Five-star hotels feel competitive bite from new properties

Cheaper three and four stars take a small slice of the cake

Cinnamon Red Hotel on Green Path launched in Sept. 2014, one of the properties competing with the five-stars. JKH owns a slice of this hotel it manages. Cinnamon Red has been ranked the best new hotel opened in South Asia last year.

The five star City Hotels are feeling the competitive bite of three and four star properties opening shop in Colombo with Asian Hotels and Properties Plc., controlling the Cinnamon Grand and Cinnamon Lakeside Hotels seeing group occupancy down to 66% from the previous year’s 70%, Asian Hotels have said in their latest annual report for the year ended March 31st, 2015.

"The room inventory within the city of Colombo witnessed substantial growth in the year under review, particularly in the three and four star category, intensifying competition and restricting growth in average room rate for the five star city hotels," Mr. Susantha Ratnayake, Chairman of Asian Hotels and Properties said.

"Whilst this increase in capacity stem from the expected growth in tourist arrivals, these new offerings at lower rates resulted in a citywide drop of two percent in the business segment of the five star city hotels."

The report revealed that the Cinnamon Grand, the biggest of the Colombo five stars with 501 luxury rooms and a full range of services including extensive dinning venues had seen occupancy levels drop marginally to 75% from 76% the previous year.

The hotel claimed it had "retained its star performance" during the period under review "despite the plethora of lower cost new entrants into the city hotel sector."

Cinnamon Lakeside, however, saw occupancy down to 51% in the year under review from 61% a year earlier, with its market share also shrinking from 18% to 15%. The Cinnamon Grand, however, had held its 32% market share.

Ratnayake said that the Asian Hotels Group had retained its leadership position among the five stars reflected by the 46% market share achieved during the year.

However, all the main financial indicators pointed to declines with group revenue down two percent to Rs. 8.08 bn., the gross profit down six per cent to Rs. 4.72 bn., net finance income down 34% to Rs. 199.77 mn., profit before tax down 23% to Rs. 2.35 bn. and profit after tax down 26% to Rs. 2.09 bn.

But the company said that it had maintained the dividend per share at Rs. 4 on par with the previous two years, despite the drop in profits.

In addition to its two five star city hotels, Asian hotels, owns the Crescat Boulevard claimed to be "the finest upmarket shopping mall in Colombo," which had maintained 99% occupancy, on par with the previous year, although the 2.07 mn. footfall was down 12% from the previous year.

Ratnayake said that tourist arrivals in 2014 had topped 1.5 million, representing a growth of 19.8% over the previous calendar year, with "the surge in arrivals led by the Chinese market which had grown 136% year-on-year and became the third largest source market behind India (up 16.3%) and the UK (up 4.9%).

JKH controls Asian Hotels, with 78.56% of the company followed by the EPF (9.84%) Sri Lanka Insurance Corporation – Life Fund (2.27%) and the Ceybank Unit Trust (2.15%). Dr. S Yaddehige (0.77%) and Mr. Merril. J. Fernando (0.46%) are among the individual large shareholders.

The Asian Hotels share which closed at Rs. 63 during the year under review, traded at a high of Rs. 75 and a low of Rs. 58 during the year. This compared to a closing price of Rs. 58.80 and a low of Rs. 57 and a high of Rs. 79 a year earlier.

The Directors of the company are Messrs S C Ratnayake (Chairman), A D Gunewardene (MD), J R F Peiris, Rohan J Karunarajah (Rohan Karr), Suresh Rajendra, Sanjiva Senanayake, Ms. Shiranee Anoja Jayasekara and C J L Pinto.

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