Minimum Room Rates tossed to and fro

By Nizla Naizer

In a new twist to the proposed Minimum Room Rates arrangement for Colombo City hotels, Tourism Promotion Minister Faizer Mustapha has provided hoteliers one week to decide among themselves the prices appropriate for each band.
At a meeting with the 25 members of the City Hotels Association, Mustapha had discussed USD 120 as the minimum rate for five star class hotels. However, with the tough economic conditions faced by the hotels and falling tourist numbers many hoteliers had revealed that they could not market the rooms at such a rate.
The Minister also explained that although the members agreed that a minimum room rate was required, some were not in favour of a gazette notification making it legally binding. “However, we feel that a legal backing to the minimum room rate is required as we were observers when this agreement was first eantered into in January 2008 and subsequently undermined.”
He was confident that a mechanism would be in place by next week once the hoteliers return to him with their suggestions on the price and that the gazette will announce the rates within the month.
He called on the industry to view this arrangement in a positive and optimistic light stating that it is vital to take the industry forward. However, he cautioned that failure to adhere to the minimum rates this time around will result in heavy penal sanctions.
Close to twenty hotels within Colombo and two apartment hotels were notified by a Tourism Ministry directive at the beginning of August that minimum ‘room only’ rates will be implemented under the Tourism Act No 38 of 2005 with the hotels classified under various bands. The rates will range from US$ 40 to US$ 120 for a room.
The move follows continuous lobbying by the representatives of Tourist Hotels in Colombo.
Colombo City Hotels Association President M. Shantikumar said that while the step taken by the Ministry is a ‘good thing’, it would have been ideal to have the deal remain as a Gentlemen’s Agreement which was entered into by the hoteliers in January 2008, but lasted only eight months due to the undercutting of prices by some hotels.
A Hotelier’s Perspective – Let market forces determine prices
According to well known hotelier, Ceylon Continental Chairman Nahil Wijesuriya, it is better to let market forces determine the prices for hotel rooms instead of imposing a minimum room rate. He told The Bottom Line that the agreement failed in 2008 because there are several ways the arrangement could be undermined.
“We believe that it is better to let demand and supply determine the rates,” he said. “Imposing a minimum rate is unrealistic unless the Ministry can appoint whistle blowers to indicate who is breaking the law, have a daily independent audit to ensure daily compliance and a real time flying squad to book offenders.”
He pointed out that a list of 19 ways in which the agreement could be undermined was drafted last year and included methods such as including breakfast on the room rate but not let it reflect on the bill, sell suites and interconnecting rooms as one unit, complimentary city tours, internet, vehicles and a complimentary night at resort hotel.
If times are good there is no need for such regulations and Wijesuriya concluded that the industry should not be subjugated to a new form of terrorism with the proposed penalties.