The spotlight is very much on Sri Lanka’s tourism sector in 2019, after globally recognised company Lonely Planet named it as the number-one travel destination for the year. As the country embarks on a year of ambitious goals to attract more visitors, the sector is also at a critical juncture. Successful, sustainable growth will rely on a delicate rebranding of the destination’s reputation from that of budget beach trips to a place where visitors are willing to pay all price points, including at the luxury level, and are well served. It is also important that growth is not achieved to the detriment of the island’s natural assets, both environmental and human.
Structure & Oversight
The sector is overseen by the Ministry of Tourism Development, Wildlife and Christian Religious Affairs, yet the Sri Lanka Tourism Development Authority (SLTDA) is the institution responsible for positioning the country as a destination for international visitors. The SLTDA is tasked with sustainably expanding and enhancing Sri Lanka’s tourism offerings, while also ensuring benefits flow to stakeholders, investors and communities.
In October 2007 the Tourism Act of 2005 came into effect, replacing the Sri Lanka Tourist Board (SLTB) Act No. 10 of 1966. The act legally constituted the Tourism Development Fund, which is financed by a third of airport tax collections and 1% of the turnover of all SLTB-registered establishments. It was this act that also established the SLTDA to replace the SLTB. Marketing and promotion responsibilities were assigned to the Tourism Promotion Bureau (TPB).
Hotels are represented by The Hotels Association of Sri Lanka (THASL); travel trade by Sri Lanka Association of Inbound Tour Operators; and small businesses by the Association of Small and Medium Enterprises in Tourism. The Sri Lanka Institute of Tourism and Hotel Management (SLITHM) develops the sector’s human resources and manages the Samudra Hotel, while meetings and conventions are steered by the Sri Lanka Convention Bureau (SLCB), managed by an independent board of directors. A tourism police division was also established under the 2005 act.
To make Sri Lanka competitive in the global travel marketplace, a transformation of the tourism industry is required, according to the Tourism Strategic Plan 2017-20. The plan recommends actions with a long-term view towards achieving the UN’s 2030 Sustainable Development Goals and Vision 2025, the government’s target to attain upper-middle-income status by the middle of the next decade. High-level objectives for 2020 include earning $7bn from tourism that year, employing 600,000 Sri Lankans in the sector and supporting industries – 10% being women – and increasing daily spend per visitor to $210.
Contribution To GDP
Sri Lanka earned $4.4bn from tourism in 2018, with revenue up 12% on the $3.9bn of 2017, according to the SLTDA. This compares to $2.98bn in 2015 and $3.5bn in 2016. Average daily expenditure was about $174 in 2018, up $4 from the previous year. With the average duration of stay at 11 days, a typical visitor could spend nearly $2000 during their visit. Industry expectations for 2019 are for revenue of $5bn from 3m arrivals.
Researchers at financial firm CT CLSA Securities, meanwhile, estimate earnings from tourism will rise to $4.8bn in 2019 and $5.4bn in 2020. The firm also said it expects accommodation and food and beverage sales to drive economic growth on the back of government directives to promote the sector. The World Travel and Tourism Council (WTTC), for its part, estimates the direct contribution of travel and tourism to the country’s GDP to grow by 5.7% per year between 2018 and 2028 to LKR1.26trn ($7.9bn), 5.7% of GDP in 2028.
Unlike most of the rest of the economy, depreciation of the rupee could benefit the sector. Hotels earn a significant portion of revenue in dollars, which has the effect of making Sri Lanka a more competitively priced destination for travellers paying in this currency. Indeed, in January 2019 John Amaratunga, minister of tourism development, wildlife and Christian religious affairs, told local media he was confident the tourism sector would become the country’s second-highest foreign exchange earner by the end of 2019. The industry is currently positioned third, after textiles and remittances from abroad.
Visitor Numbers
Sri Lanka outpaced the region in percentage growth of arrivals in 2018, with the number of tourists coming to the island increasing by 10% to 2.3m, despite political upheaval late in the year. In comparison, growth across Asia Pacific was 6%. South-east Asia, in particular, grew at 7%, Northeast Asia at 6% and South Asia at 5%, according to a January 2019 press release by the UN World Tourism Organisation (UNWTO). However, despite its strong relative performance, Sri Lanka fell short of the 2.5m arrival target it had set for 2018. Looking forward, the UNWTO forecast strong outbound travel from emerging markets in 2019. Sri Lanka’s core source market of India places high on this list, as does Russia, with some smaller Asian and Arab countries also expected to be considerable sources of international travellers.
India, China and the UK remained Sri Lanka’s largest source markets in 2018. The country is aiming to more than double the number of tourist arrivals from India in 2019, hoping the 424,887 seen in 2018 – when Indians accounted for around 18% of all arrivals – will rise to 1m. Indians are expected to constitute more than one-third of all arrivals in 2019.
Amaratunga told local media in January 2019 that Sri Lanka is focusing on maximising the benefits of enhanced air connectivity with India in order to attract high-yield business and leisure tourists. “We are aware that India will become the world’s second-largest economy within the next decade,” he said. “We are also aware that India has the single-largest population of young people in the world. At present, half of India’s population is under 25 years old.” Amaratunga went on to say that this means Sri Lanka must understand the products desired by this young demographic to tailor its offerings to this target market.
Meanwhile, Sri Lankan tourism authorities are aiming to double the number of Chinese arrivals before 2020 as well – looking to move from 265,965 tourists in 2018 to half a million. According to the “2017 Annual Statistical Report” by the SLTDA – the latest available – tourists from the UK also cross the 200,000-person threshold, numbering 201,879 that year.
Domestic Tourism
The domestic market appears to be growing, based on feedback from government and private sector stakeholders during the preparation of the Tourism Strategic Plan 2017-20. However, the plan notes that very little data exists on domestic tourism, with no methodical collection of information on spending patterns or the number of domestic visits to tourist hotspots. Still, the SLTDA promotes the concept of domestic tourism and has published a domestic tourism programme that outlines a range of points such as developing entertainment facilities and travel clubs, updating accommodation guides and maps, and encouraging travel agents to introduce low-budget tour packages. Promotional campaigns, an advisory committee and a code of ethics for domestic tourism are also recommended by the authority.
Marketing Budget & Strategy
In 2019 LKR5bn ($31.5m) is set aside for tourism marketing activities, according to the TPB. Of this, 47% will go towards advertising, including digital campaigns and the bureau’s three-year Global Promotional Campaign, which targets informational and promotional activities in key source markets. It is expected to cost approximately LKR3bn ($18.9m) in total.
The Cabinet of Ministers approved the campaign in September 2018, which included the new brand identity and tagline “So Sri Lanka”, and was introduced at the 2018 World Travel Market in London. The Global Promotional Campaign is a major marketing undertaking encompassing social, digital and print media outlets intended to position Sri Lanka as a preferred destination in the UK, Germany, France, India and China. However, the launch of the project – first outlined in 2017 – has been repeatedly delayed due to political issues hindering the process for obtaining approvals, the awarding of tender contracts and the implementation of campaigns in target markets. Most recently the Global Promotional Campaign was set to launch at Internationale Tourismus-Börse Berlin in March 2019, but in January 2019 Amaratunga told media the launch would likely be delayed until the Arabian Travel Market gathering in Dubai in April.
Another 37% of the total spend for the year will go towards overseas marketing and promotions in the form of road shows, familiarisation tours and participation in travel fairs. Sri Lankan representatives will attend roadshows and other travel industry events in a range of countries in 2019, including its traditional core markets of India, China, Germany and the UK.
A further 7% of the allocation will be used to support the bureau’s international events held in Sri Lanka, while shares of 3% each are earmarked for new product development (including film tourism, whale watching and destination social responsibility), public relations activities, and supporting operations such as finance and administration.
Top Destinations
The tourism sector has benefitted enormously from marketing on social media via popular online posts showcasing the country’s beaches, cultural heritage sites and landscapes.
Sri Lanka offers a wealth of tourism destinations that extend beyond its wildlife parks, beaches and the capital region. One of the most popular spots, according to official visitor statistics, is Sigiriya, an ancient rock fortress. This was the most-visited location by foreign tourists in 2017, receiving more than 563,000 visitors. The second-most visited site was Polonnaruwa’s 2500-year-old historical ruins, with nearly 249,000 foreign onlookers. Anuradhapura, a UNESCO World Heritage site and the centre of Theravada Buddhism for many centuries, saw more than 100,000 foreign visitors in 2017, and Monaragala, the gateway to major tourist attractions such as Dunhinda and Diyaluma Falls, Yala National Park and Gal Oya National Park, saw 26,800 visitors that year.
Conferences & Exhibitions
The meetings, incentives, conferences and exhibitions (MICE) category today accounts for around 15% of visitors to the island, according to Amaratunga. Sri Lanka received its highest number of MICE tourists ever in 2018, per calculations by the SLCB, at over 300,000, accounting for 15-20% of total tourists arrivals. With the proper implementation of the Tourism Strategic Plan 2017-20, the SLCB expects MICE tourists’ contribution to overall arrivals to increase by 5% year-on-year in 2019.
The country’s largest convention centre is the Bandaranaike Memorial International Conference Hall in Colombo, which includes a full range of exhibition centres, conference and concert halls, lounges and auditoriums. Currently, Sri Lanka has the capacity to cater to MICE events with up to 650 participants. Although ballrooms and meeting rooms are also available at certain hotels in the capital, capacity for much larger events is likely to be achieved only when more facilities open at Colombo Port City. In January 2019 Kumar De Silva, chairman of the SLCB, told local press that such works are under way.
Niche Segments
An additional – and relatively new – focus is wellness tourism, which was worth an estimated $639bn globally in 2017, according to the Global Wellness Institute, an international industry body. The segment is forecast to grow at an average annual rate of 7.5% until 2022 – considerably higher than the 3.2% growth seen for tourism overall. By 2022 estimated global expenditure will rise to $919bn, with 1.2bn wellness trips taken annually. A positive for Sri Lanka, in 2017 some of the highest spenders on wellness tourism overlapped with its largest source markets: Germany ($65.7bn), China ($31.7bn), India ($16.5bn) and the UK ($13.5bn).
This segment has been identified as a priority by the National Export Strategy. The Wellness Tourism Strategy 2018-22 has been propagated with the intention of making Sri Lanka the “preferred destination for well-being” in the region. The nascent market is expected to build on Sri Lanka’s natural advantages: its tradition of Ayurvedic medicine, the mindfulness culture associated with Buddhism and yoga retreats located in areas of natural beauty.
For 2019 the UNWTO has forecast a consolidation of trends including wellness tourism and more responsible travel, all of which play to Sri Lanka’s natural strengths and strategic growth plans. One Sri Lankan entity has already risen to the top of the wellness niche: in January 2019 Santani Resort and Spa in Dumbara was chosen as one of CNN Travel’s top-10 wellness retreats in the world. “Global accolades of this nature are extremely important not just for Santani, but for Sri Lanka as well, as it firmly places the country on the global wellness map, given the importance of this sector,” Vickum Nawagamuwage, CEO of Santani Resort and Spa, told local media.
Other niche segments prime for development are business and luxury travel. Affluent Indian visitors are the key drivers of both segments, according to Amaratunga. These visitors include Bollywood celebrities holidaying in Sri Lanka, businesspeople looking for appropriate accommodation and upper-middleclass tourists willing to spend more on experiences.
Employment
In 2017 travel and tourism generated 404,000 direct jobs, equal to 5.1% of national employment, according to the WTTC. This was forecast to grow by 3.7% in 2018 to 419,500 jobs – 5.3% of total employment. The council also projected that by 2028 the sector will directly account for some 522,000 jobs, representing annual growth of 2.2% over the decade.
The Sri Lanka Tourism and Hospitality Workforce Competitiveness Roadmap 2018-23 was published in July 2018 by the private sector Tourism Skills Committee (TSC), along with government, industry and NGO support. This aims to ensure the skills of Sri Lanka’s students align with marketplace needs. The TSC roadmap highlights that the tourism sector is struggling to find qualified employees at a time when youth unemployment (aged 20-24) is over 20% and only 36% of women participate in the workforce. The low level of female employment is a result of societal and familial influence, conflicts with managing household obligations and non-traditional work hours.
The TSC maintains that if the country’s tourism sector is to grow, it will need to attract more young women and men. An estimated 25,000 to 30,000 additional employees will be required each year to service the projected increases in visitor arrivals, on top of replacements for those employees leaving or retiring. With this need in mind, Dilip de Silva, chairman of the SLITHM, has put forward plans for training programmes. In an interview with local media, de Silva said the SLITHM will undergo an overhaul, with a revamp of both the physical building and the quality of education it supplies. The SLITHM is working with the THASL and the Ceylon Hotel School Graduates Association to enact these changes.
A Place to Stay
As of the fourth quarter of 2018, the SLTDA reported the country’s total room inventory at 38,214. There were 2312 SLTDA-registered accommodation establishments, of which 145 were classified as tourist hotels ranging from one to five stars. Of these, 23 were five-star hotels, including the Shangri-La and Mövenpick in Colombo. Tourist hotels was the classification with the highest inventory of rooms, at 13,408, with the Colombo and Galle districts recording the most rooms. Small and medium-sized enterprises also constituted a large segment of registered establishments. There were 936 guest houses, 442 houses available for homestays and 395 bungalows recorded in the fourth quarter.
Sri Lanka’s growing inventory of rooms has lowered occupancy levels in city hotels. However, the launch of the Island Escapes tourism campaign for September-November 2018, under which Colombo hotels were allowed to offer room prices below the minimum rate, is likely to increase occupancy and profits in the off seasons. These represent a 40-50% discount on normal tourist season rates. The minimum room rate legislation lapsed on March 31, 2018 and had not yet been renewed as of early 2019. The TPB, among other stakeholders, has backed its removal.
Air Connectivity
Key to bringing tourists to the island is airline connectivity, and after recording losses for a number of years, a 12-member committee was appointed by President Maithripala Sirisena in January 2019 to put forth ideas to restructure state-run SriLankan Airlines. Presenting its recommendations two weeks later, the committee identified debt restructuring and capital raising as the best way forward. Harsha de Silva, minister of economic reforms and public distribution, suggested that capital could be sourced from a strategic partner.
Expansion work at the country’s main airport, Bandaranaike International Airport (BIA) in Colombo, is ongoing, with the aim of raising capacity from 6m passengers per year to 15m. Construction includes a new multilevel terminal building, two new piers linked by a concourse, a new parking apron and taxiways, raised access roads and a multi-storey car park.
In August 2018 the Cabinet cancelled the bidding process that was to see the government’s Airport and Aviation Services carry out the project at a total cost of $550m, with funding from the Japan International Cooperation Agency. The expansion plan has now restarted with the call for tenders now set to delay the construction of BIA’s new terminal until 2022. An interim terminal will be built to satisfy demand.
Outlook
Tourism has the potential to grow considerably in 2019, thanks to increasing worldwide awareness of the island and its offerings. Whether this will be achieved, however, relies on cooperation among the government, local communities and key private sector players. Together, stakeholders can create a destination that caters to tourists of all stripes, with a diverse range of interests and price points.
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