Introduction Chapter 1 1.1 Introduction Hospitality industry is one of the main income generators in Sri Lanka for decades. Tourism de~~~?pn;ent is being promoted by the government since it provides employment, foreign exchange and builds the national economy. Right now the tourism is a major player in the economy contributing directly and indirectly to around 2% of its estimated US$18 billion gross domestic product (GOP) according to the Annual Report of Central Bank of2006. 1.2 Emergence of Tourism in Sri Lanka Tourism in Sri Lanka was first sanctioned by the British in 1930 when a policy of tourism development was implemented. From 1946 to 1958, tourism increased followed by a decline as the result of a change of government policy 600000 500000 I JE. 4ooooo -n-,..., -=-n II_,,_, ~---- a:l -~... 300000 -H 1-1 1-1 1-1 1-1 1-1 1-1 1- <( 200000 1 00000 +-1 I--I I--I 1-1 1-1 1-1 1-1 I--I 1--- 0 Rl R> " (1. ~ _b,. ~ _v, (\ to P.> ~~ R)<:s R)<:l R)<:l R)<:l R)"' R)\:5 R)'::J- R)<:l R)c:J R)cs ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Year Figure I. 1 Tourist Arrivals to Sri Lanka from 1999-2009 (Source: http://www.sltda.gov.lk) to stop tourist promotion. In the late 1980's, a new policy for tourism development was adopted, resulting a notable growth through the early 1980' s. However after 1983 tourism declined substantially due to civil disturbances. This decline continued until 1989 when peace and order began to improve. Figure 1.1 shows the tourist arrivals from 1999 to 2009. There was 1
an uphill trend of tourist arrival shows till 2004. However, it decreases in 2005 due to most awful and tragedy of Tsunami. Though the Indian Ocean Tsunami of December 26, 2004, has laid bare this very characteristic of the tourism industry in Sri Lanka present positive tourism outlook shows that Sri Lanka is on track for return back to its income generation. 70000 60000 50000 40000 30000 20000 10000 2009 2010 0...l< ~ _, ~.\... 1.. 1.. ~'-,<.. ~<;\ ~"... <S- ~<..' -... ~.... ' \~... ~c; :.oe; (pe; :.0"" :.0"" ~v ~..~ ~7> "?' ~ '1... ~~ i'' iy ~~ ~~ ~ ~ ~ 0 ~ ~ ~ ~ ~ ~ Figure 1.2 Tourist Arrivals 2009 and 2010 (Source: Sri Lankan Tourist Board Statistics- http://www.sltda.gov.lk) Figure 1.2 shows the tourist arrivals in 2009 and the first two months of the 2010. After winning the peace to the country tourist arrivals has increased significantly and therefore the blooming of the hotel industry can be seen. To provide better service improved infrastructure is needed. 1.3 Refurbishment of Hotels Refurbishments of hotels are generally carried out once in five to ten years (Langdon and Everest, 2002). That can be a major or minor refurbishment depending upon the market they are looking at. Most of the hotels in coastal belt of Sri Lanka have undergone refurbishment after the tragedic event of tsunami in 2004. 2
1.3.1 The Difference from Other Projects Unlike other development projects, delaying of hotel refurbishment projects create problems, which sometimes end up by losing the market share and customer loyalty. Typical construction delays can be prevented to some extent, but loss of customer' s loyalty is not reversible. Also unlike in other refurbishment projects the business location cannot be shifted to another place. Other issue is the huge compensation to be paid 1o the guests as well as tour operators. 1.3.2 Trends Driving Refurbishment of Hotels Major refurbishment can have a dramatic effect on the performance of a hotel. Refurbishment projects can be arranged in the occupied buildings as well as nonoccupied buildings. Although hoteliers typically keep tight control of their expenditure on properties, regular refurbishment is a necessity to maintain customer loyalty, room rate and market share (Langdon and Everest, 2002). Guest room refurbishment schemes fit into two broad categories, depending on the extent of work, refreshment and remodeling/re-branding. Major refurbishment adds value to the hotel as well as brings dramatic effect on the performance of the hotel. Usually refurbishment of hotels increases its turnover and profitability by more than 80% (Langdon and Everest,2002). There are three key areas in which hotels are responding to these changing expectations: room size, room aesthetics and room quality. Guest room refurbishment is required every five to seven years (Langdon and Everest,2002) and involves adding new element to rooms to ensure that the hotel is competitive within its market. Typical scope of works includes: Redecoration Replacement of furniture Minor work to improve ease of operation, such as changing door sizes to accommodate large room service trolleys. 3
Remodeling or re-branding of hotels aims to move the hotels into a different market sector, including room rates and overall yield. Such a refurbishment involves major works on guest floors, including: Creating new guest rooms from redundant space Replacement of bathrooms and services Changing room layout and sizes Adding comport co.o.liqg _ Introducing new guest facilities, including IT and room entertainment Complete replacement offinishes, furniture, fittings and equipment Hotel refurbishments projects present additional opportunities for tax relief For an example works incidental to the installation of plant and machinery can be included in a capital allowances claim relating to an existing building. 1.3.2 Tax Relief and Hotel Refurbishment When a hotel property is in beneficial use and is generating revenue, the costs of repair, maintenance and replacement works can usually be wholly deducted as a revenue expenses, reducing taxable profits. Work that can be treated like those includes structural repairs, redecoration and replacement of sanitary fittings, ceilings, etc. The portion of profit invested in the refurbishment is not accountable for taxation. Therefore rather than paying taxes, hotel owners go for refurbishment. 1.4 Success in Hotel Refurbishment Projects Successful hotel refurbishment depends on using specialists at all stages, ie., from designers to subcontractors. Consultants need to understand the client' s objectives and aesthetic expectations and be able to identify solutions that can achieve within a tight budget. Contractors need an understanding of how hotels operate, access to specialist supply chain and the ability to work effectively on phased projects in occupied buildings. Above all, the client, project team and General Manager of the hotel have to create team ethos aimed at completing the project on time and within the budget. 4
1.5 Research Problem Despite sharp drop in profitability over the past years, hotel operators continue to invest heavily in refurbishment of hotels not only coastal line but also in other areas in Sri Lanka. However, most of the refurbishment works getting delayed causing considerable amount of losses to the hotel owners as well as to the contractors (Langdon and Everest, 2002). Delays in construction proj.ect~ have become a major concern of many participants because these delays lead to construction disputes and claims. There are number of reasons that contribute towards delaying a construction project. Construction delays are disruptive and expensive causing severe economic losses. Unlike other development projects, delaying of hotel refurbishment projects create problems, which sometimes end up by losing the share market and customer loyalty. Typical construction delays can be prevented to some extent, but loss of customer' s loyalty is not reversible. In the long run, with the settlement of terrorist problem, the government is expecting a boom in tourism. During the last two and half decades most of the hotels in the island have not been maintained up to the standards due to very poor turnover of tourists. However, owners have plans to bring fresh investments significantly to the hotel industry and cater to increasing number of local and foreign tourists. Addressing the issue of refurbishment is an utmost important area in order to upgrade the hotel industry. Various parties namely clients, consultants and contractors are involved in the hotel refurbishment projects. Therefore, identification of the principal delaying factors and their affects are crucial in reducing the completion costs, maintaining the customer loyalty and ultimately to achieve a higher growth rate in the industry. 1.6 Aim of the Study This research is conducted to find out delaying causes for hotel refurbishment projects in Sri Lanka by focusing on actions and inactions of project participants, which delay refurbishment projects. Identification of critical factors would help improvement in the efficiency and productivity of hotel 5
refurbishment projects. The finding of this research may lead to a better implementation ofthe Sri Lankan hotel refurbishment projects. 1.7 Research Objectives Objective ofthis research is to Identify the causes which affect delaying of hotel refurbishment projects Select critical causes and Jelative importance towards delaying the project Find out the eliminating methods of critical causes 1.8 Significance of the Study Hotel industry is one of the major contributors of the income to the country. During the closure ofthe hotel for refurbishment, it definitely loses its revenue as well as cost incurred in paying their staff. If refurbishments take additional time, which will affects seriously loosing income as well as regular customers. There is no previous study properly done and published to identify causes affecting the delaying of hotel refurbishment projects in Sri Lanka. Therefore analyzing of the delaying causes for hotel refurbishment project is vital to address these issues and to protect the hotel industry. 1.9 Scope of the Study Analysis of data and research findings are only concentration on refurbishment projects in hotel industry. This study will not focus on general delays of projects in the construction industry as well as this research will not cover all provinces in Sri Lanka especially in North and East provinces. The references were taken only from the project participants, who prepare to comment with their professional judgment. In this study, affecting causes for the delaying refurbishment projects will be generalized and delaying causes pertinent to city hotels, resorts or boutiques refurbishments will not be separately considered. Construction of new hotels or maintenance of existing hotels will not consider under this research and it should consider under different regime. 6