Cablegate: Sri Lanka: Tourism Industry Decimated by Conflict
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RR RUEHLMC
DE RUEHLM #2104/01 3541221
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R 201221Z DEC 06
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 4983
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RUEHNE/AMEMBASSY NEW DELHI 0393
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RUEHKT/AMEMBASSY KATHMANDU 4710
RUEHKP/AMCONSUL KARACHI 2080
RUEHCG/AMCONSUL CHENNAI 7214
RUEHGV/USMISSION GENEVA 1623
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RUEHLMC/MILLENNIUM CHALLENGE CORP
UNCLAS SECTION 01 OF 02 COLOMBO 002104
SIPDIS
SIPDIS
DOL/ILAB FOR TINA MCCARTER
DRL/IL FOR LAUREN HOLT
STATE FOR SCA/INS
MCC FOR S GROFF, D NASSIRY AND E BURKE
GENEVA PASS USTR
E.O 12958: N/A
TAGS: ECON ELAB ETRD PHUM SOCI CE
SUBJECT: SRI LANKA: TOURISM INDUSTRY DECIMATED BY CONFLICT
1. Summary. Sri Lanka's tourism industry has suffered dramatically
in recent months as incidents of terrorism have increased and
western countries have ramped up their travel warnings for Sri
Lanka. Hotel companies are responding to the drop in business by
implementing severe cost cutting measures, including staff
reductions. The Hotel Association of Sri Lanka (THASL) has appealed
to the Ministry of Tourism for relief, including the release of
industry funds from the Sri Lankan Treasury and the signing of new
tourism legislation. Although hotel executives are confident that
Sri Lanka's tourism industry will bounce back, some of Sri Lanka's
biggest hotel operators are expanding into India while they wait for
the Government to put the peace process back on track. End Summary.
2. Sri Lanka's tourism industry has suffered dramatically in the
last several months as incidents of terrorism have increased and
western countries, including the U.S., have issued tougher travel
warnings for Sri Lanka. THASL reports that the travel advisories
have resulted in vast cancellations of confirmed bookings. The hotel
industry is experiencing a 60 percent drop in occupancy compared to
last year, and most hotels expect to have only 40 to 50 percent
occupancy rates over the next few months. This is a significant
drop from the 80 to 90 percent occupancy rates normally expected
during the December through March peak tourist season. Hotel
operators are worried that they will not earn enough revenue this
winter to carry them through the typically slower summer season.
3. Some members of THASL have described this as the worst crisis to
face the industry to date, even worse than 9/11, the attack on
Bandaranaike International Airport in 2001, and the 2004 tsunami.
This year's Galle and Habarana attacks were particularly damaging
because they occurred near tourist destinations. Hotel industry
executives cite France as having the most stringent travel warning
and note that French tour operators have suspended sales of Sri
Lankan tours until February 4, 2007. (Note: A follow-up
conversation with Deputy Head of Mission Yves Lo Pinto of the French
Embassy revealed that French tour operators are gun-shy of conflict
areas due to a Supreme Court ruling where a tour operator was held
liable for harm done to tourists by terrorists in the Philippines.
End Note.) Industry executives point out that travel advisories are
currently the strongest ever issued, even though Sri Lanka has
experienced worse periods of violence in the past. They speculate
that the stringent advisories are meant to send a political message
to the Government of Sri Lanka (GSL) to find a resolution to the
conflict. However, they doubt the government is listening and note
that the tourism industry, not the government, is suffering.
4. Hotel companies are responding to the drop in business by
implementing severe cost cutting measures, including staff
reductions. Hotel employees that are able to keep their jobs may
have to accept reduced wages. Indirect tourism sectors, such as
taxi companies and gift shops, are also finding their business
drastically reduced. Some small hotels in tsunami affected areas are
unable to service the loans they took to rebuild their properties.
Hotel operators want to conduct an immediate marketing campaign
including advertising and special packages in the United Kingdom,
which has one of the least cautionary travel advisories, to try to
salvage some winter season business. THASL has appealed to the
Ministry of Tourism for some form of relief, arguing that this is a
national level crisis.
5. One major complaint of the tourism sector is the state of the
Tourism Cess Fund, a fund which receives tax proceeds from the
industry. All companies registered with the government-run Sri
Lanka Tourist Board (SLTB) contribute 1 percent of earnings to the
SLTB, which also collects a USD 5 surcharge built into airline
tickets. These two funds are intended to be used to promote the
tourism industry. Unfortunately, the SLTB is accused of spending
the money inappropriately, and the Sri Lankan Treasury has frozen
the contributions from the ticket sales. The industry itself has no
access to the frozen funds, and little or no input on how their 1
percent contributions are spent by the SLTB. Industry executives
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would like to use that money now to help fund the UK marketing
campaign.
6. Hotel operators also would like to see the Tourism Act of
September 2005 implemented. Under the new law, the SLTB would
receive only licensing fees and would function simply as a
regulatory agency. The cess funds would be managed by a new Tourism
Promotional Authority, which would be a joint private-public entity.
Seventy percent of the funds would be used for tourism promotion, 12
percent for a hotel and tourism school, 14 percent for the
administration of the Tourism Promotional Authority, and 4 percent
to attract more conventions to Sri Lanka. The act was passed by
parliament in 2005, but has never been signed into law by the
Tourism Minister. A Vice-President at John Keel's Holdings, Sri
Lanka's largest hotel operator, told Econoff that the Tourism
Minister is under pressure from the SLTB not to sign the law because
it would reduce the SLTB's power.
7. Hotel executives told Econoff that the tourism industry has
always managed to bounce back. They said it typically takes about 2
years of peace before they see the tourists returning. Meanwhile,
some of Sri Lanka's hotel giants are expanding into India. Hotel
executives say this expansion is part of their long term business
plan, but that they have pushed up the timeline on some projects
because of the loss of revenue in Sri Lanka. The tourism industry's
Tourism Master Plan had projected 1 million tourists traveling to
Sri Lanka annually by 2010. Hotel executives admit that this is now
a "pipe dream" but say that if numbers ever return to normal there
will be room in Sri Lanka for further expansion. Sri Lanka
currently has 14,000 hotel rooms and would need many more than that
to accommodate 1 million annual visitors. Executives told Econoff
that the Government's role should be to put the peace process back
on track, and to help develop infrastructure and aviation to
facilitate tourism.
8. The continuing growth of tourism from India is compensating for
some lost revenue. Mr. Sunjay Sudhir, Economic and Commercial
Officer of the Indian High Commission in Colombo, attributes this
growth to an awareness among Indians that parts of Sri Lanka are
relatively safe, a greater tolerance for violence than other tourist
groups, higher Indian hotel charges which make Sri Lanka an
attractive and affordable option, and the prominence of Sri Lanka as
a destination for Indian conferences and exhibitions. However,
Sudhir noted that many Indians prefer to stay in Colombo and shop,
limiting their impact on the tourism sector to the capital.
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Comment
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9. The tourism sector appears to be focusing its dissatisfaction on
the travel advisories issued by foreign governments rather than on
the real root of the problem, the GSL's inability to resolve the
ongoing conflict. In the meantime, the tourism giants will continue
to diversify locally and expand overseas in hopes of staying afloat
until the industry makes a comeback. Tourism is Sri Lanka's fourth
largest foreign exchange earner and has the potential to earn much
more if political conditions improve.
BLAKE