US $ 15bn tourism industry at risk sans master plan: research

Sri Lanka’s tourism industry, the only sweet spot in the economy with a potential of earning US $ 15 billion by 2018, is at risk due to the lack of an integrated master plan which includes promotion, accommodation, product offering, infrastructure and integrated resorts, an independent research house cautions.  

The research arm of Capital Alliance Partners Limited (CAL Partners) estimates the country has the potential to increase tourist earnings by a compound annual growth rate (CAGR) of 60 percent by 2018 to US $15 billion. But the industry will grow only by 30 percent CAGR—half the potential to US$ 7 billion—if the current proposition remains unchanged, CAL Research said in its latest report on the country’s burgeoning tourism industry.  Sri Lanka’s tourism earnings in 2015 grew to US $ 2.86 billion from US $ 2.43 billion a year ago.  In terms of marketing the destination, CAL Research said Sri Lanka would not be able to increase the arrival numbers by mass marketing its natural resources or through traditional all-inclusive tour packages.

“A dual approach of catering to the high-spending experiential Asia-based tourist and developing a niche exclusive eco-tourism product is likely the way forward. This may enable the country to generate a higher spend-per-tourist while ensuring our natural resources remain pristine,” CAL Partners Chief Strategist, Purasisi Jinadasa said. 

The research house projects 3.5 million tourist arrivals with a 23 percent CAGR by 2018. 
In 2015, the authorities revised down the arrivals target to 1.8 million from 2 million. Sri Lanka expects 2.5 million tourists by the end of 2016.

However, CAL Research foresees the current growth in graded rooms, which is growing by 11 percent CAGR, is unlikely to meet the demand of 67,000 rooms by 2018. 

This is based on the projected arrivals and length of stay which will average 7.5 days. 

While Sri Lanka will add 5,000 graded hotel rooms, the total room count may reach 60,000 by 2018 from the current 29,000. 
The research house estimates 3,000 new luxury condominiums in Colombo city by 2018, which will supplement the hotel rooms and thus will cost the regulated hotels as much as US $ 480 million by 2018, as such condo units will be leased out for both long and short term stays at a fraction of the cost of a graded hotel room. 

Meanwhile, highlighting an issue in the product offering, CAL Research said the country had lost as much as US $ 23 million from the heritage sites alone in 2014 due to lack of structured products. 

“The Sri Lanka tourism proposition is not adequately leveraged due to a lack of products developed to optimize experience and revenue collection. In 2014, 40 percent of foreign tourists visited cultural sites, which translates to a potential US $ 23 million loss,” the report stated. 

It further noted that the efforts to revitalize the tourism proposition have the potential to increase the per-day-spend by a tourist by 40 percent CAGR to US $ 580 by 2018. 

Currently a tourist spends only US $ 161 per night.

Furthermore, the development of the road network may add another US $ 100 to US $ 130 a day to a seven-day tour package. 

“The current travel time on a tour that stops at all major heritage sites, will take a full day at the least. A road network or a system that takes advantage of faster modes of transportation can cut time by half.

Since transport is part of the tour package, shortening transit time will enable higher expenditure at each destination. Further, it enables a tourist the option to more effectively segment leisure and cultural experiences,” CAL Research added.