates normally expected during the December through March peak tourist season. Hotel operators are worried that they will not earn enough revenue this winter to carry them through the typically slower summer season. ¶3. Some members of THASL have described this as the worst crisis to face the industry to date, even worse than 9/11, the attack on Bandaranaike International Airport in 2001, and the 2004 tsunami. This year's Galle and Habarana attacks were particularly damaging because they occurred near tourist destinations. Hotel industry executives cite France as having the most stringent travel warning and note that French tour operators have suspended sales of Sri Lankan tours until February 4, 2007. (Note: A follow-up conversation with Deputy Head of Mission Yves Lo Pinto of the French Embassy revealed that French tour operators are gun-shy of conflict areas due to a Supreme Court ruling where a tour operator was held liable for harm done to tourists by terrorists in the Philippines. End Note.) Industry executives point out that travel advisories are currently the strongest ever issued, even though Sri Lanka has experienced worse periods of violence in the past. They speculate that the stringent advisories are meant to send a political message to the Government of Sri Lanka (GSL) to find a resolution to the conflict. However, they doubt the government is listening and note that the tourism industry, not the government, is suffering. ¶4. Hotel companies are responding to the drop in business by implementing severe cost cutting measures, including staff reductions. Hotel employees that are able to keep their jobs may have to accept reduced wages. Indirect tourism sectors, such as taxi companies and gift shops, are also finding their business drastically reduced. Some small hotels in tsunami affected areas are unable to service the loans they took to rebuild their properties. Hotel operators want to conduct an immediate marketing campaign including advertising and special packages in the United Kingdom, which has one of the least cautionary travel advisories, to try to salvage some winter season business. THASL has appealed to the Ministry of Tourism for some form of relief, arguing that this is a national level crisis. ¶5. One major complaint of the tourism sector is the state of the Tourism Cess Fund, a fund which receives tax proceeds from the industry. All companies registered with the government-run Sri Lanka Tourist Board (SLTB) contribute 1 percent of earnings to the SLTB, which also collects a USD 5 surcharge built into airline tickets. These two funds are intended to be used to promote the tourism industry. Unfortunately, the SLTB is accused of spending the money inappropriately, and the Sri Lankan Treasury has frozen the contributions from the ticket sales. The industry itself has no access to the frozen funds, and little or no input on how their 1 percent contributions are spent by the SLTB. Industry executives COLOMBO 00002104 002 OF 002 would like to use that money now to help fund the UK marketing campaign. ¶6. Hotel operators also would like to see the Tourism Act of September 2005 implemented. Under the new law, the SLTB would receive only licensing fees and would function simply as a regulatory agency. The cess funds would be managed by a new Tourism Promotional Authority, which would be a joint private-public entity. Seventy percent of the funds would be used for tourism promotion, 12 percent for a hotel and tourism school, 14 percent for the administration of the Tourism Promotional Authority, and 4 percent to attract more conventions to Sri Lanka. The act was passed by parliament in 2005, but has never been signed into law by the Tourism Minister. A Vice-President at John Keel's Holdings, Sri Lanka's largest hotel operator, told Econoff that the Tourism Minister is under pressure from the SLTB not to sign the law because it would reduce the SLTB's power. ¶7. Hotel executives told Econoff that the tourism industry has always managed to bounce back. They said it typically takes about 2 years of peace before they see the tourists returning. Meanwhile, some of Sri Lanka's hotel giants are expanding into India. Hotel executives say this expansion is part of their long term business plan, but that they have pushed up the timeline on some projects because of the loss of revenue in Sri Lanka. The tourism industry's Tourism Master Plan had projected 1 million tourists traveling to Sri Lanka annually by 2010. Hotel executives admit that this is now a "pipe dream" but say that if numbers ever return to normal there will be room in Sri Lanka for further expansion. Sri Lanka currently has 14,000 hotel rooms and would need many more than that to accommodate 1 million annual visitors. Executives told Econoff that the Government's role should be to put the peace process back on track, and to help develop infrastructure and aviation to facilitate tourism. ¶8. The continuing growth of tourism from India is compensating for some lost revenue. Mr. Sunjay Sudhir, Economic and Commercial Officer of the Indian High Commission in Colombo, attributes this growth to an awareness among Indians that parts of Sri Lanka are relatively safe, a greater tolerance for violence than other tourist groups, higher Indian hotel charges which make Sri Lanka an attractive and affordable option, and the prominence of Sri Lanka as a destination for Indian conferences and exhibitions. However, Sudhir noted that many Indians prefer to stay in Colombo and shop, limiting their impact on the tourism sector to the capital. -------------- Comment -------------- ¶9. The tourism sector appears to be focusing its dissatisfaction on the travel advisories issued by foreign governments rather than on the real root of the problem, the GSL's inability to resolve the ongoing conflict. In the meantime, the tourism giants will continue to diversify locally and expand overseas in hopes of staying afloat until the industry makes a comeback. Tourism is Sri Lanka's fourth largest foreign exchange earner and has the potential to earn much more if political conditions improve. BLAKE