Sri Lanka Tourism Sector Summary Overview - 2011-2020 Concentration of 4-5 star hotels 20/20 Vision: Coming into Focus See important disclaimers on p. 31 August 2011
Contents Page No. I. 2.6m visitors by 2020 possible if shortages of rooms and workers addressed II. India likely to lead robust arrivals growth, with China a wild card III. Higher-end hotels likely to prosper 5 13 26 2
Executive Summary: A 15% tourist arrivals Cagr (2011-20) is possible, but not easy Shortages in graded rooms and qualified workers are two of the greatest challenges the industry will have to overcome India may become the single most important source market and China remains a dark horse with enormous potential, while arrivals from W. Europe may taper off from current high levels With regard to investment opportunities, 4-5 star hotels on the south coast are more attractively positioned than 3 stars and below 3
I. 2.6m visitors by 2020 possible if shortages of rooms and workers addressed
Arrivals (Millions) No of rooms Sri Lanka's many attractions suggest it can generate a 15%+ arrivals Cagr, thereby driving arrivals from c.650k to 2.6m from 2011-2020 similar to Cambodia s arrivals growth from 2001-2010 Figure 1: Cambodia s historical tourist arrivals and room numbers 3.00 2.50 2.00 45k 40k 35k 30k 1.50 1.00 0.50 0.00 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 25k 20k 15k 10k 5k k Total Number of rooms Tourist arrival numbers Source: Cambodia tourism statistics annual report 2010 5
A 15% arrivals Cagr through 2020 would result in 2.6m visitors, but substantial supply-side constraints exist Hotel rooms: >9,000 additional graded rooms would be needed above the current pipeline of c. 7,000 Qualified workers: >9,000 direct employees may be needed per annum for the hotel sector vs. the current 1,500 yearly output of industry graduates On the other hand, airport capacity constraints are not likely to be binding given the option to add larger capacity planes to Colombo routes, plus the pending opening of the Hambantota International Airport in 2012 6
At the current rate, total tourist arrivals may reach a record 900k by end 2011 Figure 2: Tourist arrivals to Sri Lanka (2005-2011) Actual arrivals Forecast arrivals Growth rate (%) 1000k 900k 800k 700k 600k 500k 400k 300k 200k 100k k 46% 654k 549k 560k 494k 438k 448k 900k 38% 519k 382k 2005 2006 2007 2008 2009 2010 2011E 50% 40% 30% 20% 10% 0% -10% -20% Source: SLTDA, CAL estimates 7
Over 9,000 additional graded rooms may be needed above the current pipeline of 7,000 to achieve a 15% arrivals Cagr Figure 3: Current graded room supply and forecast rooms gap by 2020 40k 35k 30k 25k 4k 6k 7k 9k 12k 20k 15k 7k 2020 room supply gap based on av. occupancy with a 15% arrivals Cagr 10k 5k 15k 15k k Current 2011 Current+ pipeline Occ 85% Occ 80% Occ 75% Occ 70% Occ 65% Source: Pipeline figures SLTDA, CAL estimates 8
44% of the existing graded rooms, including those in the pipeline, are in the west Figure 4: Regional distribution of overall graded rooms including pipeline 12,000 10,000 Existing Pipeline 8,000 3,800 6,000 900 4,000 2,000 0 1,100 5,800 5,100 3,600 1,200 200 West South East Others Source: SLTDA 9
No of applications With most new room applications currently being processed, construction is unlikely to have started for most of the pipeline Figure 5: Status of applications for graded hotel projects 50 45 40 35 30 25 20 15 10 5 0 Inspections of application carried out -Final approvals granted Inspections application carried out - being processed Inspections to be carried out Applications rejected Source: SL Economic Summit Presentation -Tourism 10
At an arrivals Cagr (2011-20) of 15%, the hotel/restaurant industry may also require over 9,000 new employees yearly vs. the current output of 1,500 industry graduates Figure 6: Current and forecast direct labour requirement by hotels/restaurants 127k At the current rate of 1500 industry graduates p.a. - a gap of 79,000 may exist for 2020 33k 48k 2010 2020 Supply at current rate No of emp needed by hotels and restaurants Source: SLTDA, CAL estimates 11
Millions Airport capacity will not be a binding constraint Figure 7: Current and future international airport passenger processing capacity 14 12 10 8 6 5m Delays in the short run may be avoided by efficiency improvements 6m Hambantota I.A to add 1m capacity in 2012 13m 1m 12m 4 2 0 Passengers processed 2010 Processing capacity 2010 Expected capacity in 2016 Bandaranayake I.A Hambantota I.A Source: AASL 12
II. India likely to lead robust arrivals growth
Inbound arrivals are likely to remain strong, and India may become the single most important tourist source market India arrivals may grow 6x by 2020 provided overall costs remain competitive and more direct daytime flights are added China has the potential to become a major source market may require Mandarin-language tour guiding, bigger tour buses and larger-scale shopping options W. Europe arrivals may continue to grow, but at a more subdued rate The introduction of large-scale casino gambling would likely provide a substantial boost to India and China tourists, but was not considered in this report. 14
Western Europe represented 42% of incremental arrivals in 2010, while India accounted for 21% on a standalone basis Figure 8: Regional breakdown of incremental arrivals from 2009-10 63k 43k 27k 50k 654k 448k 24k 2009 Total arrivals UK W.Europe ex. UK India Asia ex. India Others 2010 Total arrivals Source: SLTDA 15
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Millions Index Sri Lanka s high-end is still in its infancy, but Thailand and Bali have shown what is feasible Figure 9: Government forecasts and Tourist arrivals SL Vs Thailand The Government projects 2.5m arrivals in 2016, but the industry will lack the rooms and trained staff to hit that goal Meanwhile, Sri Lanka has the natural attractions to rival better-known and well-developed destinations such as Bali The Government s objective is to move tourism up market and has implemented measures such as minimum room rates for city hotels in furtherance of the same Shortage of available rooms 49,800 14,932 2010 2016 No of rooms 3.00 2.50 Government projected tourist arrivals (SL) 2.5m 1000 800 SL Tourism: 25 years of catch-up 2.00 600 1.50 1.00 0.50 0.00 400 200 0 Tourist arrivals (SL) Tourist arrivals (Thailand) Tourist arrivals (SL) Source: SLTDA. Tourism Authority of Thailand 16
At a Cagr of 11% (2005-09), tourist arrivals to Bali from the UK, Germany and France appeared unaffected by the Global Financial Crisis of 2008-2009 Figure 10: Historical arrivals from UK, Germany and France to Bali and Sri Lanka Bali SL 300k 250k 200k 150k 196k 166k 278k 183k 100k 50k k 2004 2005 2006 2007 2008 2009 2010 Source: Sri Lanka Tourism Annual Report 2010, Bali Tourism Board 17
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E India arrivals to Sri Lanka may grow 47% to 187k in 2011, representing just 1.4% of a c.13m outbound market Figure 11: India tourist arrivals to Sri Lanka (2000-2011) 200k 180k 160k 140k 120k 100k 80k 60k 40k 20k k 32k 1H11 arrivals were up 47% YoY 129k 84k 127k 187k Source: SLTDA, CAL estimates 18
India's potential as a source market for Sri Lanka is evident from its size, proximity, cultural affinity; and Goa s success Figure 12: India tourist market: 17x more visitors to Goa than to Sri Lanka (2010) 12.1 M 2.2 M 127K India total outbound India tourists to Goa Indian tourists to SL Source: India Tourism Statistics At a Glance 2010, SLTDA, Goa Tourism Development Corporation website 19
India arrivals to Sri Lanka could grow 6x by 2020 to 750k Figure 13: Growth scenarios for India tourist arrivals: 1.4% vs. 2.4% market shares Scenario 2: If India outbound tourism grows at a Cagr of 10% (2011-20) and SL's market share increases to 2.4% 750k 127k Scenario 1: If India outbound tourism grows at a Cagr of 10% (2011-20) and SL's market share remains at 1.4% 440k 2010 2020 2020 Source: SLTDA, CAL estimates 20
US$ A 2.4% India outbound tourist share should be easily achievable given a 10-25% cost advantage over Goa if 1-3 stars price more competitively and... Figure 14: Room plus airfare costs for India tourists compared for a 10-day stay SL South coast Goa 3000 2500 2000 1500 1000 500 0 5 Star 4 Star 3 Star 2 Star 1 Star *airfare+10 day stay Source: booking.com, tripadvisor.com, expedia.com 21
No of flights more direct daytime flights are added from India s major cities to Sri Lanka Figure 15: No. of direct flights to Goa and Sri Lanka from Mumbai and Delhi 20 18 16 14 12 12 10 flights departing 11.30am - 5.00pm 2 flights departing 4.30am - 5.30am (1Hr flight) 10 8 6 4 2 0 7 All flights departing 10.00am - 5.30pm (2.5Hr flight) 3 3 All flights departing 2.00am-3.30am (2.5Hr flight) Mumbai Delhi 2 flights departing at 7.00am 1 flight departing at 12.20pm ( 3.5Hr flight) Goa Sri Lanka Source: AASL, Expedia, mapsofindia.com, directflightsindia.com 22
South Asia receives fewer tourists from China compared to Phuket and Bali Figure 16: China tourist arrivals to South Asia, Phuket and Bali Sri Lanka 2010 Maldives 2010 India 2009 Phuket 2009 Bali 2009 200k 375k China arrivals to Phuket and Bali 10k 100k 119k China arrivals to South Asia Source: SLTDA, maldivesonlineguide.com, Bali Tourism Board, Phuket 2010 Hotel Market Update (Hotelworks Consultancy), India Tourism Statistics Annual Report 2010. 23
Typically two-thirds of the 57m China outbound market head to Hong Kong and Macau, illustrating a significant preference for gambling and shopping Figure 17: Major destinations of outbound China tourists Macau 41% Others 32% HK 27% Source: Euromonitor International - 2010 24
The appeal to China tourists of 4-5 star beach resorts in the Maldives illustrates the potential opportunity for Sri Lanka Figure 18: China arrivals to the Maldives vs. Sri Lanka (2000-2010) 140 120 119k 100 80 60 61k 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9k 10k China arrivals Maldives China arrivals Sri Lanka Source: SLTDA, Maldives Holidays Guide website 25
III. Higher-end hotels better positioned to prosper
4-5 star hotels on the South Coast seem more attractive to investors given their regional cost-of-stay price advantage 4-5 star rooms in the South Coast are more attractively priced than comparable rooms for both W. Europe and India tourists vis-à-vis Bali, Phuket and Goa, with high occupancy rates indicating pricing power. Improved accessibility via new highways and conversion of military to domestic airports may make high-end hotels in the Deep South and the East of Sri Lanka viable alternatives to the Galle area. 27
US$ 4-5 star hotels are 12% cheaper* on average for UK tourists (a proxy for W. Europe) vis-à-vis Phuket and Bali Figure 19: UK tourists total costs of stay: Sri Lanka vs. Phuket and Bali (2011) 4500 4000 3500 3000 2500 2000 1500 1000 500 0 5 Star 4 Star 3 Star 2 Star 1 Star SL South coast Phuket Bali *Based on airfare + 10 day hotel costs Source: booking.com, tripadvisor, expedia.com 28
4-5 star occupancy rates in 2010 were higher than other classes, reinforcing SL s relative value proposition Figure 20: 2010 occupancy levels for graded rooms 77% 75% 68% 67% 67% 68% 5 Star 4 Star 3 Star 2 Star 1 Star Unclassified Source:SLTDA 29
Increased domestic and international accessibility may make higher-end hotels more viable, particularly in the south and the east International Airports Concentration of 4-5 star hotels Bandaranayake I.A. (Main) Passenger capacity to be increased from 6m to 12m Hambantota I.A. (2 nd South 2012) Initial passenger capacity 1m passengers Domestic Airports Five regional domestic airports to be restructured at a total cost of approx. Rs. 2bn: Rathmalana, Ampara, Koggala, Trincomalee & Jaffna Rathmalana will be developed as a City Airport Highways Katunayake Padeniya Anuradhapura Highway From Katunayake to Anuradhapura Colombo Kandy Highway (2014) Travel time to be reduced from 3 hrs to 1 1.5 hrs Colombo Katunayake Expressway (2012) Travel time to be reduced from 50 mins to 20 mins Southern Expressway Phase 1 (2011) Travel time to be reduced from 3.5 hrs to 1.5 hrs Southern Expressway Phase 2 (2013) Travel time to be reduced from 4.5 5 hrs to 2 hrs Source: Road Development Authority, Development.lk, SLBC.lk, AASL 30
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