• Earnings slump as visitor spending drops sharply in early 2026
• March revenue plunges 37% amid ME conflict, airfare hikes, global uncertainty
• Hotels report occupancy falls and soaring costs despite seasonal domestic crowds
• Authorities pivot from backpacker market to luxury, wellness, weddings, MICE tourism
• Airport upgrades, new air routes, local sourcing drive plan to hit $ 8 b target

The tourism industry in Sri Lanka stands at a critical juncture. Following years of volatility, the sector is grappling with a paradox. While passenger footfall has shown signs of a robust recovery, actual financial earnings and individual tourist spending are experiencing a noticeable decline.

This complex situation is heavily influenced by global geopolitical tensions and conflicts, rising worldwide inflation, and shifting travel patterns across major demographic markets. In response, Government and industry leaders are moving aggressively away from volume-driven strategies, opting instead to prioritise high-end, value-driven tourism.

According to data provided for the calculation of tourist spending, the industry witnessed a steady climb over the past decade. In the year 2010, the country welcomed 654,476 tourists, generating $ 576 million in income. 

This growth trajectory continued consistently year after year, eventually reaching a peak in 2018 with 2,333,796 arrivals and an impressive $ 4,381 million in revenue. Following a dip in 2019 to 1,913,702 arrivals and $ 3,607 million in income, the sector faced an unprecedented crash in 2020 and 2021. Arrivals plummeted to 194,495 in 2021, yielding just $ 507 million.

By 2024, arrivals had bounced back to 2,053,465, bringing in $ 3,169 million. In 2025, tourist arrivals reached 2.36 million, reflecting a 15.1% increase compared to the previous year. However, earnings grew only marginally to $ 3.22 billion, with average spending per tourist declining from $ 1,544 in 2024 to $ 1,363 in 2025.

Financial reality and revenue decline

Despite the recovery in raw arrival numbers, the financial yield per tourist has become a primary concern for the Government. The first quarter of 2026 has presented severe challenges, with earnings recorded at $ 954 million, which marks a 15% Year-on-Year (YoY) decline. The month of March alone showed a drastic 37% drop in revenue.

Addressing these concerning figures, Deputy Minister of Tourism Ruwan Ranasinghe said that the ministry had closely monitored recent performance indicators, noting that the figures highlighted the importance of shifting towards value-driven tourism. 

“While the first-quarter revenue slump has posed short-term challenges, it has not derailed the ministry’s long-term vision. The targets of welcoming four million visitors and generating $ 8 billion in revenue by 2030 remain intact. Budget allocations have been strategically adjusted to prioritise urgent infrastructure upgrades, destination branding campaigns, and workforce training,” he added.

The decline in revenue is not merely a localised issue but is heavily tied to international conflicts. 

Sri Lanka Tourism Development Authority (SLTDA) Director General Malkanthi Rajapaksha elaborated on the immediate causes of this financial drop: “We are losing roughly 20% of our earnings because of the ongoing conflicts occurring globally. The spending amount from individual tourists has declined by 20%. Our research division continuously analyses tourist arrivals and expenditures using a satellite accounting system, and the data clearly reflects this downward trend. 

“However, we have implemented several countermeasures. We are heavily targeting the Asian market, specifically focusing on India, Bangladesh, and other surrounding countries to bridge this gap.”

According to the SLTDA’s finalised inbound visitor survey for the 2024–’25 period, the average daily expenditure per non-package tourist, excluding airfare, had been established at $ 148.26. This is a notable reduction from the historical benchmark set in 2018 and 2019, where the average daily expenditure was $ 181.1.

This decline in daily spending can be fully justified when considering economic inflation, rising local prices, changes in exchange rates, and a shorter duration of stays post-pandemic. Global and local inflation has directly influenced the per-day expenditure of tourists. 

Key categories such as accommodation, food, and transport have all seen significant price increases between 2019 and 2025. The exchange rate of the US Dollar to the Sri Lankan Rupee has risen from 2019 to 2025. This increase affects the value of expenditures in US Dollar terms, meaning that while local costs have risen, the apparent expenditure in US Dollars has moderated.

The distribution of this expenditure has also shifted over the years. In the 2018–’19 period, tourists spent 32.42% of their daily budget on accommodation, 24.97% on food, 16.97% on transport, and 12.2% on shopping. By the 2024–’25 period, spending on food and beverages increased to 31.3%, transport within the country rose to 22.3%, and shopping dropped to 7.9%.

Hotel industry bears the brunt

The localised impact of these global phenomena is felt most acutely by the hospitality sector. Hotels are struggling to maintain profitability amidst dropping foreign arrivals and skyrocketing operational costs.

Former President of The Hotels Association of Sri Lanka (THASL) Sanath Ukwatte painted a picture of the ongoing situation faced by hoteliers on the ground, noting that tourism was badly affected due to the crisis in the Middle East and the Gulf.

“While the current period is typically our off-season, if we compare our figures with the same period last year, there is a drop of around 30% in occupancy. In some hotels, the drop is even higher. This is impacting the whole world, not only the Middle Eastern hubs. Airfares from our regional markets, including India, have gone up significantly due to the increase in jet fuel prices. There is a general uncertainty in the air because of this global crisis, even though as a country, Sri Lanka currently has no internal issues,” he noted.

He further clarified that while some properties may appear busy, the economic reality was entirely different. “Some hotels are maintaining acceptable occupancy rates due to local patronage during the festive season. However, we cannot count local guests as tourists because they do not bring foreign currency into our country. Actual foreign tourism numbers are pretty low, and the industry is quite concerned about how we are going to move forward,” he noted.

Ukwatte further noted that hotel turnovers were down, electricity costs had risen exponentially, and they had to face many other issues regarding fixed operational costs: “Hotels are having quite a difficult time right now. The tourism industry alone cannot improve these numbers because it is a macroeconomic and global issue directly related to the war in the Middle East. We have no control over that. We only hope and pray that some sense will prevail globally and the conflicts will come to a peaceful end.”

Changing demographics and transit hurdles

The origin of travellers visiting Sri Lanka is undergoing a significant transformation. Traditional strongholds like Europe are weakening due to logistical nightmares associated with global conflicts.

Rajapaksha explained the logistical hurdles that were driving European tourists away, noting: “The European market is struggling heavily because the Gulf countries serve as our primary transit locations. When European tourists are travelling here, we do not have direct flights for them. When they transit through locations like Doha, Qatar, they face massive disruptions. Rerouting flights is sometimes impossible. Furthermore, travellers do not like to travel anywhere near conflict zones. That is the main reason we are experiencing a drop from European countries. 

“Regarding Middle Eastern tourists directly, we are still receiving them, but the percentage is currently at about 50–60% of our usual capacity. We see many groups cancelling their bookings, while some extend their time here to wait out the situation and others postpone their holidays entirely to next year.”

This geopolitical reality has forced the SLTDA to pivot its marketing strategies towards alternative markets.

“India is currently the highest market for Sri Lanka. We are going to execute aggressive promotional campaigns and Meetings, Incentives, Conferences, and Exhibition (MICE) programmes in India. At the same time, we are targeting Bangladesh and other areas like Australia, Japan, and China, where the market is increasing slightly. Usually, the April–June period sees a drop in arrivals because summer begins in European countries. However, we are actively planning to push promotional campaigns in Japan, Australia, and New Zealand to counter this off-season drop,” Rajapaksha added.

The shift in demographics is also accompanied by a reduction in the time tourists spend in the country. Compared to the pre-pandemic period, the average duration of stay for tourists has slightly declined, largely due to rising costs and economic pressures. Shorter stays naturally reduce total expenditure, affecting the per-day average.

In 2018, tourists from the UK stayed an average of 10.4 days, while German tourists stayed 15.6 days and Russian tourists stayed 12.7 days. By 2025, the average stay for a tourist from the UK increased slightly to 11.3 days, but the duration for German tourists fell to 13.6 days and Russian tourists dropped to 10.3 days. French tourists also reduced their stay from 13.8 days in 2018 to 11.6 days in 2025. Regional visitors such as those from India dropped their stay duration from 6.5 days to 4.9 days over the same period.

Observations from the inflation rates indicate that, excluding China, the inflation ratios for tourists from most other countries have increased. This underscores how broader economic factors influence the capacity and willingness of tourists to spend.

Strategic shift towards quality over quantity

Faced with declining daily expenditures and shorter stays, the Government is executing a major policy shift. The era of focusing purely on arrival statistics is ending, making way for a strategy focused on maximising the financial yield of every single visitor.

Deputy Minister Ranasinghe outlined the foundational policies of this new direction: “The Ministry of Tourism has recognised the need to move beyond volume-driven growth and is implementing a value-focused strategy. Under the National Tourism Strategy Action Plan 2026–2030, emphasis is being placed on attracting high-spending segments such as wellness tourism, cultural and heritage travellers, nature-based experiences, and MICE tourism. 

“Regulatory reforms are also being introduced to strengthen service standards, licensing, and sustainability frameworks, while digital destination branding and targeted marketing campaigns are being deployed to ensure Sri Lanka maximises revenue per visitor rather than simply increasing arrivals.”

Rajapaksha also confirmed that the SLTDA was actively stepping away from the budget travel market, noting: “There has been a long-standing criticism that Sri Lanka only targets backpackers. We are no longer targeting backpackers. We are currently planning strictly for high-end tourism. 

“However, in our local culture, we do not have setups like the Maldives, where there is one isolated resort on one island catering to pure leisure. We face immense infrastructure challenges to support high-end travellers. If a wealthy tourist arrives at the main airport, we do not have an efficient domestic airline network to transport them to their destination. Unless they utilise helicopters, the road traffic is a massive deterrent.”

To attract premium spending, the SLTDA is heavily promoting niche segments such as destination weddings and medical tourism, despite current setbacks. 

Rajapaksha added: “Certain niche segments like ayurveda and wellness are incredibly sensitive to global issues. However, the Sri Lanka Convention Bureau has extensive plans to target markets like India for destination weddings. Just a few weeks ago, we hosted a very large and highly successful wedding party at the Shangri-La Hambantota. The destination wedding concept will be highly successful in the future because our costumes, culture, and traditions closely align with the Indian market. 

“Additionally, we are holding high-level discussions at present with the Ministry of Health and ayurvedic institutes to promote medical tourism. We need to establish strict criteria to facilitate these tourists, ensure proper registration, and guarantee the highest quality and standards in the sector.”

Infrastructure upgrades and regional connectivity

The ambition to attract high-value tourists cannot be realised without a fundamental overhaul of the country’s transport infrastructure. Both internal connectivity and international access are severe bottlenecks at present.

Rajapaksha highlighted a specific domestic crisis regarding the railway network, which heavily impacts rural tourism economies: “Following the recent severe weather events, we lost vital train connectivity to the upcountry region. The train service in the central Kandy area is currently nonexistent. If we plan to develop the upcountry area and promote its scenery and adventure tourism, we need that transport link. 

“Currently, the train travels from Badulla to Ambewela, but there is no train reaching Nanu Oya. Nanu Oya is the main transit point for Ella and Nuwara Eliya. Because of this disruption, Nanu Oya is completely isolated. It is one of the poorest districts in the country, and we had planned numerous activities to uplift the area, but the road transport system relies entirely on the train network. 

“The outbound train itinerary has changed, bypassing crucial tourist towns. We are currently coordinating with Sri Lanka Railways and other Government development authorities to solve this, as it is a massive challenge to support the economic development of rural areas without proper connectivity.”

On an international level, the Ministry of Tourism is aggressively pursuing airport development to bypass the troubled Middle Eastern transit routes. 

Detailing the Government’s aviation strategy, Ranasinghe said: “Regional airport development is being prioritised to strengthen direct connectivity and reduce reliance on compromised transit hubs. Budget 2026 has allocated Rs. 1 billion for upgrades at the Sigiriya and Trincomalee Airports, while Hingurakgoda is nearing completion and Jaffna’s expansion is scheduled to accommodate larger aircraft by mid-2027. In parallel, the Bandaranaike International Airport Terminal II expansion project, supported by Japan, is being accelerated to increase capacity and facilitate more direct long-haul connections from Western markets.”

Furthermore, direct diplomatic interventions are underway to secure alternative air routes.

“The Government is actively engaged in diplomatic discussions with leading carriers such as Emirates and Qatar Airways to position the Mattala Rajapaksa International Airport as a viable transit hub. Additionally, negotiations are underway with regional partners in Singapore, Thailand, India, and Egypt to establish alternative air corridors. These efforts are designed to ensure uninterrupted access for long-haul travellers and to incentivise international airlines to expand their operations to Sri Lanka,” the Deputy Minister said.

Looking to the future

A critical component of maximising revenue is ensuring that the money brought in by tourists stays within the local economy. Economic leakage, where hotels import goods rather than buy locally, has long drained the actual benefits of tourism.

Ranasinghe outlined the legislative measures being taken to plug these leaks: “The ministry has introduced tax incentives and policy measures that encourage hotels and resorts to source food, beverages, and materials locally. Budget 2026 reforms include adjustments to VAT and SSCL on imported goods, alongside enhanced capital allowances for SMEs investing in local production and green technologies. These measures are intended to strengthen domestic supply chains, reduce dependency on imports, and ensure that tourism revenues circulate within the national economy.”

Despite the grim short-term statistics, the Government remains steadfast in its long-term approach. The survival of the industry depends not just on weathering the current global storms, but on fundamentally restructuring what Sri Lanka offers to the world.

“Importantly, sustainable tourism initiatives including Rs. 3.5 billion for heritage and nature projects and Rs. 2.5 billion for the transformation of the Beira Lake continue as planned, reaffirming the Government’s commitment to building a resilient, high-value tourism sector under the 2026–2030 vision,” Ranasinghe said.