THANKS, DON’T COME AGAIN!

WILL HOTELIERS WASTE THIS CRISIS BY REFUSING TO REFORM?

THREE WEEKS AFTER THE HORRIFIC EASTER SUNDAY BOMBS,
a preference for chilled water was ignored. Poor service is almost a hallmark of Sri Lanka’s hotel sector. In October 2018, during the Tourism Leaders’ Summit, European ambassadors in Sri Lanka suggested that their citizens may find hotels here aren’t good value for money.

Following the war’s end, rising demand to visit Sri Lanka reconciles the dichotomy of hotels offering poor value for money but still rising foreign visit numbers.

Hotel managers and owners aren’t given candid admission of their shortcomings. But in 2017, Abbas Esufally, a Director at listed Hemas Holdings who spearheaded the group’s investments into hospitality, attending a Swiss Institute for Service Industry Development organized event, admitted that Sri Lanka’s service standards were similar to the 1960s when the formal tourism industry was conceived, but they are inadequate by today’s standards. Hemas owns hotels managed by Minor Hotels under Anantara brand.

It hasn’t helped that independent reviews, listings and discovery on digital platforms have made it possible for anyone with a spare room to list and market its availability. Thousands of such listings, often more affordable than hotels, have been added over the last few years.

VESAK,
a holy day for Buddhist and a public holiday for everyone, coincided with the weekend. The poolside calmness at a new beach hotel at Kosgoda, a town some 90 kilometers south of the capital, however, surprised a young couple booking there for the first time. Hotels deep discounted bookings for Sri Lankans in the weeks following the Easter Sunday attacks as tourists from overseas all but disappeared.

The young guests jubilantly concluded that their taking advantage of a deep discount for the long weekend was, after all, the right call. They are consummate bargain hunters, and usually, book a monthly stay at a boutique or big brand hotel. Having never previously stayed in a hotel managed by the chain owning the Kosgoda property and its good marketing campaign convinced them to try.

Only two tables are occupied during dinner at the restaurant. Four staff members were at hand, instead of the usual one, for 3-5 tables. Then the expectations were shattered. Ushered to a table that was not entirely set and requests for cutlery from three waiters were unheeded. They made do with dessert forks.

Tourists seeking authentic experiences prefer being a guest at someone’s home, and this has diverted guests from hotels, Aitken Spence Group Chairman Harry Jayawardena admits in a report to shareholders. Th e Easter Sunday terror attack is forecasted to shrink tourism earnings by $1.5 billion in 2019, according to Finance Ministry estimates.

NOT ALL THE BENEFITS of the growing popularity of Sri Lanka has accrued to hotels. The turnaround itself has been quite remarkable. Foreign tourist arrivals grew from 447,890 visitors in 2009 when the civil war ended, to 2.3 million in 2018, while earnings increased from $349 million to $4.4 billion. If they reaped rewards of such demand, hotels would have enough retained earnings tide through a tough year, as 2019 is turning out to be. Retained earnings at publicly listed hotels (listed subsidiaries were excluded) as at December 2018 were Rs20.4 billion. However, ignore the two largest chains, Aitken Spence and Cinnamon, which have substantial operations overseas, and it’s retained losses of Rs9 billion that the rest hold. An 11.6% tourism revenue growth in dollar terms in 2018 didn’t have the same impact on listed hotels. Excluding their subsidiaries, listed hotel revenue in rupees grew only marginally, despite a 19% currency depreciation in 2018.

Not all revenue for hotels is foreign currency denominated and the sources of cash flow each have their unique challenges. However, a depreciating currency and low inflation should typically lead to revenue and profit improvement, which didn’t take place in 2018. In fact, fortunes seemed to have sharply reversed. Collections from the Tourism Development Levy (a 1% tax on turnover of all registered tourism businesses, mostly hotels) fell 3.9% to Rs1.48 billion in 2018 from a year earlier. Th is was despite the levy being extended in September 2018 to include small and medium-scale businesses (at a rate of 0.5% of turnover), which were previously exempt.

This evidence points to a further breakaway of business from hotels to informal operations such as home stays.

The rate of growth in tourist arrivals has been declining since 2010. There are a myriad of reasons for this. However, everyone in the industry agrees that Sri Lanka’s poor brand marketing is hurting its potential.

A national marketing campaign will not burden ordinary taxpayers.Governments collecting a small share of hotel revenue by the Tourism Development Levy is already a small war chest. To design great marketing campaigns, a deeper understanding of visitors and impressions about their Sri Lankan holiday. Data and research must inform the messaging in any good marking campaign.

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Sri Lanka is no paradise for entrepreneurship, competition and innovation. Estimates place the number of entrepreneurs in Sri Lanka at 2.78% of the working population, compared to Vietnam’s 19% and China’s 8.5%.

The local hotel industry is no different. Hotel operators here can be sorted into three categories: the old breed who have lived through a war, new investors who are in deep financial distress having invested in an industry they knew nothing about, and trailblazing innovators who have created the right product for the right customer.

Unfortunately, the latter is in the relative minority. Malik Fernando, managing director of Resplendent Ceylon, and heir to the Dilmah Tea fortune, is however of this rare breed: an innovative hotelier.

“I’m firm of the belief that if you capture the high end, the rest will follow,” he says. The Resplendent Ceylon resorts, part of the exclusive Relais & Châteaux fellowship, has received rave reviews.

SRI LANKA IS NO PARADISE FOR ENTREPRENEURSHIP, COMPETITION AND INNOVATION. ESTIMATES PLACE THE NUMBER OF ENTREPRENEURS IN SRI LANKA AT 2.78% OF THE WORKING POPULATION

There are broadly two reasons for this selective group of newcomers success. They designed chic hotels that are sensitive to the environment they are set in and yet cater to tastes of the modern luxury traveller. Rooms at the Resplendent Ceylon chain’s Wild Coast Tented Lodge in Yala are luxuriously furnished large tents that also imitate large boulders present in that environment. The main buildings are made out of natural material and arranged to resemble a leopard’s paw print. Of Yala’s big game, leopards are the most elusive and memorable to encounter.

The innovators also delivered high-quality, personalized service with no compromise. At Santani, a wellness resort of a minimalist modern design nestled at the edge of the Knuckles mountain range, guests are encouraged to switch off their digital lives, and instead practice balance and harmony within oneself and with nature. Guests can receive a wellness consultation from the resident doctor. All services, including dining, yoga, meditation, Ayurveda and spa treatments, are personalized for each guest’s taste and requirement. Th e resort has garnered international acclaim, including a high profile spot in Time Magazine’s list of one of the World’s Greatest Places in 2018.

Traditional hoteliers and most other new entrants ignore these two crucial tenets. Chamindra Goonewardene, chief operating officer of Santani, says that it is hard to blame traditionalists who had to operate through a 30-year civil war with legacy businesses. They had to concern themselves with surviving.

“The generation of hoteliers who operated through the war have a defensive mindset. Th e war held back their potential, and that has influenced their current thinking,” he said.

Other wealthy individuals who invested in building hotels over the last decade now realise the challenges. A fraction of new and wiser investors have struck partnerships with international chains like Hilton and Marriott, or locals like Cinnamon and Jetwing.

Most of the traditionalists and the stubborn newcomers have taken to lobbying the government to stop the competition at the lower end of the market. These investors, spending billions of rupees in investment, want to compete with families renting out their spare bedroom as authentic experiences. However, there is still time to change mindsets, to invest in renovation and create experiential tourism products that modern travellers demand. Following this model, Santani made an operational profit in the first year and broke even in three. For the industry at large, return on investments is averaging 10-12 years, or even longer for inferior offerings. Santani, like Resplendent Ceylon, helped put Sri Lanka on the map. Th e full list of their media accolades is perhaps too long to publish. The most coveted is Time Magazine naming it one of the World’s Greatest Places in 2018.

DESPITE CLAIMS that Sri Lanka has a warm smile and world-class hospitality, service standards are lower than competitors. Hotels in East Asia, India, the Maldives and even Bangladesh offer a better, personalised, caring service, Sri Lankans who travel to such destinations say.

Sri Lanka Institute of Tourism and Hospitality Management (Ceylon Hotel School) Chairman Dilip de Silva highlights that hospitality professionals are lethargic when working in local hotels, but transform into star performers when they emigrate for better pay. Even before the terror attack, finding promising talent for the industry was a challenge. It was especially dire given that it was facing an estimated 100,000 worker shortage by 2020. The hotels had initiated national campaigns to change attitudes about hospitality careers. However, working in hotels does not guarantee a consistent income. In an ideal month, the service charge—levied from guests—accounts for 60-70% of a worker’s pay. Resplendent Ceylon’s Malik Fernando says hoteliers have been moved to action to find alternatives for the distortions in pay, as more than 50% of their employees pay is destroyed with the lack of demand following Easter Sunday.

“It’s tugging at our heartstrings,” he said.
Some hotels have implemented a temporary service charge guarantee. Most employed in the industry have always been waiting for an opportunity to travel abroad for better pay and prospects. More are now emigrating as they get laid off amid falling demand for hotels during the crisis, says The Hotels Association of Sri Lanka President Sanath Ukwatte.

Trainees were the first to get axed. Over 1,500 Ceylon Hotel School students interning as a part of their curriculum were sent packing. Temporary and contract staff followed. Some permanent staff are being asked to use their accrued leave so  that hotels do not have to account for the costs of their meals, laundry, accommodation and transport.

FOR THE INDUSTRY AT LARGE, RETURN ON INVESTMENTS IS AVERAGING 10-12 YEARS, OR EVEN LONGER FOR INFERIOR OFFERINGS

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Maintaining a large team when hotels are empty is impractical, says Ukwatte, who hopes those who are leaving the country would return in the future. In contrast, Santani and Resplendent Ceylon are both investing in staff \ development instead, with cross training skills among departments, and even bringing outside trainers to maintain their competitiveness.

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Some of the larger hotels, including Cinnamon, The Kingsbury (Amaya) and Shangri-La, whose city hotels were bombed on Easter morning in 2019, haven’t allowed the tragedy to detract from their long-term objective. “If we stop investing in our future now, there will be further problems down the line,” says Vice President and General Manager at Shangri-La Colombo Timothy Wright.

DESPITE THEIR ORDEALS, these hotels are making an effort to upskill their staff . However, these chains also enjoy advantages that standalone ones do not. They can transfer staff to hotels with shortages, and have bigger balance sheets to absorb momentary loses and spread the cost of training widely.

At first glance into the government’s tourism policy, a disconnect is apparent. The Sri Lanka Tourism Development Authority (SLTDA), the industry regulator and infrastructure developer, is in charge of market research under law, while the Sri Lanka Tourism Promotions Bureau (SLTPB) is in charge of marketing and promotional campaigns. However, designing marketing campaigns requires reliable data, and it makes sense for one agency to be in charge of both functions.

Now the trailblazers are clamouring for better analytics to help promote their properties. “We live in a data-driven world. Hotels need to cater to niches and sub-niches based on segmentation carried out through constant market research,” Goonewardene says, urging for better analytics.

Tourism Australia, which helped formulate new tourism plans for Sri Lanka, spends millions of dollars collecting data both in Australia and abroad to find precisely what travellers and potential tourists desire in Australia. Tourism Australia knows what the top spending patterns of varying demographics in European and Chinese visitors are. Using this information, Australian businesses can create attractions, properties and services to elicit higher spending from holidaymakers.

One such plan that received Australian assistance, the Tourism Strategic Plan 2017-2020 (TSP) cites that there is a ‘lack of comprehensive visitor research and data, ongoing research into products and markets, and market intelligence.’

It goes on to list other shortcomings like lacking research and promotions, a segmentation strategy that hinders planning and formulation, poor targeting in promotional activities, and not using existing research entirely.

The last time the SLTDA published a country report was on India in 1995. Two market intelligence reports had followed in 2001 and 2002. Since then, market research has been limited to departure surveys at the main airport. There is criticism that it is not done in a statistically sound manner. It is not a random sample but a convenient one. The Chinese are not adequately represented in the surveys, and others, especially from Western countries, are overly represented.

In a Ceylon Chamber of Commerce survey of the tourism industry, which represented a majority of the formal sector, found that respondents distrusted the departure statistics.

The SLTDA had allocated an annual Rs4 million for statistical surveys and market intelligence in 2016, and spent just Rs1.3 million, according to its annual report. Overall, the SLTDA had spent just Rs273 million of its budgeted Rs391.4 million during the year. Investing in research has not improved in the two years since, according to SLTDA officials. Hundreds of millions of rupees are available for marketing each year. However, these activities are not backed by data.

The Tourism Strategic Plan 2017-2020 envisions setting up a research unit with qualified experts.

Fernando thinks that the private sector, which understands markets better, should manage the tourism research and marketing role in a public-private partnership. The Tourism Alliance established in May, which he is a part of, will be lobbying the government to release a part of the Tourism Development Fund towards an independent unit that will attract top corporate research and marketing talent. Technical assistance will be sought from the US and Australia based development programmes, Fernando said.

“Currently, hotels don’t get industry- level feedback. We need to move towards a research-based approach,” he says.

The Tourism Development Fund has Rs2 billion collected from the Tourism Development Levy and a third of the Embarkation Levy at the airport.

Hotels alone do not have multi-million dollar budgets to carry out market research in foreign countries. Santani’s Goonewardene points out that hotels are so far limited to the insights provided by online booking engines.

The Tourism Strategic Plan says, “The SLTPB focuses on limited low-return marketing activities, namely conventional methodologies such as trade shows, consumer shows and above-the-line advertising.” Th e industry says these include bureaucrats and politicians visiting travel trade shows and limited activation many times a year all over the world. Hotels are challenged from within and externally, by their own limited vision and by the government agencies serving them having a weak handle on things.

HOTELS ARE CHALLENGED FROM WITHIN AND EXTERNALLY, BY THEIR OWN LIMITED VISION AND BY THE GOVERNMENT AGENCIES SERVING THEM HAVING A WEAK HANDLE ON THINGS

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A FORTNIGHT LATER AFTER a dissapointing long weekend at a beach hotel in Kosgoda, the couple booked Earl’s Regency in Kandy, managed by Aitken Spence Hotels, the country’s second- largest hotel operator. The hotel’s frayed furniture and fittings betray its age, but they expect a level of service, which if not as personalised as a boutique hotel, is standardised. This turns out to be the case. Th e food positively defies expectations. They decide to visit the hotel more often. However, once they have settled their bill at checkout, the couple is made to wait 40 minutes for their luggage to be delivered from their room. Goodwill, painstakingly earned, is ruined. Mindsets may have to change across the hotel industry and public sector, before guests stop feeling let down and find low value for money. Visitors often compare against the better value for money in Malaysia or Thailand. Perhaps when the bellboy finally says ‘Thank you, come again’, they really will.