VZCZCXRO6029
RR RUEHLMC
DE RUEHLM #0120/01 0311054
ZNR UUUUU ZZH
R 311054Z JAN 08
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 7635
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHNE/AMEMBASSY NEW DELHI 1814
RUEHKA/AMEMBASSY DHAKA 0725
RUEHIL/AMEMBASSY ISLAMABAD 7714
RUEHKT/AMEMBASSY KATHMANDU 5895
RUEHCG/AMCONSUL CHENNAI 8319
RUEHGV/USMISSION GENEVA 2607
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION
UNCLAS SECTION 01 OF 02 COLOMBO 000120
SIPDIS
SIPDIS
STATE FOR SCA/INS
E.O. 12958: N/A
TAGS: ECON ETRD EFIN PTER CE
SUBJECT: SRI LANKA: TOURISM DOWN 12% IN 2007; COULD HAVE BEEN
WORSE
Ref: A) 07 COLOMBO 1313 B) COLOMBO 47
1. Summary: The escalating ethnic conflict continues to hurt the
Sri Lankan tourism industry, which experienced a 12% decrease in
visitors in 2007 compared to 2006. Industry representatives have
mixed assessments of the possible impact of the recent escalation of
violence and the consequent bad publicity and travel warnings issued
by several countries. Some, encouraged that there were 56% more
visitors in December 2007 than in December 2006, expect those strong
tourist numbers to continue into spring 2008. Others are less
optimistic, pointing to a spate of cancellations since the
government abrogated the Ceasefire Agreement on January 2. The
government and private sector have undertaken new efforts to attract
visitors from India, Russia, East Asia, and the Middle East in place
of the traditional European market. Peace, however, remains the key
factor for Sri Lanka to reap the full potential of its tourist
industry. End Summary.
TOURISM REMAINS A VITAL SECTOR: FIFTH LARGEST
FOREX EARNER; MAJOR EMPLOYER
---------------------------------------------
2. Tourism accounts for about two percent of Sri Lanka's gross
domestic product. The sector is a key contributor to foreign
exchange earnings after apparel, remittances, tea and rubber.
Income generated from tourism was $400 million in 2006, but is
expected to fall to about $360 million in 2007. Sri Lanka's hotels
employ 56,000 people. The indirect contribution of tourism to the
economy is also significant. The industry estimates that as many as
900,000 Sri Lankans (of a population of 20 million) are in some way
dependent on tourism. They range from tourist hotel employees to
shop owners, taxi drivers, handicraft producers, and their families.
2007: A SHARP DECLINE FOLLOWED BY A STRONG RECOVERY
--------------------------------------------- ------
3. The Sri Lankan tourist industry suffered a downturn in 2007 as
the country's ethnic conflict escalated. Tourist arrivals declined
11.7% in 2007, to a total of 494,000 as compared to 560,000 in 2006.
A breakdown of the numbers showed that, through September 2007,
visitors were down 21%. The final quarter of 2007, however,
recovered strongly, with tourist arrivals up by 56% in December as
compared to the same month in 2006. The favorable December numbers
were generated by a combination of traditional European winter high
season crowds, including many visitors from Eastern Europe and
Russia; and special events like the three-week tour of the British
cricket team with its many loyal spectators (the "Barmy Army") in
tow.
2008: INDUSTRY OUTLOOK IS MIXED
-------------------------------
4. Hoteliers speaking to the press conveyed confidence that, from
January to March 2008 at least, December's high rate of arrivals
would continue. They noted hotel reservations were high amidst
planned events such as the annual Borah convention (an 11-day
spiritual event expected to bring in 8,000 members of this
India-based Muslim sect), and cultural events like the Galle
Literary Festival and the Pearl Fishers opera. A board member of
the Sri Lanka Hotel Association told Econoff, however, that this
confidence was premature, as tour operators had cancelled over five
percent of hotel reservations for the January to March 2008 time
frame since abrogation of the Cease Fire Agreement on January 2,
2008.
5. According to the Association, no hotels are likely to go out of
business due to the poor tourism turnout. Nor have hotels been
forced to cut room rates. In fact, in December 2007, hotels in
Colombo adopted a rate policy that raised their minimum room rates
by almost 30% to boost revenues and raise staff wages.
Nevertheless, the country's two largest resort owners, John Keells
Holdings and Aitken Spence Group, are depending on their new hotels
in Maldives and southern India to enable them to break even in their
tourism businesses overall.
PROMOTING SRI LANKA IN NEW MARKETS
----------------------------------
6. The Sri Lanka Tourism Development Authority, re-established by
the new Tourism Act implemented in October 2007 (ref A), is focused
COLOMBO 00000120 002 OF 002
on promoting Sri Lanka in India, Russia, and the Middle East, as
well as in new markets China, Thailand, Singapore and Malaysia. The
Sri Lanka Tourism Promotion Bureau has begun to shift resources away
from its traditional markets in the UK, Germany and France, as
tourists from these and other European countries dropped sharply due
to new advisories discouraging travel to Sri Lanka. Currently,
governments of these countries advise their citizens against travel
to north and east as well as to Yala National Park in the Southern
Province. They have also warned about terrorist attacks and
violence in other parts of the country including capital Colombo.
7. For India (which, despite a 17% decline since 2006, remained Sri
Lanka's top market in 2007 with 106,000 arrivals), the industry is
trying to promote Sri Lanka as both a cultural and a meetings and
conventions destination.
Hoping to capture tourists from the Middle East and Eastern Europe,
Sri Lanka Tourism plans to hire public relations and marketing
personnel in Dubai and Moscow. Sri Lanka Tourism is also teaming up
with the private sector to create discount tourist packages and
airline promotion events, as well as inviting journalists to visit
Sri Lanka.
8. The impending pullout of Emirates Airlines' management of Sri
Lankan airlines (ref B) is not expected to have a drastic impact on
tourist arrivals, according to a Sri Lanka Hotels Association
official, because the two airlines say they will continue to run
code shares and coordinate their routes.
COMMENT: IN PEACE LIES POTENTIAL
--------------------------------
9. As the following chart indicates, Sri Lanka's annual tourist
visitor numbers have been in the range of half a million in each of
the years since the 2002 Ceasefire Agreement:
2007 : 494,000
2006 : 559,600 (violence resumed in April)
2005 : 549,300 (post-tsunami)
2004 : 566,200
2003 : 500,600
2002 : 393,000 (Ceasefire Agreement in February)
About 407,000 tourists arrived in Sri Lanka in 1982, just before the
start of conflict. During the 1983-2001 conflict period, arrivals
averaged in the range of 300,000 per year. According to a paper
presented at a counter terrorism conference in Colombo in 2007, Sri
Lanka lost over 11 million tourists and about $6 billion in tourism
income in the two decades since 1983 as a result of the conflict.
The paper supposed 6% annual tourism growth in the absence of the
conflict. In this case, arrivals could have reached 1.47 million in
2004 -- over two and half times the 566,200 recorded that year.
Thus, in tourism as in so many other aspects of the economy in the
context of the conflict, the cost for Sri Lanka has been one of
greatly unrealized potential.
BLAKE