ECONOMYNEXT – Sri Lanka’s controversial minimum room rate is a scheme concocted by a cartel of five or six “ramshackle hotels” to boost occupancy rates, which would be illegal in other markets. Asia said, infuriating travel agents who are losing convention and trade show customers to the East.
Of the hotels that supported the floor price, only one had a five-star rating, they claimed.
“These dilapidated hotels are benefiting because the big hotels are not fully booked,” Imran Hassan of the Sri Lanka Association of Professional Conference, Exhibition and Event Organizers told reporters in Colombo.
“Only one five-star hotel has issued a statement; no other five-star hotel has issued a statement.”
anti-competitive behavior
Nalin Jayasundara, vice president of the Sri Lanka Inbound Travel Agents Association, said anti-competitive practices would be illegal in the European Union and the United States.
“Wait for the demand to grow and then increase it,” Jayasundara said. “Don’t try to artificially increase it.
“Artificial pricing is illegal in the US and EU. Even communist countries do not impose tax rates.
“What would happen if the hotel chef demanded minimum wage? And the driver? So what would happen?” asked Jayasundera.
“They are trying to throw away economic theory on paper. They should be ashamed.”
In a market-driven economy, it is standard practice to offer bulk discounts for large orders, advance reservations or prepayments, and discounts for those who purchase during off-season periods.
Travel agents say President Ranil Wickremesinghe also wants a competitive economy.
Travel agents say hotels that require minimum room rates are outdated, but there are now new hotels in Colombo that can compete with the rest of the world.
Crush the cartel?
Hassen said Colombo’s new hotel inventory has added about 200 high-quality rooms compared to a “cartel of dilapidated hotels” that cannot be sold.
According to SLAITO president Nishad Wijetunga, anti-competitive hotels have about 935 rooms in stock, while hotels without price controls have about 2,000 rooms in stock.
Prabuddha Jayasinghe, managing director of Lanka Holidays Net, claimed that around 35% of hoteliers are in favor of minimum room rates, while 65% are against it, without providing details. There wasn’t.
Minimum room rates are published in the Official Gazette by the Sri Lanka Tourism Development Board, a national agency.
Hassan said he had been promised that price controls would be lifted by March 31, but so far nothing has happened.
Large MICE travel groups in India overlook Sri Lanka as better facilities are available at lower prices elsewhere. Travel agents say they are losing customers to East Asian destinations like Thailand.
India has a large MICE market waiting to be tapped, but the focus was on price.
not legally enforceable
Meanwhile, travel agencies say artificial price controls are causing some hotels to break the rules.
“Some members are offered rooms for a minimum room rate upfront,” Hassen said.
“Violated.”
Unrealistic price regulations that undermine market fundamentals tend to undermine social order by encouraging society to ignore the rules and creating what is commonly referred to as a “black market.”
In a report to then-President JR Jayawardene, Singapore’s Finance Minister Goh Keng Swee said price controls and the black market had a “corrosive effect on the integrity of individuals”. (Colombo April 5, 2024)
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