Bandaranaike duty free contract is delayed

By Doug Newhouse |

As of last week, the latest news on the Colombo Bandaranaike International Airport duty free contract held by Alpha/Aldeasa was that airport authority – Airport and Aviation Services (Sri Lanka) Ltd – had called for a ten-day extension to allow it to determine whether it will tender the contract(s) for single or dual operator participation, extend it, or enter into a joint venture to run the business with an international operator.

This follows the May 10 expiry of the last five-year contract extension which was awarded to Orient Alpha – now under Aldeasa/Autogrill – which was awarded when the original 10-year contract expired. 

The last five-year extension was awarded partly because the airport never hit its projected traffic numbers during the original 10-year contract due to the tensions and troubles that Sri Lanka endured during its long fight with the LTTE organisation. But it is now emerging strongly after 26 years of civil war and ethnic bloodshed were brought to a bloody end when security forces crushed the Tamil Tigers (LTTE – Liberation Tigers of Tamil Eelam) in May 2009.

It is now understood that the recently-expired five-year duty free departures and arrivals extension agreement did have a clause within it, which could facilitate a further extension. However, management at state-owned Airport and Aviation Services (Sri Lanka) Ltd – the airport authority – is understood not to favour this option, alongside the incumbent government’s increasing reputation for ‘doing things its own way’ rather than sticking to conventions that have existed in the past 20 years.

Currently, those travel retail companies known to have shown an interest in the contract include Aer Rianta International, Flemingo International, Nuance, Dufry and the incumbent. In July 2008, Autogrill valued the annual sales turnover at $37m, but it seems certain that this will have increased in the interim. More importantly, the future outlook for Sri Lanka’s tourism industry is very healthy.

For example, foreign investment is back in a big way with the stock market showing good strength and foreign tourist arrivals recovering strongly. Last year, Sri Lanka registered a 46% growth to an all-time record of 654,476 foreign tourist arrivals and in this ‘Visit Sri Lanka 2011’ it is targeting around 750,000.

Overall tourist arrivals growth has continued into 2011, with 278,959 in the first quarter of 2011, representing a 40.4% increase on the same period in 2010. Broken down, there were 74,197 arrivals in January (+46.2%); 65,797 in February (+14.8%); 75,130 in March (+43.5%); and 63,835 in April (+66.7%). Notably, Colombo Airport increased its passenger numbers by 20.2% last year.

[Historically, the total number of business, workers and transit passenger traffic at BIA in 2009 was 4,242,356 and that compares with 4,642,831 in 2008, 4,898,891 in 2007 and 4,798,274 in 2006-Ed].

An important new contribution to tourism growth this year has also come from Indian ‘pilgrims’ wishing to visit one of over 50 Ramayana sites. [Rama is among the most worshiped gods in India-Ed]. Sites like these helped Sri Lanka to attract more than 37,000 tourists in the first quarter of 2011 alone, an increase of 43.4%. 

Since 2010, Indian tourists and these religious visitors have contributed the biggest source of income for the Sri Lanka tourism industry and the duty free business at BIA is particularly strong in the arrivals shops, with workers returning from overseas postings traditionally strong customers. 

Obviously this relatively new overall ‘tourism strength’ is likely to be ‘reflected’ in any duty free arrangement the airport authority chooses to make with any foreign operator, although there are rumours that it will want a direct involvement with the business itself this time around.

All of which reflects restored confidence in the economy of Sri Lanka. For example, in 2009, the little-known Colombo Stock Exchange rose a remarkable 128% after the Sri Lankan Government formally declared the civil war was over and in 2010 it was still thriving, with the markets rising by 101%. [The value of companies trading on the Sri Lanka Stock Exchange is now said to be in excess of $20bn-Ed].

As stated, the economy rebounded in 2010, with GDP growth estimated at 7.6%, after 3.5% in 2009. This was mainly due to the expansion of wholesale and retail trade, the revival in tourism which contributed to robust performances in hotels and restaurants and the impressive performance of the banking, insurance, and real estate sectors. This year the economy is expected to show continued high growth of 8.0%. 

Colombo Bandaranaike International Airport is also the subject of expansion. Design consultancy work has already been completed for a new split-level passenger terminal building – plus pier – planned under Phase 2, Stage II of BIA’s development project. 

This includes the construction of 14 Passenger Boarding Bridges and a remote apron. Construction is expected to commence in 2012 at an estimated cost of Rps.36bn ($320m) with completion set for 2016. This will raise the annual passenger handling capacity at BIA to 12m. Currently, BIA’s passenger terminal building has a total floor area of 90,000sq m.

Speaking at the Sri Lanka Tourism Awards just a week ago, Sri Lanka Tourism Chairman Dr. Nalaka Godahewa told airlines, hoteliers, tour operators, conference organisers and others that it is now looking to the private sector to take the tourism industry forward. 

At the same time, he said that a ‘master plan’ will shortly be announced aimed at attracting 2.5m foreign tourists within five years [This target has been set by President Mahinda Rajapaksa-Ed].

However, it should also be noted that as more hotel groups establish themselves more strongly in Sri Lanka, hotel room prices have been rising fast and the government has cautioned hoteliers in particular not to create impediments to growth for the tourism business as it emerges from the dawn of recovery.



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