ECONOMYNEXT – Sri Lanka’s controversial minimum room rates is a scheme cooked up by a cartel of five or six ‘run down hotels’ to boost their occupancy, which would be illegal in other markets, irate travel agents who are losing convention and exhibition customers to East Asia said.
Among hotels that support the price floors, there was only one 5-star rated hotel, they claimed.
“These rundown hotels are getting the mileage as the bigger hotels are not full,” Managing Director of CEC Events and Travels, Imran Hassan from the Sri Lanka Association of Professional Conferences, Exhibition and Event Organizers told reporters in Colombo.
“There is only one five-star hotel who has made a statement, none of the other five-star hotels are there.”
Anti-Competitive Behavior
Vice President of Sri Lanka Association of Inbound Travel Agents, Nalin Jayasundara said the anti-competitive behavior would be illegal in the European Union or the United States.
“Let the demand grow and then increase it,” Jayasundara said. “Do not try to artificially increase it.
“Artificial pricing is illegal in the US and EU. Even Communist countries won’t impose rates.
“What if the chefs from hotels demand a minimum wage? And the drivers? Then what will happen?” Jayasundera questioned.
“They are trying to throw economic theories into the wastepaper basket. They should be ashamed.”
It is standard practice in market-driven economies to give bulk discounts for large orders, discounts for those who book ahead or pre-pay and those who buy in lean periods.
President Ranil Wickremesinghe has also called for a competitive economy, the travel agents said.
The hotels demanding the minimum room rate are old, while newer properties that can compete with the rest of the world are now in Colombo, travel agents said.
Run Down Cartel?
About 200 high-quality rooms had been added to Colombo room inventory with newer hotels, compared to a “cartel of run down hotels” which cannot be marketed, Hassen said.
The anti-competitive hotels had inventory of about 935 rooms, while those who are not for price controls are about 2,000, SLAITO President, Nishad Wijethunga said.
Managing Director of Lanka Holidays.net, Prabuddha Jayasinghe, claimed around 35 percent of the hoteliers are for minimum room rate while 65 percent are against it, without giving details.
The minimum room rates were gazetted by the Sri Lanka Tourism Development Authority, a state agency.
Hassan said they were promised that the price control would be lifted by March 31. But nothing has happened so far.
Large Indian MICE travel groups are overlooking Sri Lanka because of better facilities available for better prices elsewhere. Travel agents have said they are losing customers to East Asian destinations like Thailand.
India has a big MICE market waiting to be tapped, but was price conscious.
Unenforceable
Meanwhile, the artificial price controls have driven some hotels to violate the rule, according to travel agents.
“Rooms have been offered to some of our members at the pre-minimum room rate,” Hassen said.
“It has been violated.”
Impractical price controls which undermine market fundamentals tend to undermine social order by incentivizing societies to disrespect rules and creating what is generally called a ‘black market’.
Singapore Finance Minister Goh Keng Swee, in a report to then President J R Jayewardene said price controls and black markets had a “corrosive effect on personal integrity.” (ColomboApr5/2024)