CHAPTER 3 HOSPITALITY INDUSTRY: THE INDIAN SCENARIO

Transcription

1 38 CHAPTER 3 HOSPITALITY INDUSTRY: THE INDIAN SCENARIO 3.1 HOSPITALITY IN INDIA The hospitality industry consists of broad category of fields within the service industry that includes lodging, restaurants, event planning, theme parks, transportation, cruise line, and additional fields within the tourism industry. The hospitality industry is a several billion dollar industry that mostly depends on the availability of leisure time and disposable income. A hospitality unit such as a restaurant, hotel, or even an amusement park consists of multiple groups such as facility maintenance, direct operations (servers, housekeepers, porters, kitchen workers, bartenders etc.), management, marketing and human resources. The hospitality industry covers a wide range of organizations offering food service and accommodation. The industry is divided into sectors according to the skill-sets required for the work involved. Sectors include accommodation, food and beverage, meeting and events, gaming, entertainment and recreation, tourism services, and visitor information. The service industry is one of the most flourishing industries in India today. Hospitality, in simple terms, is the service given to people. The travel and tourism sectors, hotel industries etc are in constant need of human workforce. The hospitality industry mainly focuses on the services that are provided to the customers. However, candidates opting for the Career in Hospitality Sector have to go through a rigorous training program to be able to sustain the ever growing demand of this industry. Many colleges and universities across the country offer courses in the hospitality sector. The career scope after the completion of these courses is very wide and promising. In India, hospitality is about serving the guests to provide them with the feel good effect. atithi devo bhava which means the Guest is God, has been one of the central tenets of Indian culture since times immemorial. In India, the guest is treated with utmost warmth and respect and is provided the best services. Hospitality sector in India, is one of the fastest growing industry which is expected to grow at the rate of 8% between 2007 and The hospitality segment, just like any other segment in India is booming at an unprecedented pace. Hotels in India have a supply of 110,000 rooms. According to the tourism ministry of India, 4.4 million tourists visits India every year and at current growth trend, demand will soar

2 39 to million in 2014 to accommodate 350 million domestic travellers. India faces a huge challenge of being under roomed while the economy is growing rapidly every year. This provides for a huge potential opportunity for the hospitality industry to cash in the supply shortage and grow at an unprecedented rate. It is estimated that under the current demandsupply scenario of hotels, there is an acute shortage of 150,000 rooms in our country. So, the indication is quite clear that in order to uphold such an impressive demand of tourists, both local and foreign, there is no other option for the industry but to grow and fill up the gap of demand-supply of hotels. A lot of real estate developers are also investing into this business to bridge the demand-supply gap and leverage the opportunity. With tremendous pull of opportunity, India is a destination for hotel chains looking for growth. The World Travel and Tourism Council, India, data states that India ranks 18 th in business travel and will be among the top five in this very decade. Sources estimate, demand is going to exceed supply by at least 1005 over the next two years. Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving the 24 hour rates from both the guests against 6-8 hours usage by each guest. This truly causes a paradox of usage time and value charged by the hotels. With demand-supply disparity, hotel room rates in India are most likely to rise 255 annually and occupancy to rise by 80% over the next two years. Hotel industry in India is eroding its competitiveness as a cost effective destination. However, it is often claimed the rating of the hotels in bullish in nature. The hotel industry in India is adding about 60,000 quality rooms currently in different stages of planning and development and should be ready by MNC Hotel Industry giants are flocking India and forging joint ventures to earn their share of potential revenue. The Government of India has approved 300 hotel projects, nearly half of which are in the luxury segment across the country. Sources claim, the manpower requirements of the hotel industry will increase from 7 million in 2002 to 15 million in The Indian hospitality industry has emerged as one of the key industries driving the growth of the services sector. It aims to provide the most comprehensive guide to all India performance trends for this industry. Results of the Survey will empower industry stakeholders such as owners, investors, operators, business analysts, and researchers with information on the operational aspects of the industry. It will also help owners benchmark the performance of their operations against industry standards. 19 HVS INDIAN HOTEL INDUSTRY SURVEY

3 40 This report has been done against a backdrop of reduced GDP growth, a plummeting rupee, increased economic and political uncertainty and a general sentiment that India has lost its way. Industries and sectors across the spectrum such as automobile, FMCG, and residential real estate have reported slowing sales and even declines in some cases. While the overall economic scenario has also had an impact on the hospitality industry, it is important to remember that hospitality, like many other industries, is cyclical in nature and that while we are in the down cycle right now, things will improve and markets and investors will start seeing positive momentum in the next months. People seem to have forgotten that our industry has been through such downturns before and has always bounced back stronger, with periods of slow growth being followed by strong occupancy and average rate performance. It is, therefore, very important for us to get beyond the over-simplified commentary in the press and closely examine the four parameters that impact overall hotel industry performance namely, demand, supply, occupancy and average rate. The survey participant base has registered a significant rise since 1995/96 from 120 hotels with 18,160 rooms to a record 717 hotels with a room count of 86,122 in (a majority of them being in the branded space): an increase of an additional 166 hotels and approximately 16,200 rooms since the last survey. An interesting trend to note is the correlation between the supply and demand growth, with the supply growing at 17.8% compounded annual growth rate (CAGR) and demand at 17.3% from to The fact that occupancy levels remained generally stable during this period despite strong increases in supply is indicative of the healthy growth in demand. However, the occupancy performance is only part of the story; there appears to be a trend where hotels are dropping average rates to attract customers in the face of increased supply. Hence it can be said that a new customer mindset is emerging that is sensitive to the price instead of the traditional one, which was more loyal to a hotel/brand. As operators battle increasing departmental costs and owners struggle with debt service payments, hotel companies need to reconsider their rate strategies. Here we present the operating profiles and financial data for different categories of hotels in four major cities: Chennai, Delhi-NCR, Kolkata, & Mumbai. This section will provide the reader an understanding of hotel performance in these cities. Growth in Demand and Supply: In , the country experienced a slowdown in growth across sectors, as reflected in GDP growth of 5%. Despite this slowdown, the year saw hotels

4 41 maintain occupancy levels at a steady 60.4% (60.9% in ). It is estimated that major cities across the country witnessed a growth of 11% in hotel room supply in , while demand exhibited a strong increase of 9.2% during the same period. The nationwide results of this year's Survey, however, reveal that the average rates declined by 3.6% when compared to those in Inflation, which has been a major worry for the Indian economy for many years due to its adverse effects on investments and savings, and ultimately growth, showed a favorable downswing in 2012/13. The Wholesale Price Inflation (WPI), India's benchmark indicator of price rises, averaged 7.4%, down from 8.9% in the previous fiscal. The rupee was volatile, depicted in the exchange rate to the US dollar fluctuating significantly in 2012/13. However despite the strong increase in supply, demand kept pace and nationwide occupancy remained nearly stable over the past five years. The following tables depict the demand scenario in the four major cities of India during the onset of Global down turn and subsequent recovery period. AVERAGE OCCUPANCY CITY RANK RANK KOLKATA 73.90% % 1 DELHI 73.90% 3 63% 3 MUMBAI 74.60% % 2 CHENNAI 77.40% % 4 COMPOUNDED ANNUAL GROWTH IN SUPPLY SINCE TO CITY SUPPLY RANK KOLKATA 12.00% 3 DELHI 7.10% 4 MUMBAI 12.70% 2 CHENNAI 16.50% 1

5 42 COMPOUNDED ANNUAL GROWTH IN DEMAND SINCE TO CITY DEMAND RANK KOLKATA 12.00% 3 DELHI 5.30% 4 MUMBAI 14.10% 2 CHENNAI 16.20% 1 COMPOUNDED ANNUAL GROWTH IN AVERAGE RATE SINCE TO CITY AVERAGE RATE RANK KOLKATA -2.30% 1 DELHI -6.40% 3 MUMBAI -8.00% 4 CHENNAI -5.30% 2 COMPOUNDED ANNUAL GROWTH IN OCCUPANCY SINCE TO CITY OCCUPANCY RANK KOLKATA 0.00% 2 DELHI -1.60% 4 MUMBAI 1.30% 1 CHENNAI -0.30% 3 Existing Supply 2012/13 Fiscal year 2012/13 saw the addition of around 9,000 branded rooms resulting in a nationwide existing supply of 93,479 rooms, an increase of around 11% over the previous year and 138% since 2006/07. NOIDA (including Greater NOIDA) shows the highest increase in supply in 2012/13 over the previous year (58.6%). This is primarily owing to a larger number of hotels reporting their data for 2012/13, the highest since we have been tracking this market separately, and not simply because of the new supply entering the market. Mumbai (including Navi Mumbai) maintained its top position with the highest existing supply of branded rooms in the country, followed closely by Delhi (excluding Gurgaon, NOIDA and Greater NOIDA) whereas NOIDA (including Greater NOIDA) continued to rank last amongst the major markets with an existing base of only 836 branded rooms. The following tables shows the existing supply for the four cities in 2007/08 and 2012/13.

6 43 EXISTING SUPPLY CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI PROPOSED INCREASE IN FUTURE SUPPLY WITHIN TO PROPOSED INCREASE IN FUTURE CITY SUPPLY RANK KOLKATA 162% 1 DELHI 54% 4 MUMBAI 77% 3 CHENNAI 88% 2 PROPOSED ACTIVE DEVELOPMENT OF SUPPLY WITHIN TO CITY ACTIVE DEVELOPMENT OF SUPPLY RANK KOLKATA 64% 3 DELHI 84% 1 MUMBAI 42% 4 CHENNAI 65% 2 PROPOSED BRANDED LUXURY HOTEL ROOMS WITHIN TO PROPOSED BRANDED LUXURY HOTEL CITY ROOMS RANK KOLKATA 28.30% 2 DELHI 17.80% 3 MUMBAI 31.60% 1 CHENNAI 6.50% 4

7 44 PROPOSED BRANDED UPSCALE HOTEL ROOMS WITHIN TO CITY PROPOSED BRANDED UPSCALE HOTEL ROOMS RANK KOLKATA 27.00% 1 DELHI 23.40% 2 MUMBAI 18.90% 3 CHENNAI 11.80% 4 PROPOSED BRANDED MIDMARKET HOTEL ROOMS WITHIN TO CITY PROPOSED BRANDED MIDMARKET HOTEL ROOMS RANK KOLKATA 31.40% 3 DELHI 38.80% 2 MUMBAI 27.10% 4 CHENNAI 43.90% 1 PROPOSED BUDGET HOTEL ROOMS WITHIN TO CITY PROPOSED BRANDED BUDGET HOTEL ROOMS RANK KOLKATA 13.30% 4 DELHI 20.00% 2 MUMBAI 18.00% 3 CHENNAI 31.30% 1 PROPOSED EXTENDED STAY HOTEL ROOMS WITHIN TO PROPOSED BRANDED BUDGET HOTEL CITY ROOMS RANK KOLKATA 4.40% 2 DELHI 0.00% 3 MUMBAI 4.40% 2 CHENNAI 6.50% 1

8 45 The occupancy situation is, unfortunately, only part of the story. As new supply entered the various markets, the hotels seem to have panicked and dropped rates pretty much across the board, even in markets where occupancy levels remained stable or even increased during the last five years! This trend holds true even when it is analysed average rates by positioning to negate out the impact of a greater proportion of budget and mid market hotels opening across these markets. Given the nervousness amongst the hotels, nationwide average rate exhibited a CAGR of - 6.9% during the last five years. AVERAGE ROOM RATE (INR) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI AVERAGE ROOM RATE (US$) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI Future Supply across Major Cities (2007/ /13) Over the years, a comprehensive approach has been followed for tracking new hotel development. We would like to state that a lot of effort goes into collating this data and then verifying many of these projects across various cities in terms of their development stage. Our tracking omits any flippant statements made to the media or announcements made by real estate developers to promote their brand and, therefore, get greater visibility. Thus, as we do each year, we have put together a list of developments under construction or those announced in each market that have a confirmed tie-up with an operator. Such developments have been

9 46 analysed rationally, through the prism of an unbiased third party, for the probability factor of their development within the next five years. From 1,14,466 branded rooms in 2007/08, the highest in the last seven years, the total proposed supply was down to 84,650 rooms in 2012/13. Considering this in conjunction with the 138% growth in existing supply over the same period, one can attribute the decline in proposed supply partially to a substantial number of previously planned rooms becoming operational. Additionally, account of the economic downturn, high borrowing costs and tight liquidity are the other major contributors towards this decline. It has been observed that whenever there is a downward trend in the nationwide RevPAR, the industry panics resulting in a non-conducive atmosphere for future hotel investments. Hotel markets have historically been cyclical in nature with peaks and troughs in performance, and therefore, a myopic view stemming from the short-term performance forecast is not prudent. In fact, there are instances when hotels that commenced construction during the downturn were actually seen reaping the benefits of the upswing as operating hotels. HVS recommends that the various parameters specific to the market and the project be comprehensively evaluated prior to deciding against investing in hotel development instead of relying on short term speculations and nationwide trends. Also, the industry needs to work with the banking sector to familiarise it with the cyclical nature of the hotel business and thereby make funding more accessible during the down cycles rather than when everything appears to be well. The following tables present the existing and proposed supply in each of the major markets and 'other cities' covered in this report, with indication of the supply under active development (currently under construction or those that will open over the next five years. We have further classified the new supply into its potential positioning of luxury, upscale, mid market, budget and extended stay hotels. It also presents the development trend of the hotel markets across India between 2007/08 and 2012/13. With mid market and budget hotels comprising 57.0% of the proposed supply, there will clearly be a rearrangement within the Indian hotels pyramid, or simply in the space currently shared by the different market positioning. Luxury and upscale hotels have a 40.1% share in the proposed supply. This trend is especially evident in Chennai, and is most certainly a response to the growing number of mid-level domestic business travellers to the city. Attention to new mid market and budget rooms is a clearly favourable development, keeping in mind the industry s long term room requirement and that mid market and budget hotels come up quicker and at a lower cost than lodging products with a higher positioning.

10 47 The countrywide active development of supply was lower in 2012/13 when compared with the previous fiscal in absolute terms. We anticipate that a little over 50,000 branded rooms will be developed over the next five years, taking the total supply to about 144,000 rooms by 2017/18. The following tables provide a glimpse of the projection of future situation of the hospitality industry in the four major cities. PROPOSED MID MARKET HOTEL VALUE PER ROOM IN INDIAN RUPEES (LAKHS) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI PROPOSED MID MARKET HOTEL VALUE PER ROOM (PERCENT VARIANCE) CITY RANK RANK KOLKATA 22% 1 4% 1 DELHI 11% 2-8% 2 MUMBAI -6% 4 4% 1 CHENNAI -4% 3 4% 1 PROPOSED MID MARKET HOTEL VALUE PER ROOM IN US DOLLARS (000s) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI PROPOSED 5-STAR DELUXE HOTEL VALUE PER ROOM IN INDIAN RUPEES (LAKHS) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI

11 48 PROPOSED 5-STAR DELUXE HOTEL VALUE PER ROOM (PERCENT VARIANCE) CITY RANK RANK KOLKATA 22% 2 4% 3 DELHI 11% 3 6% 1 MUMBAI 24% 1 5% 2 CHENNAI 22% 2-10% 4 PROPOSED 5-STAR DELUXE HOTEL VALUE PER ROOM IN US DOLLARS (000s) CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI VOLATILITY RATIO OF MID MARKET & 5-STAR DELUXE ( ) CITY MID MARKET RANK 5-STAR DELUXE RANK KOLKATA DELHI MUMBAI CHENNAI REVENUE PER AVAILABLE ROOM IN INR CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI REVENUE PER AVAILABLE ROOM IN US$ CITY RANK RANK KOLKATA DELHI MUMBAI CHENNAI

12 49 Industry Performance According to Star Category This section presents the results of the performance of the hotels analyzed according to the star classification of the hotels. The hotels have been classified into the five star categories applicable in India. This report presents the results Survey on the performance of mostly branded hotels, analyzed by each star grading, as well as major cities. Moreover, for each city we have presented the new supply, its market orientation and estimated the number of rooms under construction along with the probability of their development over a period of five years. The nationwide RevPAR recorded a 5.2% drop in 2012/13 over the previous year with the five-star segment registering the maximum decline (8.7%), followed by the three-star segment (4.0%). This downswing could be attributed to these two categories witnessing close to 60% of the new supply in 2012/13. Conversely, the newly introduced two-star category registered the highest RevPAR growth (10.4%) on the back of a 14.7% increase in average rate. This is important to note as it highlights the acceptance of branded economy and budget hotels by travelers, especially domestic business travelers, despite the stiff competition these products face from the parallel unorganized sector prevalent in most major Indian cities. the following tables illustrates hotel occupancy, average rates for each of the star categories, expressed in Indian rupees and us dollars respectively, average number of total employees per hotel, average number of employees per hotel per room & average number of trained & untrained employees per hotel across the star categories in India between and INDUSTRY PERFORMANCE BY MAJOR CITIES Overall, Kolkata emerged as the best performing hotel market in terms of occupancy (69.5%) in 2012/13, while Mumbai (including Navi Mumbai) registered the highest average rate (`7,646) and RevPAR (`4,881) amongst the 13 major markets being tracked in this report. AVERAGE NUMBER OF TOTAL EMPLOYEES PER HOTEL IN 5-STAR DELUXE, 5-STAR & 4-STAR (PERMMANENT/CONTRACT/FULL TIME/PART TIME) KOLKATA DELHI MUMBAI CHENNAI

13 50 AVERAGE NUMBER OF EMPLOYEES PER HOTEL PER ROOM IN 5-STAR DELUXE, 5- STAR & 4-STAR (PERMMANENT/CONTRACT/FULL TIME/PART TIME) KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF TOTAL EMPLOYEES PER HOTEL IN 3-STAR & 2-STAR (PERMMANENT/CONTRACT/FULL TIME/PART TIME) KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF EMPLOYEES PER HOTEL PER ROOM IN 3-STAR & 2-STAR (PERMMANENT/CONTRACT/FULL TIME/PART TIME) KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF TRAINED EMPLOYEES PER HOTEL IN 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI

14 51 AVERAGE NUMBER OF TRAINED EMPLOYEES PER HOTEL IN 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF UNTRAINED EMPLOYEES PER HOTEL IN 5-STAR DELUXE, 5- STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF UNTRAINED EMPLOYEES PER HOTEL IN 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI When observing the foreign and domestic classification, we observe that Delhi-NCR received the highest contribution from international travelers, especially in the five-star deluxe, five star, and four star categories AVERAGE NUMBER OF BUSINESS GUEST IN 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI

15 52 AVERAGE NUMBER OF BUSINESS GUEST IN 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF LEISURE GUEST IN 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI AVERAGE NUMBER OF LEISURE GUEST IN 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI DOMESTIC GUEST ANALYSIS OF 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA 62.7% % 1 DELHI 44.9% % 4 MUMBAI 56.9% % 2 CHENNAI 54.9% % 3 DOMESTIC GUEST ANALYSIS OF 3-STAR & 2-STAR KOLKATA 85.3% % 1 DELHI 60.1% % 2 MUMBAI 68.25% % 4 CHENNAI 69.7% % 3

16 53 FOREIGN GUEST ANALYSIS OF 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA 37.3% % 4 DELHI 55.1% % 1 MUMBAI 43.1% % 3 CHENNAI 46% % 2 FOREIGN GUEST ANALYSIS OF 3-STAR & 2-STAR KOLKATA 14.7% % 4 DELHI 60.1% % 3 MUMBAI % 1 CHENNAI % 2 NET INCOME PER OCCUPIED ROOM OF 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI NET INCOME PER OCCUPIED ROOM OF 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI

17 54 NET INCOME PER AVAILABLE ROOM OF 5-STAR DELUXE, 5-STAR & 4-STAR KOLKATA DELHI MUMBAI CHENNAI NET INCOME PER AVAILABLE ROOM OF 3-STAR & 2-STAR KOLKATA DELHI MUMBAI CHENNAI THE VOYAGE SO FAR India s cultural diversity, weather, history, natural offerings as well as people together contribute towards propagating the country s positive brand image across the world. While the recent uncertainty in the economy has affected the hospitality industry at large, India remains one of the world s fastest growing hotel markets. With an overall increase in leisure and business travelers over the past few years, India s hospitality industry has attracted global attention. A buoyant domestic economy, the government s open sky policy, the real estate boom, initiatives to liberise foreign investment and specially the Tourism ministry s efforts together contributed to healthy demand for hospitality space in major cities across India. The overall contribution of travel and tourism to the national economy is estimated at approximately 5.3% annually. It is expected that by the year 2020, tourism related activities in India will contribute approximately INR 8,500 billion to the GDP. As the industry constitutes various other related sectors, such as hotels, hospitals, aviation and shipping among others, it acts as a multiplier towards overall revenue generation. This special discourse endeavors to understand the existing and projected hospitality sector s performance in three categories namely the Up-scale, Mid-scale and Budget hotels across the

18 55 entire of city of Kolkata, along with assessment of the external drivers and potential industry factors impacting the industry. The demand drivers for the industry are assessed by examining closely related factors like existing hotel room stock, availability of new hotel properties, human resource availability, policy administration, investment for infrastructure development and socio economic climate. As domestic and international travelers get more apprehensive about security in key Indian cities, occupancy rates and room tariffs are likely to drop in the short term. This can be substantiated by the recent official estimates released by Ministry of Tourism stating the drop in overseas visitors to the country in November 2008 by 2.1 percent as compared to November Over the next few years, occupancy rates are expected to witness a fall in light of the current economic scenario as well as the anticipated over supply situation in select markets. Over the last decade, the intensified rush to India for tapping business opportunities had a rippling effect on several sectors that made hay in sunshine. It was good news for India s hospitality and tourism industry which boasts of diversity in culture, weather, history, nature s offerings as well as people. From a growth driver perspective, while the current uncertainty in the global financial market, along with the credit crisis, in its aftermath, has adversely affected businesses, India s inherent potential and appeal as a tourist, medical and heritage site remains unaffected. The sector is actively leveraging it rich historical background and a diversified culture to graduate from being a relatively smaller player to a higher position in the global hospitality arena. 20 S.W.O.T Analysis of Hotel Industry: Strengths A very wide variety of hotels is present in the country that can fulfill the demand of the tourists. There are international players in the market such as Taj and Oberoi & International Chains. Thus, the needs of the international tourists travelers are met while they are on a visit to India. Manpower costs in the Indian hotel industry is one of the lowest in the world. This provides better margins for Indian hotel industry. India offers a readymade tourist destination with the resources it has. Thus the magnet to pull customers already exists and has potential grow. 20

19 56 Weaknesses The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry. The hotel industry in India is heavily staffed. This can be gauged from the facts that while Indian hotel companies have a staff to room ratio of 3:1, this ratio is 1:1 for international hotel companies. High tax structure in the industry makes the industry worse off than its international equivalent. In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%. Effective tax in the South East Asian countries works out to only 4-5%. Only 97,000 hotel rooms are available in India today, which is less than the Bangkok hotel capacity. The services currently offered by the hotels in India are only limited value added services. It is not comparable to the existing world standards. Opportunities Demand between the national and the inbound tourists can be easily managed due to difference in the period of holidays. For international tourists the peak season for arrival is between September to March when the climatic conditions are suitable where as the national tourist waits for school holidays, generally the summer months. In the long-term the hotel industry in India has latent potential for growth. This is because India is an ideal destination for tourists as it is the only country with the most diverse topography. For India, the inbound tourists are a mere 0.49% of the global figures. This number is expected to increase at a phenomenal rate thus pushing up the demand for the hotel industry. Unique experience in heritage hotels. Threats Guest houses replace the hotels. This is a growing trend in the west and is now catching up in India also, thus diverting the hotel traffic. Political turbulence in the area reduces tourist traffic and thus the business of the hotels. In India examples of the same are Insurgency in Jammu Kashmir and the Kargil war. Changing trends in the west demand similar changes in India, which here are difficult to implement due to high project costs.

20 57 The economic conditions of a country have a direct impact on the earnings in hotel industry. Lack of training man power in the hotel industry. 3.3 QUICK FACTS India is the world s fifth most popular tourist destination according to the World Travel and Tourism Council. Occupancy rates for hotels in India are among the highest in the world. From about 8 to 9 branded hotels in 2000, India will be home to approximately 45 hotel brands by Average Room Rate (ARR) for Delhi and Mumbai are comparable to that of global cities such as New York, Singapore and Hong Kong. ARR in India has doubled in the period between Approximately USD 150 billion is expected to be spent over the next five years on tourism related infrastructure by government. Between 24,000 to 25,000 new up-scale hotel rooms are expected in major Indian cities by the year 2013 as compared to a nearly of 18,000 rooms in the mid-scale and budget segment. Yet, total stock of hotel rooms will continue to lag behind demand till the mid of India is one of the top tourist destinations in the world and tourist volumes have registered strong growth in the last five years. Tourist volumes are expected to grow at over 11% annually until 2015, with health and wellness tourism recording particularly strong growth due to the high healthcare costs in Western countries and the high-quality medical facilities offered in India. There are considerable opportunities for capital investment. Air transport in India is still in the growth phase, and the rising demand and increasing buying power has made this sector very attractive. However, infrastructure bottlenecks, poor hygiene standards, delays in policy frameworks and crime rates are among the major challenges that need to be addressed before the full growth potential of India s travel and tourism sector can be harnessed. JOURNEY CONTINUED Business in the hotel industry, much like any other sector, is cyclical in nature. Any significant change in the economy, such as the present liquidity crisis, affects the sector resulting in lower occupancy levels, delays in upcoming projects and anticipated decrease in room rates. Although India boasts of a fundamentally sound economic system, positive infrastructure

21 58 initiatives and increased investment investor interest, which has been too evident on the last two years, across all asset classes including the hospitality industry, the current financial crisis has brought with it, a slowdown in the industry s growth prospects over the short term to medium term. The present economic conditions have led to adversaries such as project delays, thereby impacting the upcoming hospitality supply to a large extent. Over the years, this sector has been faced with multiple challenges, primary being the individual city level supply-demand disequilibrium in hotel rooms. Yet another micro factor affecting the industry s growth rate is an overwhelming preference for the budget category hotels among the price-sensitive corporate or leisure consumers. However, major developers have taken a different stand announcing plans to develop 5 star deluxe, 5 star and 4 star category hotels primarily across Tier 1 and 2 cities rather than budget hotels. Anticipation of tying up with international operators and better brand image and better opportunity to attract funding from investors and higher prospective of an early break-even have initiated many developers to enter the hospitality asset class. The overall tourism activity in India during 2007 has remained healthy. Much as Low Cost Carriers (LCC) had revolutionized air travel in the country with no-frills services and low airfares, budget hotels too surfaced a few years ago with the promise to offer better, affordable standardized and branded hotel rooms at prices matching the unorganized sector. Brands such as Elom Tree, Indian Hotels, Ginger Hotels, ITC s Fortune brand, Clarks Inn, Choice Hotels and Sarovar Hotels to name a few, introduced hotel rooms for the economy traveller. However, akin to the budget airlines, no-frills branded hotels were also forced to appreciate their room rates on the face of escalating real estate and operational costs, so much so that the tag budget hotel has become a misnomer with room tariffs crossing over INR 4,500 per night. In the present low-key market sentiment and the corporate sector going into a smart spending mode with serious cost control measures, the travel and hospitality industry has been badly hit. India Inc is now making do with tighter travel budgets, cheaper hotel stays and shorter business tours with many companies accommodating employees in alternate accommodation like guesthouses and serviced apartments instead of star category hotels. Another recent important development has been the growing global concerns over the security issues in India following the terrorist attacks in Mumbai a few years back. This has resulted in rescheduling and even cancellations of travel plans to India by many foreign tourists. This has affected not only ye leisure tourist segment of travelers but also the health, medical and MICE (meetings, incentives, conventions and exhibitions) tourists to India.

22 59 Despite the temporary slowdown as enunciated, India is still the world s one of the fastest growing hotel markets. With an overall increase in leisure and business travelers over the past few years, India s hospitality industry has attracted global attention to a great extent. Hotels across all segments achieved healthy occupancy levels until end A buoyant domestic economy, the government s open sky policy, an overall real estate boom, initiatives to liberalize foreign investment and especially the MoT s efforts to communicate the Incredible India campaign together contributed to a robust demand for hospitality space in major cities across India. The Incredible India campaign was launched in 2002 as an integrated marketing and communication effort to promote India as a destination across the world and is considered to be one of the more successful initiatives so far. With the success of this campaign, foreign tourist arrival increased by almost 65% from 2.38 million in 2002 to 3.92 million in 2005, while foreign exchange earnings have grown by over 95% during the same period. In 2007, inbound tourist arrival touched 5 million, registering an annual growth of approximately 12%. Foreign exchange earnings from tourism for the same period also witnessed an impressive annual growth of 33% from USD 9 million in 2006 to USD million in In keeping with the current growth rate, India s hospitality industry is anticipated to grow at 8 percent per annum between 2007 and Over the years, hospitality as a service in India, has witnessed a paradigm shift with many international hotel chains and operators entering the domestic market, enabling new business prospects for established corporate firms and entrepreneurs alike. Though they operate in different domains, the hospitality sector by and large shares a direct relationship with the travel and tourism industry. 3.4 TRAVEL AND TOURISM INDUSTRY IN INDIA Tourism is an integral part of the global economy and India is no exception to this rule. The industry, by virtue of being labour intensive, is a significant employment generator and a substantial contributor towards the foreign exchange for any nation. The Indian tourism industry directly contributes around 2% towards the national GDP. According to the Hotel Association of India, the overall contribution of travel and tourism to the national economy is estimated at approximately 5.3% annually. It is expected that by 2020, tourism related activities in India will contribute approximately INR 8,500 billion to the GDP. As the industry constitutes various other related sectors, such as

23 60 hotels, hospitals, aviation and shipping among others, it acts as a multiplier to the overall revenue generation. In the provisional data released by the Ministry of Tourism (MoT), travel and tourism industry recorded an annual growth of 33% during 2007 in terms of foreign exchange earnings in a single year. The number of inbound travelers also saw an increase in this period. Although foreign tourist s arrivals (including business and leisure travelers) are the prime source of revenue growth, complimentary sectors such as medical tourism and MICE travel also contributed significantly towards India s GDP. Tourist arrival is expected to increase gradually in the coming years on account of improved overall infrastructure, positive government initiatives on tourism and to a larger extent India s emergence as an outstanding hub. According to World Travel and Trade Council (WTTC) estimates, India s tourism demand is likely to grow at an average rate of 8.8% till 2013, making it the third fastest growing tourism market in the world. In addition, the government s move to declare hotel and tourism industry as a high priority sector with a provision for 100% foreign direct investment (FDI) through the automatic route has made this industry further lucrative for parking funds. It is estimated that the hospitality sector could see an infusion of USD billion with around 40 international hotel brands making an entry into the country by The tourism and hospitality industry is one of the largest segments under the services sector of the Indian economy. Tourism in India is a key growth driver and a significant source of foreign exchange earnings. In India, the sector's direct contribution to gross domestic product (GDP) is expected to grow at 7.8 per cent per annum during the period The tourism sector in India is flourishing due to an increase in foreign tourist arrivals (FTA) and a larger number of Indians travelling to domestic destinations. According to statistics available with the World Travel and Tourism Council (WTTC), revenues gained from domestic tourism rose by 5.1 per cent in 2013 and is expected to increase by 8.2 per cent this year. Hotels are also an extremely important component of the tourism industry. The Indian hospitality sector has been growing at a cumulative annual growth rate of 14 per cent every year, adding significant amount of foreign exchange to the economy. The role of the Indian government, which has provided policy and infrastructural support has been instrumental in the growth and development of the industry.the tourism policy of the government aims at speedy implementation of tourism projects, development of integrated

24 61 tourism circuits, special capacity building in the hospitality sector and new marketing strategies. 21 The total market size of the tourism and hospitality industry in India stood at US$ billion in 2011 and is anticipated to touch US$ billion by FTAs during the period January-June 2014 stood at 3.54 million as compared to FTAs of 3.36 million during the corresponding period of 2013, registering a growth of 4.5 per cent. FTAs during June 2014 were 492,000 as compared to 451,000 during June 2013, a growth of 11.5 per cent. Foreign exchange earnings (FEE) during January-June 2014 stood at Rs 56,760 corer (US$ 9.44 billion)as compared to FEEs of Rs 51,587 crore(us$ 8.58 billion)during the same period last year, registering a growth of 17.9 per cent. FEEs during June 2014 were Rs 8,458 corer (US$ 1.41billion). The number of tourists availing the tourist Visa on Arrival (VOA) scheme during January-June 2014 have recorded a growth of 28.1 percent. During the period, a total number of 11,953 VOAs have been issued as compared to 9,328 VOAs during the corresponding period of The foreign direct investment (FDI) inflows in hotel and tourism sector during the period April 2000 March 2014 stood at US$ 7, million, as per the data released by Department of Industrial Policy and Promotion (DIPP). The following are some of the major investments and developments in the Indian tourism and hospitality sector: India's largest integrated travel company Thomas Cook's human resources and staffing arm Ikya Group plans to buy Hofincons Infotech and Industrial Services. The deal is estimated to be valued around Rs crore (US$ million). Hyatt has announced the opening of Hyatt Raipur, its sixth Hyatt-branded property in India. "We are delighted to introduce the first Hyatt-branded hotel to Raipur. Hyatt hotels are intimate, upscale hotels that offer authentic hospitality in a vibrant environment," as per Mr Pablo Graf, Senior Vice President -Operations, Hyatt Hotels & Resorts, South West Asia. 21

25 62 Lemon Tree Hotels plans to invest Rs 1,000 crore (US$ million) to ramp up room capacity from 2,800 to 8,000 across the country by the end of "Our rampup will include rooms in our upscale brand Lemon Tree Premier, mid-scale brand Lemon Tree Hotels and economy brand Red Fox," said Mr Sumant Jaidka, COO, Lemon Tree Hotels. Oberoi Realty plans to bring iconic luxury brand Ritz-Carlton to Mumbai. The American brand hotel is being planned in Worli and is expected to come up by 2016 at a cost of Rs 750 crore(us$ million). Movenpick Hotels and Resorts has signed a management agreement to operate a new hotel in Kochi, its third property in India. The hotel will be owned by ITMA Hotels India Pvt Ltd, an associate company of Jomer Properties and Investments. 22 Government Initiatives The Ministry of Tourism has launched a web-based Public Delivery System to ease the process of filing applications by the travel trade service providers seeking recognition from the Ministry, and also to bring in transparency in granting the approvals. All the applications will now be examined, processed and approved within 45 days from the receipt of completed applications. Tripigator.com, a travel planning engine, was launched in Delhi in partnership with Incredible India of Ministry of Tourism, on May 5, The website instantly generates personalised travel itineraries with fewer inputs and significantly reduces users' efforts by replacing 10 tabs with one tab. The Ministry has also launched a campaign 'Clean India' to sensitise all sections of the society on the importance of cleanliness and hygiene in public places, particularly monuments and tourist destinations. The campaign is a blend of persuasion, education, training, demonstration and sensitization of all sections of the society. The Ministry of Tourism has been making efforts to develop quality tourism infrastructure at tourist destinations and circuits in the country. It has sanctioned Rs 4, crore (US$ million) for a total number of 1,226 tourism projects, which includes projects related to Product/Infrastructure Development for Destination and Circuits (PIDDC), Human Resource Development (HRD), Fairs and Festivals, and Adventure and Rural Tourism for infrastructure augmentation. 22

26 63 23 RECORDS OF STATISTICAL DATA ON TOURISM OF INDIA & IMPORTANT FACTS ABOUT TOURISM COMPARATIVE DATA Foreign Tourist Arrivals 4.45 million 6.97 million 2. Indian Nationals Departure from India 8.34 million million 3. Domestic Tourist visit to all States million 960 million 4. Foreign Exchange earnings from Tourism Rs. 40,375 crore Rs. 1,07,671 crore 5. Number of International Tourists Arrival 846 million 1087 million 6. International Tourism Receipts 735 US$ billion 1159 US$ billion 7. Share of India in International tourist arrivals 0.52% 0.64% 8. Share of India in International tourist receipts 1.21% 1.59% 9. India's rank in World Tourist Arrivals India's rank in World Tourist Receipts INFERENCE: It is seen foreign tourist arrival & Indian Nationals Departure from India has increased by 50% whereas Domestic Tourist visit to all States has almost doubled in the last 7 years. Foreign Exchange earnings from Tourism & Number of International Tourists Arrival have gone up by % & 28.49% respectively over the last 7 years. Share of India in International tourist arrivals, Share of India in International tourist receipts, and India s rank in World Tourist Arrivals & India's rank in World Tourist Receipts has also improved over the years. So overall we can see a great improvement in the tourism of India. 24 Tourism at a Glance in The amount of foreign direct investments (FDI) inflow into the tourism industry in India during April 2000 to October 2012 was around US$ 6,484 million, as per data provided by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. Foreign Exchange Earnings (FEEs) from Tourism showed an increase of 21.8 per cent during 2012, as compared to FEEs of FTAs in India during 2012 were 6.65 million with a growth of 5.4 per cent as compared to the FTAs of 6.31 million during the year FEEs from tourism in rupee terms during 2012 were Rs 94,487 crore (US$ billion) with a growth of 21.8 per cent as compared to the FEEs of Rs 77,591 crore (US$ billion) during the year As 23 (Market Research Division) 24

27 64 per the Twelfth Five Year Plan, India s travel and tourism sector is estimated to create 78 jobs per million rupees of investment compared to 45 jobs per million rupees in the manufacturing sector. FTA growth moderated to 5.4 per cent to reach lakh arrivals in As a result, foreign exchange earnings (FEEs) growth in dollar terms that was 16.7 per cent in 2011 moderated to 7.1 per cent to reach US $ billion in 2012.The hotels and restaurants sector with a 1.5 per cent share in India s GDP in is also an important sub-component of the tourism sector. Road Ahead India is projected to be number one for growth globally in the wellness tourism sector in the next five years, clocking over 20 per cent gains annually through 2017, according to a study conducted by SRI International. The government's decision to introduce the electronic visa facility (e-visa) will give a much needed boost to inbound travel in India. Enforcing the electronic travel authorisation (ETA) before the next tourism season, which starts in November, will result in a clear jump of at least 15 per cent, and this is only the start, as per Mr Madhavan Menon, Managing Director, Thomas Cook India. The hospitality sector in India expects 52,000 new hotel rooms to be added in five years ( ), according to a survey by Cushman & Wakefield. This will lead to a rise of over 65 per cent in total hotel inventory in India. The National Capital Region (NCR) is expected to contribute around one-third to the total expected hotel rooms supply during the period. 25 Domestic Tourism Tourists have become advanced in their travel options. They want to explore varied tourism activities in a short period of time. They don t have much time to spare for holidays due to their hectic schedule at work. They convey their interest and choose travel packages accordingly from travel agents. Every segment of travel such as Adventure, Beach and Ecotourism have customers in India. In the Indian market, some of the major tourism domestic trends that have evolved over the years are soft adventure activities, hard adventure activities, short-trip and long weekend holidays to nearby places, growing interest towards specific 25

28 65 destinations such as Goa, Rajasthan, and Wedding Tourism. Travel industry experts talk about the major domestic trends in the Indian market. Domestic Tourism is booming in India. Some of the major Domestic Tourism trends are weddings, Pilgrim Tourism, family and individual holidays, and existing trends such as weekend and short trips. To promote Domestic Tourism further, the government should tighten security in India to avoid unpleasant acts towards tourists. Every state should become tourist-friendly. Some of the other major Domestic Tourism trends are events, conferences, weddings, et al. The wedding segment in India has huge potential wherein an affluent family in a small town of India spends Rs one to three crore Destinations such as beach side resort Goa, historically and culturally rich Rajasthan, hills and religious destinations of Himachal and Uttaranchal, back water lagoons of Kerala have been traditionally popular and are gaining more popularity as tourist destinations and remain as one of the major trend among domestic tourists. Another area of interest is Domestic Adventure Tourism which is mainly concerned with soft adventure activities in the Indian market. Adventure Tourism in is on an upswing and Indians are willing to explore various adventure options. They are readily opting for not just soft adventures, but also seek hard-core options across a wide geography. For us in the travel trade, it is a validation for the years of hard work that has gone towards making Adventure Tourism mainstream Domestic tourists show more interest in experiencing soft adventure activities such as rafting, trekking, paragliding and para-sailing. They show less interest for hard adventure activities such as mountain climbing. Adventure travelers show more interest in short climbing expeditions of days, as they cannot afford time for long climbing expeditions. People in the age group prefer short climbing expeditions, while youngsters are less interested in climbing expeditions. Nowadays, the wedding segment is gradually coming up in the Indian domestic market. People are interested to perform wedding ceremonies of their beloved ones in different cultures. Hollywood Actors like Elizabeth Hurley & others are coming to India to wed in forts and palaces of Rajasthan, according to the local tradition. Popular heritage spots like Mehrangarh Fort in Jodhpur, Lake Palace Hotel in Udaipur have been drawing rich Indians & NRIs to host marriages and celebrate special occasions.