As hotel supply in Sri Lanka grows, margins shrink

The good news in Sri Lanka is that hotel inventory is up. The bad news is that is putting the squeeze on operators. Competition in Sri Lanka’s hotels sector, where new properties have mushroomed on a post-war recovery, has put profit margins under pressure, reports Economy Next, citing Bartleet Religare Securities, a Sri Lanka-based financial firm.

“The industry’s fragmentation is thinning the existing margins,” said Bartleet Religare Securities (BRS) in a report on the hotel industry. The number of smaller to midsized hotels is increasing around the country. This leads to a mini price war whereby the existing operators are pushed to lower their room rates at the cost of occupancies in order to maintain yields.”

After a 30-year ethnic war ended in 2009, Sri Lanka, with its beautiful beaches, is being fashioned into a tourism haven.

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BRS said hotel brand loyalty will affect occupancies, particularly in the high-end segment with several international brands entering the industry, including hotels from Hyatt, Shangri-La and Sheraton.

“With the increase in supply in the city of Colombo mainly, we believe there would be a downward price adjustment,” the report said.