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RUEHKA/AMEMBASSY DHAKA 0725
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RUEHKT/AMEMBASSY KATHMANDU 5895
RUEHCG/AMCONSUL CHENNAI 8319
RUEHGV/USMISSION GENEVA 2607
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

UNCLAS SECTION 01 OF 02 COLOMBO 000120 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/INS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN PTER CE
SUBJECT:  SRI LANKA: TOURISM DOWN 12% IN 2007; COULD HAVE BEEN 
WORSE 
 
Ref:  A) 07 COLOMBO 1313  B) COLOMBO 47 
 
¶1.  Summary:  The escalating ethnic conflict continues to hurt the 
Sri Lankan tourism industry, which experienced a 12% decrease in 
visitors in 2007 compared to 2006.  Industry representatives have 
mixed assessments of the possible impact of the recent escalation of 
violence and the consequent bad publicity and travel warnings issued 
by several countries.  Some, encouraged that there were 56% more 
visitors in December 2007 than in December 2006, expect those strong 
tourist numbers to continue into spring 2008.  Others are less 
optimistic, pointing to a spate of cancellations since the 
government abrogated the Ceasefire Agreement on January 2.  The 
government and private sector have undertaken new efforts to attract 
visitors from India, Russia, East Asia, and the Middle East in place 
of the traditional European market.  Peace, however, remains the key 
factor for Sri Lanka to reap the full potential of its tourist 
industry.  End Summary. 
 
TOURISM REMAINS A VITAL SECTOR: FIFTH LARGEST 
FOREX EARNER; MAJOR EMPLOYER 
--------------------------------------------- 
 
¶2.  Tourism accounts for about two percent of Sri Lanka's gross 
domestic product.  The sector is a key contributor to foreign 
exchange earnings after apparel, remittances, tea and rubber. 
Income generated from tourism was $400 million in 2006, but is 
expected to fall to about $360 million in 2007.  Sri Lanka's hotels 
employ 56,000 people.  The indirect contribution of tourism to the 
economy is also significant.  The industry estimates that as many as 
900,000 Sri Lankans (of a population of 20 million) are in some way 
dependent on tourism.  They range from tourist hotel employees to 
shop owners, taxi drivers, handicraft producers, and their families. 
 
 
2007: A SHARP DECLINE FOLLOWED BY A STRONG RECOVERY 
--------------------------------------------- ------ 
 
¶3.  The Sri Lankan tourist industry suffered a downturn in 2007 as 
the country's ethnic conflict escalated.  Tourist arrivals declined 
11.7% in 2007, to a total of 494,000 as compared to 560,000 in 2006. 
 A breakdown of the numbers showed that, through September 2007, 
visitors were down 21%.  The final quarter of 2007, however, 
recovered strongly, with tourist arrivals up by 56% in December as 
compared to the same month in 2006.  The favorable December numbers 
were generated by a combination of traditional European winter high 
season crowds, including many visitors from Eastern Europe and 
Russia; and special events like the three-week tour of the British 
cricket team with its many loyal spectators (the "Barmy Army") in 
tow. 
 
2008: INDUSTRY OUTLOOK IS MIXED 
------------------------------- 
 
¶4.  Hoteliers speaking to the press conveyed confidence that, from 
January to March 2008 at least, December's high rate of arrivals 
would continue.  They noted hotel reservations were high amidst 
planned events such as the annual Borah convention (an 11-day 
spiritual event expected to bring in 8,000 members of this 
India-based Muslim sect), and cultural events like the Galle 
Literary Festival and the Pearl Fishers opera.  A board member of 
the Sri Lanka Hotel Association told Econoff, however, that this 
confidence was premature, as tour operators had cancelled over five 
percent of hotel reservations for the January to March 2008 time 
frame since abrogation of the Cease Fire Agreement on January 2, 
¶2008. 
 
¶5.  According to the Association, no hotels are likely to go out of 
business due to the poor tourism turnout.  Nor have hotels been 
forced to cut room rates.  In fact, in December 2007, hotels in 
Colombo adopted a rate policy that raised their minimum room rates 
by almost 30% to boost revenues and raise staff wages. 
Nevertheless, the country's two largest resort owners, John Keells 
Holdings and Aitken Spence Group, are depending on their new hotels 
in Maldives and southern India to enable them to break even in their 
tourism businesses overall. 
 
PROMOTING SRI LANKA IN NEW MARKETS 
---------------------------------- 
 
¶6.  The Sri Lanka Tourism Development Authority, re-established by 
the new Tourism Act implemented in October 2007 (ref A), is focused 
 
COLOMBO 00000120  002 OF 002 
 
 
on promoting Sri Lanka in India, Russia, and the Middle East, as 
well as in new markets China, Thailand, Singapore and Malaysia.  The 
Sri Lanka Tourism Promotion Bureau has begun to shift resources away 
from its traditional markets in the UK, Germany and France, as 
tourists from these and other European countries dropped sharply due 
to new advisories discouraging travel to Sri Lanka.  Currently, 
governments of these countries advise their citizens against travel 
to north and east as well as to Yala National Park in the Southern 
Province.  They have also warned about terrorist attacks and 
violence in other parts of the country including capital Colombo. 
 
¶7.  For India (which, despite a 17% decline since 2006, remained Sri 
Lanka's top market in 2007 with 106,000 arrivals), the industry is 
trying to promote Sri Lanka as both a cultural and a meetings and 
conventions destination. 
Hoping to capture tourists from the Middle East and Eastern Europe, 
Sri Lanka Tourism plans to hire public relations and marketing 
personnel in Dubai and Moscow.  Sri Lanka Tourism is also teaming up 
with the private sector to create discount tourist packages and 
airline promotion events, as well as inviting journalists to visit 
Sri Lanka. 
 
¶8.  The impending pullout of Emirates Airlines' management of Sri 
Lankan airlines (ref B) is not expected to have a drastic impact on 
tourist arrivals, according to a Sri Lanka Hotels Association 
official, because the two airlines say they will continue to run 
code shares and coordinate their routes. 
 
COMMENT: IN PEACE LIES POTENTIAL 
-------------------------------- 
 
¶9.  As the following chart indicates, Sri Lanka's annual tourist 
visitor numbers have been in the range of half a million in each of 
the years since the 2002 Ceasefire Agreement: 
 
2007 : 494,000 
2006 : 559,600 (violence resumed in April) 
2005 : 549,300 (post-tsunami) 
2004 : 566,200 
2003 : 500,600 
2002 : 393,000 (Ceasefire Agreement in February) 
 
About 407,000 tourists arrived in Sri Lanka in 1982, just before the 
start of conflict.  During the 1983-2001 conflict period, arrivals 
averaged in the range of 300,000 per year.  According to a paper 
presented at a counter terrorism conference in Colombo in 2007, Sri 
Lanka lost over 11 million tourists and about $6 billion in tourism 
income in the two decades since 1983 as a result of the conflict. 
The paper supposed 6% annual tourism growth in the absence of the 
conflict.  In this case, arrivals could have reached 1.47 million in 
2004 -- over two and half times the 566,200 recorded that year. 
Thus, in tourism as in so many other aspects of the economy in the 
context of the conflict, the cost for Sri Lanka has been one of 
greatly unrealized potential. 
BLAKE