Sri Lanka’s tourism sector has recorded a marked recovery in 2024, with international arrivals reaching 2.1 million—up 38% from the previous year—generating an estimated $3 billion in revenue, according to a report by First Capital Research. The industry is on track to surpass pre-pandemic levels by 2025, with arrivals forecasted at 2.5 million.
Growth has been supported by improved air connectivity, visa-free access for selected markets, and regional geopolitical shifts, particularly tensions between India and the Maldives, which have redirected tourists to Sri Lanka. Russia has emerged as a key source market, reflecting changes in travel patterns and contributing to regional demand imbalances.
Despite higher arrivals, hotel occupancy remains low. Oversupply in accommodation and relatively high prices compared to regional competitors have constrained the hospitality sector’s recovery. While global tourism could reach a record $11.1 trillion in 2024, with Asia expected to lead the rebound, Sri Lankan hotels have not matched the pace of the international recovery.
The sector continues to face structural and economic headwinds. Inflation, which peaked at 70.2% in August 2022, pushed up the costs of essentials such as food, fuel, and utilities, eroding operating margins. Disruptions caused by fuel shortages and power outages during the economic crisis have further delayed recovery, and profitability remains below 2018 levels.
From an investment perspective, the recent rally in hotel counters has peaked. Valuations for the 2026 financial year suggest limited upside, with key indicators such as enterprise value per room and return on equity under scrutiny. While tourism growth offers long-term potential, operational costs and pricing constraints will shape the sector’s performance in the medium term, First Capital notes.