Hotel Industry in India

Over the last decade and half the mad rush to India for business
opportunities has intensified and elevated room rates and
occupancy levels in India. Even budget hotels are charging USD
250 per day. The successful growth story of 'Hotel Industry in
India' seconds only to China in Asia Pacific.

'Hotels in India' have supply of 110,000 rooms. According to

the tourism ministry, 4.4 million tourists visited India last year
and at current trend, demand will soar to 10 million in 2010 – to
accommodate 350 million domestic travelers. 'Hotels in India'
has a shortage of 150,000 rooms fueling hotel room rates across
India. With tremendous pull of opportunity, India is a destination
for hotel chains looking for growth. The World Travel and Tourism
Council, India, data says, India ranks 18th in business travel and
will be among the top 5 in this decade. Sources estimate,
demand is going to exceed supply by at least 100% over the
next 2 years. Five-star hotels in metro cities allot same room,
more than once a day to different guests, receiving almost 24-
hour rates from both guests against 6-8 hours usage. With
demand-supply disparity, 'Hotel India' room rates are most likely
to rise 25% 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, the
rating on the 'Indian Hotels' is bullish. 'India Hotel Industry' is
adding about 60,000 quality rooms, currently in different stages
of planning and development and should be ready by 2012. MNC
Hotel Industry giants are flocking India and forging Joint Ventures
to earn their share of pie in the race. Government has approved
300 hotel projects, nearly half of which are in the luxury range.
Sources said, the manpower requirements of the hotel industry
will increase from 7 million in 2002 to 15 million by 2010.

With the USD 23 billion software services sector pushing the

Indian economy skywards, more and more IT professionals are
flocking to Indian metro cities. 'Hotel Industry in India' is set to
grow at 15% a year. This figure will skyrocket in 2010, when
Delhi hosts the Commonwealth Games. Already, more than 50
international budget hotel chains are moving into India to stake
their turf. Therefore, with opportunities galore the future
'Scenario of Indian Hotel Industry' looks rosy.

Hotel Industry in India has witnessed tremendous boom in recent

years. Hotel Industry is inextricably linked to the tourism
industry and the growth in the Indian tourism industry has
fuelled the growth of Indian hotel industry. The thriving economy
and increased business opportunities in India have acted as a
boon for Indian hotel industry. The arrival of low cost airlines and
the associated price wars have given domestic tourists a host of
options. The 'Incredible India' destination campaign and the
recently launched 'Atithi Devo Bhavah' (ADB) campaign have
also helped in the growth of domestic and international tourism
and consequently the hotel industry.

In recent years government has taken several steps to boost

travel & tourism which have benefited hotel industry in India.
These include the abolishment of the inland air travel tax of
15%; reduction in excise duty on aviation turbine fuel to 8%; and
removal of a number of restrictions on outbound chartered
flights, including those relating to frequency and size of aircraft.
The government's recent decision to treat convention centres as
part of core infrastructure, allowing the government to provide
critical funding for the large capital investment that may be
required has also fuelled the demand for hotel rooms.

The opening up of the aviation industry in India has exciting

opportunities for hotel industry as it relies on airlines to
transport 80% of international arrivals. The government's
decision to substantially upgrade 28 regional airports in smaller
towns and privatization & expansion of Delhi and Mumbai airport
will improve the business prospects of hotel industry in India.
Substantial investments in tourism infrastructure are essential
for Indian hotel industry to achieve its potential. The upgrading
of national highways connecting various parts of India has
opened new avenues for the development of budget hotels in
India. Taking advantage of this opportunity Tata group and
another hotel chain called 'Homotel' have entered this business
segment.

According to a report, Hotel Industry in India currently has

supply of 110,000 rooms and there is a shortage of 150,000
rooms fueling hotel room rates across India. According to
estimates demand is going to exceed supply by at least 100%
over the next 2 years. Five-star hotels in metro cities allot same
room, more than once a day to different guests, receiving almost
24-hour rates from both guests against 6-8 hours usage. With
demand-supply disparity, hotel rates in India are likely to rise by
25% annually and occupancy by 80%, over the next two years.
This will affect the competitiveness of India as a cost-effective
tourist destination.

To overcome, this shortage Indian hotel industry is adding about

60,000 quality rooms, currently in different stages of planning
and development, which should be ready by 2012. Hotel
Industry in India is also set to get a fillip with Delhi hosting 2010
Commonwealth Games. Government has approved 300 hotel
projects, nearly half of which are in the luxury range. The future
scenario of Indian hotel industry looks extremely rosy. It is
expected that the budget and mid-market hotel segment will
witness huge growth and expansion while the luxury segment
will continue to perform extremely well over the next few years.
Hotels are amongst the most visible and important aspects of a
country's infrastructure. Hotel industry is a closely linked one to
the tourism industry. A number of factors like promotion of
tourism and rapid industrial progress have given a boost to
hoteliering. The recent liberalization of trade and opening up of
economy will further lead to revolutionary growth in this sector.

With increasing globalization, career opportunities in this field

are not only limited within the country but there are chains of
hotels which operate internationally providing scope of a career
abroad. It is a glamorous profession which has a bright future.
With the growth of hotel industry propelled by foreign and
domestic tourism and business travel, the demand for well
trained quality personnel too has grown impressively.
The diversity of experience in hotel management is greater than
in any other profession. Hotel industry involves combination of
various skills like management, food and beverage service,
housekeeping, front office operation, sales and marketing,
accounting. Today, the rise in corporate activity (leading to
greater number of business trips) as well as the wish to travel on
holiday has made the hotel industry a very competitive one

The industry can be classified into four

segments
5 Star and 5 Stars Deluxe. The premium five star segment
alone accounts for 30 per cent of the total rooms available in the
country. These are mainly situated in the business districts of
metro cities and cater to business travellers and foreign tourists.
These are considered to be very expensive.

Heritage Hotels. These have come into limelight on account of

their lesser capital expenditure and affordability. Heritage hotels
include running hotels in palaces, castles, forts, havelis, hunting
lodges, houses that were built prior to 1950. The Heritage Hotel
concept has been riveting attention of many tourists as well.
Heritage hotels mirror the traditional way of life in the region,
which has proved to be a major selling point for these hotels.

Budget Hotels: Liberalizations of the economy led to the

emergence of a new breed of middle class with higher
disposable income. This class is steadily rising and, thus,
unleashing the potential of budget hotels. This burgeoning class
no longer believes in saving their extra income. Budget hotels
especially cater to domestic travellers who favour reasonably
priced accommodations with limited luxury. Special seasonal
offers, low and good services are spearheads of this segment.

Unclassified: These are low-priced motels spread throughout

the country. A low-pricing policy is their only selling point.
However, these also came into prominence on account of
increase in the tourist traffic. Being a rather unorganized
segment, it comprises of about 19 per cent of the industry.

The Indian Hotels Company Limited (IHCL), belonging to the Tata

Group, operates the largest chain of hotels in the country under
the popular Taj brand name. Today, the Taj Group is India’s
largest hotel chain with 48 hotels in its fold. These are spread
over 34 locations in South Asia. The second largest hotel chain
of the nation is the East India Hotels (EIH), promoted by the
Oberoi Group. Other leading hotels include the ITC Hotels (ITCH)
of the ITC Group, the Asian Hotels Limited (AHL), Bharat Hotels
Limited (BHL), Oriental Hotels and Hotel Leela Venture (HLV). The
AHL owns the Hyatt Regency Hotel in New Delhi. Bharat Hotels
Limited (BHL) has a hotel in New Delhi and another in Srinagar.
ITC Hotels are pioneers in the heritage hotels segment. The
public sector has a presence in the Hotel Corporation of India
and the ITDC Hotels. Prominent among these are Hotel Ashok at
Delhi, Ashok Yatri Niwas, Bharatpur Forest Lodge, Khajuraho
Ashok, Temple Bay Ashok Beach Resort at Mamallapuram and
Hotel Qutub at Delhi. Notably, the central government is
planning to divest its investment in the hotel sector.

Profitability in the hotel Industry is dependent on

many factors
Tourism: This is the primary factor for the hotel industry. India
has great potential of becoming a major stop for tourists.
However, lack of infrastructure has kept the foreign tourist at
bay. The government has been actively participating in
propagating India as an oasis for global travellers. India has
always conjured up a fascinating image in the mind of foreign
tourists. India has an advantage of having diverse cultures,
languages and religions, which makes it an exciting tourist
destination for people all over the world.

Business factor: Liberalisation has brought home a new class

of MNCs, which has increased the number of corporate travellers
visiting India. Other than metros, developing cities have also
come into the limelight and hence there has been an increase in
demand for hotels in various places. This trend has enthused
many hoteliers to set up corporate hotels. This class of business
travellers has reduced their dependence on seasonal tourism.
The industry is again headed for a hit, with the attacks on the
world's largest financial centre in the US.

Room occupancy: The ARR and occupancy are the other critical
factors that determine profitability. These, in turn, depend on the
location, star rating, amenities and quality of service. The
occupancy of Indian hotels and the ARR has been on the decline
for the past three to four years due to the turbulent socio-
political environment in the nation and also because of the East
Asian economic crisis. However, the hotel industry reported
impressive earnings and revenue growth for the year ended
March 2001.

Seasonality: India being a tropical nation witnesses an inflow of

leisure tourists, mainly during the winter months of October to
March. Hence the hotel industry has a better second half. In the
first half of the year, local tourists prefer April to May and
October in the second half due to summer and Diwali vacations
respectively. Other months being off-season periods, many
hotels offer heavy discounts on room tariff to ensure repeat
customers such as corporates, airline crewmembers and tour
groups.

Political scenario: In the past few years, the hotel industry has
been going through a lean phase. Room occupancy has been on
a decline, mainly due to a steep fall in both business and tourist
arrivals. Though the exorbitant rate of five-star hotels as
compared to the quality of services provided is one of the factors
for the decline, the fluid political environment has also had a
negative impact and foiled the dreams of the Indian hotel
industry.

Tax structure: This industry is one of the heavily taxed sectors

of India. State governments have levied various taxes like
expenditure tax, luxury tax and sales tax. This is apart from the
income tax levied by the central government. These taxes are as
high as 30 per cent in cities like Chennai, while other Asian
countries have a tax structure of 4 to 5 per cent. As a result,
Indian hotels are more expensive than their Asian counterparts.

Industry bottlenecks: Progress of the industry is held hostage

to various bottlenecks existing within the industry like high
variable costs. The hotel industry is reeling under high variable
expenses. A high wage bill, maintenance costs and overhead
expenses mark the industry. Domestic hotel chains have a high
man-room ratio as compared to their overseas counterpart.

Differential pricing: Hotels in India typically offer discounts on

published room tariffs to many clients. As a result, though the
occupancy rate of these hotels increases, the ARR does not
increase proportionally. However, the magnitude of discounts
varies depending on the nature of the client location and size of
the hotel. Furthermore, in the dual tariff rate system, there is a
domestic currency rate for local travellers and a dollar rate
applying to foreign travellers. Hence there is need of a common
yardstick for tariff rates.

Conclusion
The industry is again headed for a hit, after the terror attacks.
Worldwide, the hotel stocks are out of favour. The Indian tourism
industry is also expected to see a contraction in revenues in the
current year. As per the reports, the ITC group of hotels has
already registered many cancellations by international
customers. October and November are considered to be peak
season for the tourism industry. Most hotel chains derive 60 per
cent of their business from European, American and Japanese
clients.

Now with the downturn in these economies, tourism business is

likely to be on the lower side in the next two months. As per
some reports, 20 per cent of the existing domestic ticket
bookings have already been cancelled. Also, devaluation in the
Indian rupee is making foreign travel expensive for Indian
travellers. In the long term, the hotel industry in India has a
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. India attracts approximately 2.5 million
tourists every year, which is just 0.4 per cent of the world tourist
arrivals. Countries such as Thailand and Malaysia attract thrice
as many tourists.

Conclusion:

Globally, leisure and entertainment are seen to be growing

industries. Stable socio-political and economic conditions,
coupled with an improvement in infrastructure facilities (like
roads and airports), will improve the sentiments of the tourists
towards India. If the above conditions are met, tourist arrivals
can increase substantially from the present levels. In such a
situation, there will be a surge in demand for rooms in tourist
destinations.