Sri Lanka to abolish controversial minimum room rate policy

From March next year, market forces will dictate room rates. Pic: Shangri-La Hambantonta

THE Sri Lanka government has decided to end the minimum room rate policy that has, for many years, enforced a minimum of US$125 per night for five-star hotels.

The scheme was introduced at the end of the civil war in 2009 to curb hotels undercutting each other after smaller hotels complained of excessive price cuts by larger properties.

It’s not just five-star hotels that are affected by the policy; three-star establishments are bound to a minimum of about US$80-85 per night including taxes.

The policy will be terminated by the end of March next year on recommendation by the Tourism Advisory Council, a board comprised of major players in the hotel and tourism industry.

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In a statement from the Sri Lanka Tourism Development ministry, the minimum rates policy has now “served its purpose”. The statement continued, “The Council has arrived at a unanimous decision to recommend to the Minister to abolish the minimum room rates as soon as possible.”

Tourism Development Minister John Amaratunga said that many hotels have been calling for the abolishment of the policy to allow for dictation of market forces. Plus, the minimum room rates have priced Sri Lanka out of the lucrative MICE market, as they lose out to regional competitors.

“They can charge 50 dollars or 500 dollars depending on the quality of the product. The market will decide the prices and as a result, tourists will get value for money.”

According to The Sunday Times, three-star hotels would be significantly impacted by the termination of the policy as they believe it would be tough trying to sell their product in a marketplace where the bigger hotels are at liberty to cut rates leaving no room for the smaller hotels to compete.

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