JKH leisure sector numbers reflect changing tourism landscapes in Sri Lanka, Maldives

3 November 2015 03:08 am - 0     - {{hitsCtrl.values.hits}}

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By Chandeepa Wettasinghe 
The leisure sector performance of the country’s premier blue chip John Keells Holdings (JKH) shows the changing picture of tourism in Sri Lanka and the Maldives, with the core business of luxury hotels recording unimpressive numbers despite significantly higher tourist arrivals, at least in the case of Sri Lanka.  

John Keells Hotels PLC, under which comes three Maldivian resorts and eight Sri Lankan resorts, posted a net profit of Rs.350.55 million for the second quarter ended September (2Q16), increasing just 2 percent year-on-year (YoY). 

Revenue also edged up 2 percent YoY to Rs.2.77 billion while cost of sales increased 4 percent YoY to Rs.910.54 million.

Administrative expenses and distribution expenses increased by 9 and 10 percent YoY to Rs.1.07 billion and Rs.71.68 million, respectively. While being the largest leisure sector operator in the country, JKH is one of the two largest foreign resort operators in the Maldives. But the post-tax profits of the JKH’s Maldivian operations fell 24 percent YoY to Rs.170.75 million.

The revenue from Maldivian operations fell 2 percent YoY to Rs.1.44 billion, while operating profits fell 7 percent to Rs.207.80 million. Tourist arrivals to the Indian Ocean archipelago have fluctuated marginally YoY for 2015, with the lack of an entertainment variety, which discourages repeat visits. The increased arrivals seen in recent years were due to the Maldives being marketed as an exotic destination to the booming Chinese middle class. John Keells Hotels has the rights to construct two other island resorts in the Maldives, while the Maldives government is also looking at releasing new islands for resorts, possibly banking on the growth and affluence in other Asian economies. The net profit of the eight Sri Lankan resorts increased 36 percent YoY to Rs.181.66 million, helped mainly by a property transfer. The hotel firm during the quarter under review transferred a property in Kandy to an associate company, recording a windfall of Rs.121.34 million. 

The revenue for the quarter increased 7 percent YoY to Rs.1.35 billion, but operating profits fell 48 percent YoY to Rs.100.17 million. Meanwhile, Asian Hotels and Properties PLC, which owns and operates two JKH city hotels—Cinnamon Grand and Cinnamon Lakeside— saw its net profits dropping 14 percent YoY to Rs.377.33 million for 2Q16. The revenue fell 8 percent YoY to Rs.1.89 billion and cost of sales fell 5 percent YoY to Rs.821.18 million. Distribution expenses increased 48 percent YoY to Rs.78.83 million despite the fall in oil prices.

For the six months ended September (1H16), the net profit of Asian Hotels and Properties fell to Rs.679.33 million from Rs.774.92 million YoY, with the hotel segment’s net profits falling to Rs.526.22 million from Rs.814.19 million YoY.

However, net profit from the firm’s property segment—such as the rental from Crescat—increased to Rs.113.52 million from Rs.75.68 million YoY. Sri Lankan luxury properties have been engaging in price wars to offer the lowest accommodation cost to bring in greater occupancy, due to a rise in informal accommodation. The luxury hoteliers are calling for the regulation of the informal sector, which the government has now embarked on, and the government is also looking at bringing in luxury tourists to fill the emptying hotels.

Experts have continuously said that the modern traveller seeks to spend on experiences instead of luxury accommodation like in the past, shown through informal accommodation absorbing 50 percent of Sri Lanka’s tourists.

Further, most tourists from economies which are in the middle of a boom seek luxuries, while tourists from developed economies seek experiences and spirituality.

An analysis of previous Asian Hotels and Properties numbers show that the revenue from accommodation has continued to come down, while revenue from food and beverage has increased, showing the increasing trend of Sri Lankans eating out at hotels and restaurants with the general growth in the economy in the post-war period. 

Interestingly John Keells officials have admitted that the new lean and mean Cinnamon Red, which is performing phenomenally due to the Cinnamon brand and lower prices, is continuing to cannibalize the customers from Cinnamon Grand and Lakeside. Cinnamon Red is aimed at complementing the upcoming Cinnamon Life project by providing accommodation for the MICE (Meetings, Incentives, Conferences and Exhibitions) tourism sector. Cinnamon Life will be able to handle events with up to 4,000 delegates, but has just 800 hotel rooms.
 
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