Sri Lanka set to miss 2025 tourist arrival target by half a million: First Capital Research

• Says SL likely to welcome just 2.5 mn tourists in 2025, resulting in approximately US$ 4 bn revenue below the targeted US$ 5 bn
• The shortfall comes despite several advantages, including improved air connectivity, proposed visa-free policies, and geopolitical tensions redirecting some travellers from the Maldives
• While arrivals are rebounding, occupancy rates remain depressed due to an oversupply of rooms and Sri Lanka’s relatively high prices compared to regional competitors

By Nishel Fernando

Sri Lanka’s tourism recovery is facing significant headwinds, with new projections suggesting that the island nation will fall half a million visitors short of its ambitious 3 million arrival target this year.

According to First Capital Research (FCR), the country will likely welcome just 2.5 million tourists in 2025, resulting in approximately US$ 4 billion revenue below the targeted US$ 5 billion revenue. Even by 2026, FCR predicts Sri Lanka will still miss its 3 million target by about 200,000 arrivals.

The shortfall comes despite several advantages, including improved air connectivity, proposed visa-free policies, and geopolitical tensions redirecting some travellers from the Maldives. However, these gains are being offset by intense regional competition, with budget-conscious tourists increasingly choosing more affordable destinations such as Thailand and Vietnam where accommodation costs run 20-30 percent cheaper.

The hotel sector continues to struggle with multiple challenges. While arrivals are rebounding, occupancy rates remain depressed due to an oversupply of rooms and Sri Lanka’s relatively high prices compared to regional competitors. Operational costs have skyrocketed , with high energy expenses due to currency depreciation, squeezing profit margins that still haven’t recovered to pre-pandemic levels.

“Profitability dampened by rising costs and unsatisfactory occupancies, with margins failing to reach 2018 levels,” FCR said.  

It noted that a possible spike in inflation would push hotel breakeven higher.

Industry analysts note other worrying trends, including a slight decrease in the average length of stay since 2022, suggesting the need for more experiential tourism offerings. FCR warns that without better cost controls and more strategic investments aligned with actual demand, the sector’s recovery could stall. They particularly caution against overvaluation in the luxury hotel segment, where enterprise value per room metrics appear inflated.

Compounding these challenges, delays in implementing global tourism promotion campaigns have prevented Sri Lanka from capitalising on peak travel periods. 

The government allocated Rs. 500 million for marketing in its 2025 budget, but bureaucratic hurdles have slowed execution, creating missed opportunities to attract more visitors. As the country works to revitalise its crucial tourism sector, industry experts emphasise the need for competitive pricing, faster rollout of marketing initiatives, and more diverse tourism products to extend visitor stays and boost spending.