VZCZCXRO2671
RR RUEHLMC
DE RUEHLM #0898/01 1511000
ZNR UUUUU ZZH
R 311000Z MAY 06
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 3503
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 9672
RUEHKA/AMEMBASSY DHAKA 9223
RUEHIL/AMEMBASSY ISLAMABAD 6115
RUEHKT/AMEMBASSY KATHMANDU 4149
RUEHCG/AMCONSUL CHENNAI 6662
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 COLOMBO 000898 
 
SIPDIS 
 
STATE FOR EB AND SA/INS; MCC FOR D.NASSIRY AND E.BURKE 
 
USDOC FOR EROL YESIN 
 
SIPDIS, SENSITIVE 
 
E.O 12958: N/A 
TAGS: ECON CE
SUBJECT:  Sri Lanka Tourism Prospects 
REF: 05 Colombo 01898 
 
¶1.  (U) Summary:  Despite the deteriorating security 
situation, tourist arrivals in the first four months of 2006 
have increased 25%, according to the Sri Lanka Tourist Board 
(STB).  April arrivals were up 18%.  Discussions with 
tourism sector reps, however, indicate that the Government 
of Sri Lanka (GSL) uses a broad definition of "tourist" and 
the real number is only about half the official figure. 
Since then the security situation has deteriorated further, 
with the April 25 suicide bomb attempt on the Army Chief in 
Colombo and other daily incidents in the north and east. 
While these incidents came at the end of the main winter 
tourist season, and did not affect that season, tourist 
arrivals and bookings have slowed quite significantly since 
then.  It is possible that a new marketing campaign will 
help "re-brand" Sri Lanka, but failure to fully enact 
recently-passed legislation to give the private sector a 
greater say in tourism promotion is not helping.  End 
Summary 
 
¶2.  (SBU) According to the STB, April tourist arrivals 
increased by 18% to 49,780.  Tourist arrivals in the first 
four months of 2006 rose 25% to 209,312.  India was the 
largest single market, accounting for 20% of arrivals. 
Europe as a whole accounted for 30%, with tourists coming 
mostly from the UK and Germany.  In 2005, tourist arrivals 
dipped 3% to 549,000 as a result of the December 2004 Asian 
tsunami.  According to Gihan Perera, Managing Director of 
 
SIPDIS 
Aitken Spence Travels, a large inbound tour operator, 
although the STB reports tourist arrivals around 550,000 
annually, actual tourists arriving for holiday number only 
about 250,000.  The STB numbers are inflated due to the 
inclusion of Sri Lankan expatriates, NGO workers, and Indian 
transit visitors. 
 
¶3.  (U) The tourist industry is disappointed as the 
worsening security situation threatens the industry just as 
it is recovering from the tsunami.  According to sources at 
John Keells Group and Aitken Spence Group, Sri Lanka's 
largest hotel and inbound tour operators, current bookings 
(May-July) have slowed quite significantly and hotel 
occupancy is lower than in previous years.  For instance, 
occupancy at resort hotels run by John Keells Group has 
fallen 50% below expectations.  Hotels in Colombo city are 
experiencing a marginal slowdown compared with previous 
years.  While there have been some cancellations, bookings 
for these off season months are normally made at the last 
minute; however, bookings have not come as expected.  Both 
John Keells and Aitken Spence upgraded and re-branded their 
hotels recently to cater to up-market segments.  Rajan 
Britto, Managing Director of Aitken Spence Group told 
reporters recently that they have increased rates by 20 to 
40% following the re-branding although they had originally 
planned to increase prices by about 100%.  The worsening 
situation has prevented them from such an increase. 
 
¶4.  (SBU) According to Dian Bolton of Walkers Tours, a 
subsidiary of John Keells group, international tour 
operators have adopted a wait and see attitude.  Currently, 
the outlook for the next winter looks difficult.  While 
contracts with tour operators for the winter season have 
been arranged, bookings are only finalized in August. 
Operators hope the situation will improve by then and that 
there will be no additional incidents in Colombo to further 
depress prospects. 
 
¶5.  (U) Industry sources attribute the slowdown to the 
worsening security situation and the failure to market Sri 
Lanka.  According to Perera who is also the past president 
of the Sri Lanka Inbound Tours Operators Association, Sri 
Lanka lacks a good marketing campaign to counter the 
negative image arising out of the incidents in the north and 
east.  Perera said the security situation should not be a 
major threat as countries like Egypt have a growing industry 
despite threats to tourists.  He praised a recent USAID 
sponsored promotional campaign in India (part of USAID's 
tsunami recovery effort) which seeks to brand Sri Lanka 
 
SIPDIS 
using the theme "Small Island, Big Trip."  Though still too 
early to predict the outcome, the campaign has helped to 
boost interest in the Indian market. 
 
¶6.  (SBU) Meanwhile, the industry is concerned over attempts 
 
COLOMBO 00000898  002 OF 002 
 
 
to block a new tourism law passed in October 2005.  The law 
was expected to reduce government control over the industry 
and infuse private sector involvement in the tourism 
regulatory and promotion bodies.  The law provides for the 
creation of a tourism promotion fund (managed by private and 
public sector representatives) to receive tourism-based 
taxes.  The funds were to be used for promotion campaigns 
designed to meet industry needs under private sector 
oversight.  However, six months after passage, the 
Government has not taken any steps to reduce its overall 
control.  Instead, the government-controlled STB continues 
to siphon off funds, according to industry sources.  STB's 
Chairman, a political appointee, and his administration, 
with the backing of the Minister of Tourism, have been 
reluctant to cede control.  Failure to enforce the law would 
further delay reforms in key tourism regulatory and 
promotion bodies and also delay marketing campaigns crucial 
for the industries resurgence. 
 
¶7.  (SBU) Comment:  If the security situation deteriorates 
and violence spreads outside the north and east, tourism 
will be one of the first casualties.  It is already 
experiencing cancellations and a major slowdown in bookings. 
An effective marketing campaign could help build tourist 
confidence if the war remains geographically restricted. 
Entwistle