EXECUTIVE SUMMARY
Hotel operators and observers often employ industry-wide averages as key points of comparison and analysis for room rates, occupancy, and revenues. The use of simple averages, however, can be misleading if one does not take into account the possibility that a mean will be pulled in one direction or another by extreme values. This analysis of three industry averages shows that those averages are, indeed, subject to distortion, or skew. The analysis, which examines figures for virtually all brand-name hotels in the United States, determined that the means for average daily rate (ADR) and revenue per available room (RevPAR) are skewed in a positive direction by hotels with extremely high rates. On the other hand, occupancy is skewed in a negative direction by a group of hotels with inordinately low occupancy levels. Many of the extreme values are found in the top-25 markets, which have hotels with inordinately high ADRs. Analysis of those markets shows that, once again, the overall statistics are distorted by a relatively small set of hotels with exceptional ADRs and occupancies. However, each of the top markets shows a distinctive rate and occupancy pattern. The pattern of skewed operating statistics carries over into individual lodging segments. The greatest distortions arise in the luxury and upscale segments, while economy and budget hotels record more consistent (normally distributed) statistics. Finally, the analysis shows that although the events of created much turmoil for the industry, the hotel business had already cooled substantially from its record pace of a year earlier. In conclusion, managers must be careful in applying overall industry statistics to their own situation and should take into account the factors that distort operating statistics.
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Scope of the report At the backdrop of such a conducive business atmosphere 'Pre-feasibility Report on Fivestar Hotel Industry' attempts to examine such critical factors which will provide vital inputs in general to the potential investors and estimation of commercial viability of such an investment. - It presents the market analysis of Indian hotel industry in terms of structure& segmentation, market size, major hotels etc. - It analyses the steps involved in setting up a hotel describing the technical aspects in terms of locational details and land requirement. - It assess the manpower planning and financial estimate involved in setting up a hotel. - Brings an insight into the procedure for setting up a hotel, type of machinery & floors space required, requirement of regulatory permissions & clearances. -Analysis of porter’s five forces and SWOT of the industry.
INTRODUCTION Global travel increased by 6% in 2007 compared with 2006, crossing tourism forecasts for the fourth year in succession. Among the various regions, the Middle East registered the highest growth in arrival of international tourists with 46 million tourists compared with 41 million in 2006, a growth of 12.2%.The opening up of the aviation industry in India has resulted in exciting opportunities for the hotel industry. - The share of Travel & Tourism industry to the global GDP was 6.48% in the year 2007 with value of US$ 3,493.19 billion and industry demand contributed to 13.21% of global GDP in 2007. - Middle East was the fastest-growing region in terms of arrivals of international tourists during 2007. 2
- According to the report by World Travel and Tourism Council, India currently ranks 18th in business travel and will be among the top 5 nations by the end of 2010. - ASSOCHAM has projected that Medical Tourism is likely to become the leading foreign exchange earner for India - India is now emerging as one of the hot destinations for medical - tourism after Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia A touch of tenderness, a helping hand, a welcoming visage... the Indian hospitality sector is certainly the most apt replication of the belief ‘ATITHI DEVO
BHAVA'.
Good quality products and services at affordable prices should be the USP of any successful venture - and hotels in the country boast of exactly this! According to the world travel and tourism council, the growth in the hospitality industry is pegged at 15% every year, and with 2, 00,000 rooms (both luxury and budget) needed in the country, the segment is poised for a stupendous growth. Travel tales While the high influx of foreign tourists has ensured huge footfalls for the sector over the years, internal tourism too has, off late, begun offering great potential. With travelers taking new interests in the country, players in the hospitality sector have had to offer the best of services, at affordable prices. Also, with the USD 23 billion software services sector pushing the Indian economy skywards, more and more IT professionals are flocking to Indian metro cities, thus signaling a boom time for the hotel and hospitality segment. Several other factors such as Commonwealth Games in Delhi are fueling the need further. The best bet The Indian hospitality industry is projected to grow at a rate of 8.8% between 2007-16, placing India as the second-fastest growing tourism market in the world. Initiatives like massive investment in hotel infrastructure and open sky policies made by the government are all aimed at propelling growth in the hospitality sector.
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"Hotel and hospitality industries are among the biggest employment generators in the country. Towards propelling its growth, while the government should confer infrastructure status to the hotel industries, several taxation issues also need to be rationalized. Further permits and licenses required for the hotel operations need to be rationalised by offering a "single window" mechanism," says Sanjay Gupta, CMD, Neesa Leisure Ltd - the Group which boasts of providing state-of-the-art facilities and services at its hotels. Be it Cambay Sapphire - the elegant 3 star business hotel at Ahmedabad or The Cambay Grand - the upcoming 5 star hotel in Ahmedabad that takes contemporary luxury to new heights with opulent rooms and suites, exotic spa, virtual golf, and multi cuisine fine dinning, redefining luxury is the perennial mantra in each of Cambay's hospitality projects. Some of the Group's forthcoming ventures include The Cambay Spa & Resort at Neemrana, Rajasthan - a proposed five star business hotel boasting of one of the largest conference and convention facilities, another venture of Neesa Leisure Ltd in Dahej (SEZ) to have 100 rooms including apartment and conference facilities and Cambay Sapphire, Jodhpur - a business hotel. Exclusive and innovative initiatives like the Cambay projects certainly focus on ensuring a bright future for the Indian hotel industry. The government's decision to substantially upgrade 28 regional airports in smaller towns and privatization & expansion of Delhi and Mumbai airport has improved the business prospects of hotel industry in India. Also, the upgrading of national highways connecting various parts of India has opened new avenues for the development of budget hotels in India. Couple this with the availability of qualified human resources and the hospitality sector has already got great growth prospects!
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BACKGROUND OF THE HOTEL INDUSTRY The Hotel Industry comprises a major part of the Tourism industry. Historically viewed as an industry providing a luxury service valuable to the economy only as a foreign exchange earner, the industry today contributes directly to employment (directly employing around 0.15 million people), and indirectly facilitates tourism and commerce. Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consisting primarily of relatively static, single-hotel companies. However, the Asiad, held in New Delhi in 1982, and the subsequent partial liberalization of the Indian economy generated tourism interest in India, with significant benefits accruing to the hotel and tourism sector, in terms of improved demand patterns. Growth in demand for hotels was particularly high during the early 1990s following the initiatives taken to liberalize the Indian economy in FY1991, as per the recommendations of the International Monetary Fund (IMF). The euphoria of the early 1990s prompted major chains, new entrants and international chains to chalk out ambitious capacity additions, especially in the metropolitan cities. However, most of these efforts were directed towards the business travelers and foreign clientele. In recent years, the hotels sector has grown at a faster rate than GDP. As a result, the share of hotels & restaurants in GDP at current prices has increased from 1.2per cent in FY2000 to 1.5per cent in FY2005. In constant (1999-2000) prices, the GDP from hotels and restaurants has increased from Rs. 222.65 billion in FY2000 to Rs. 335.49 billion in FY2005. As a result, the share of hotels and restaurants in total GDP at constant prices has increased from 1.24per cent in FY2000 to 1.40per cent in FY2005.
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STRUCTURE OF THE INDUSTRY Hotels in India are broadly classified into 7 categories (five star deluxe, five-star, four star, three star, two star, and one-star and heritage hotels) by the Ministry of Tourism, Government of India, based on the general features and facilities offered. The ratings are reviewed every five years. As of December 2005 (latest available figure) there are following number and category of hotels. Star
No.of
No.of
Category 5-Star
Hotels 82
Rooms 18764
Deluxe 5-Star 4-Star 3-Star 2-Star 1-Star Heritage To be
92 132 704 587 212 83 50
11332 9401 31039 19031 695 2216 5127
classified Total 1934 103973 Source: Ministry of Tourism, Government of India The table excludes hotels in the unorganized sector that have a significant presence across the country and cater primarily to economy tourists. Premium and Luxury Segment This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to the business and up market foreign leisure travellers and offer a high quality and range of services. The segment accounted for 29per cent of the total hotel rooms in the country in December 2005.
Mid-Market Segment This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure travellers. This segment also caters to the middle level business travellers
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since it offers most of the essential services of luxury hotels without the high costs since the tax component of this segment is lower compared with the premium segment.
Budget Segment These comprise 1 and 2 star hotels referred to as ‘Budget Hotels’. These categories do not offer as many facilities as the other segments but provide inexpensive accommodation to the highly price-conscious segment of the domestic and foreign leisure travellers.
Heritage Hotels In the past four decades, certain architecturally distinctive properties such as palaces and Forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has Classified these hotels as heritage hotels.
Others At any point in time, applications for classification are usually pending with the Ministry of Tourism because of which such properties remain unclassified. The number of hotel rooms pending classification has declined from historical 15-20per cent to 5per cent of the total rooms available in the recent past.
CURRENT SCENARIO OF HOTEL INDUSTRY
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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 8
chains are moving into India to stake their turf. Therefore, with opportunities galore the future 'Scenario of Indian Hotel Industry' looks 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. The roles of the multinational companies are significant with their increasing contribution to the Economy. Basically Services are intangible deeds, processes and performances that cannot be touched, seen or felt but can be experienced. The Service sector is characterized by its diversity. Global opportunities are growing due to accelerated growth of the service economy. In the hospitality industry, Average room rate (ARR) and occupancy are the two most critical factors that determine the profitability, since most of the marginal revenue gets added to the bottom-line. ARR in turn depends upon location, brand image, star rating, quality of facilities, pricing of value added services, complementary services offered and the seasonal factor. The hotels to manage and invest their fund in India adopt many business strategies to establish their place of business and create innovative service packages to their custom. In a long-term perspective, these measures bring significant financial returns. 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 and relative political stability. At present India attracts approximately 2.5 Million tourists every year, which is just 0.4% of the world tourist arrivals. Normally the Multi national hotels operated In India can be owned, leased or acquired under management contract basis. Hotel operators want the leverage on their management expertise and brand equity without making enormous capital investment. In management contract agreements a fee calculated as a percentage of revenue and/or operating profit is charged. Typically, the management fee is to the tune of 3% of the total revenue and 7% of gross operating profits.
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Most players, with the exemption of IHCL and EIH, have entered into a marketing tie-up with major international hotel chains. Thus we have Hyatt Regency a renowned international hotel chain having tied up with AHL, Leela having tied up with Kempinski and ITCH having a franchisee agreement with ITT Sheraton to use the latter's brand name. For the Indian hotel owners and the international hotel chains the benefit is mutual, tie-up with an international hotel chain puts the hotel on the global map with access to chain's reservation network worldwide. For the international hotel chain they can ride on the boom of the industry without making enormous capital investments on infrastructure and facilities. Associations with international brand also play a major role in image building and attracting foreign tourists. However the value of the international brand gets diluted if a foreign entity enters an agreement with several Indian companies. Luxury hotels operate under single tariff structure whereby the foreign tourists are charged in dollar terms whereas the domestic guest is charged the equivalent amount in rupees. The luxury hotels earn about two-thirds of their revenue from foreign tourists. Leisure travelers constitute approximately 76.5% of the total tourist arrivals whereas business travelers constitute 21% of the total arrivals. The remainder is accounted by students. The hotel industry is the second largest foreign exchange earner and between 1991 and 1998 there has been a 100% growth in foreign tourists. Hotels benefit from rupee depreciation as over 60% of revenues in the luxury hotel segment are in foreign currencies. Thus any depreciation of the rupee goes directly to the bottom line (FOREX income is also fully tax exempt), as none of the costs are directly linked to the exchange rate. The hotel debt environment is also improving. While many countries are hampered by a still sluggish economy, those with a low interest rate environment with relatively stable-banking conditions will provide opportunities for hotel investors to raise capital. For hotel lenders, from a risk/return basis, there has never been a better time to provide new capital to this industry in India
FEATURES OF HOTEL INDUSTRY
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The hospitality industry consists of companies within the food services, accommodations, recreation, and entertainment sectors. 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. Usage rate is an important variable for the hospitality industry. Just as a factory owner would wish to have his or her productive asset in use as much as possible (as opposed to having to pay fixed costs while the factory isn't producing), so do restaurants, hotels, and theme parks seek to maximize the number of customers they "process". In viewing various industries, "barriers to entry" by newcomers and competitive advantages between current players are very important. Among other things, hospitality industry players find advantage in old classics (location), initial and ongoing investment support (reflected in the material upkeep of facilities and the luxuries located therein), and particular themes adopted by the marketing arm of the organization in question (such as a restaurant called the 51st fighter group that has a WW2 theme in music and other environmental aspects). Very important is also the characteristics of the personnel working in direct contact with the customers. The authenticity, professionalism, and actual concern for the happiness and well-being of the customers that is communicated by successful organizations is a clear competitive advantage This significant growth of the tourism industry is the direct result of changes in international consumer behaviors as well as economic prosperity and political stability within the region. Historically, the supply of lodging facilities within the region has proved to be both inadequate in terms of product quality as well as insufficient in quantity for meeting the increasing levels of demand.
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These elements of supply and demand have created a favorable investment climate for development within the region, resulting in a real estate boom in both tourism and residential development. The growth in residential real estate development has been primarily driven by foreign demand for vacation and retirement homes in both urban and resort destinations within the region. Investment and development has been further supported by the variety of financial incentives for investment in tourism projects offered by national governments as well as the availability of local capital for the financing of large projects. The first goal is to find ways to operate the hotel according to the idea of a “triple bottom line,” which embodies profitable operation combined with attention to the people who use and work in the hotel and a focus on careful stewardship of resources. While that goal is important, even more vital is to use the hotel’s position as an industry leader in the nation’s capital to demonstrate to the hotel industry, customers, and vendors that sustainable operation is the best strategy to ensure successful hotel operation. The sustainability initiative goes beyond such well-known ideas as reusing guest linens, recycling waste materials, and changing to compact fluorescent lamps.
CLASSIFICATION OF HOTELS: Classification is based on many criteria and classifying hotels into different types is not an easy task. The hotel industry is so vast that many hotels do not fit into single well defined category. Industry can be classified in various ways, based on location, size of property etc. The main hotel chains of India are: The Taj Group of Hotels, the Oberoi Group and ITC Welcome group. Some of the international chains are Hyatt, Marriott, and Le Meridian etc. these properties have also come up in India now.
1. Based on location 12
•
City center: Generally located in the heart of city within a short distance from business center, shopping arcade. Rates are normally high due to their location advantages. They have high traffic on weekdays and the occupancy is generally high. Example: Taj Mahal, Mumbai
•
Motels: They are located primarily on highways, they provide lodging to highway travelers and also provide ample parking space. The length of stay is usually overnight.
•
Suburban hotels: They are located in suburban areas, it generally have high traffic on weekend. It is ideal for budget travelers. In this type of hotel rates are moderately low.
•
Airport hotels: These hotels are set up near by the airport. They have transit guest who stay over between flights.
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Resort hotels: They are also termed as health resort or beach hill resort and so depending on their position and location. They cater a person who wants to relax, enjoy themselves at hill station. Most resort work to full capacity during peak season. Sales and revenue fluctuate from season to season.
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Floating hotels: As name implies these hotels are established on luxury liners or ship. It is located on river, sea or big lakes. In cruise ships, rooms are generally small and all furniture is fixed down. It has long stay guest.
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Boatels: A house boat hotels is referred as boatels. The shikaras of Kashmir and kettuvallam of kerala are houseboats in India which offers luxurious accommodation to travelers.
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Rotels: These novel variants are hotel on wheel. Our very own "palace on wheels" and "Deccan Odessey" are trains providing a luxurious hotel atmosphere. Their 13
interior is done like hotel room. They are normally used by small group of travelers.
2. Based on Size of Property The main yardstick for the categorization of hotel is by size the number of rooms available in the hotel. •
Small hotel: hotel with 100 rooms and less may be termed as small hotels.
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Medium sized hotel: hotel which has 100-300 rooms is known as medium sized hotel.
•
Large hotels: hotel which have more than 300 rooms are termed as large hotels.
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Mega hotels: are those hotels with more than 1000 rooms.
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Chain hotels: these are the groups that have hotels in much number of locations in India and international venues.
3. Based on the Level of Service Hotels may be classified into economy, and luxury hotels on the basis of the level of service they offer. •
Economy/ Budget hotels: These hotels meet the basic need of the guest by providing comfortable and clean room for a comfortable stay.
•
Mid market hotels: It is suite hotel that offers small living room with appropriate furniture and small bed room with king sized bed.
•
Luxury hotels: These offer world class service providing restaurant and lounges, concierge service, meeting rooms, dinning facilities. Bath linen is provided to the
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guest and is replaced accordingly. These guest rooms contains furnishing, artwork etc. prime market for these hotels are celebrities, business executives and high ranking political figures. Example: Hyatt Regency, New Delhi.
4. Based on the Length of Stay Hotel can be classified into transient, residential and semi residential hotels depending on the stay of a guest. •
Transient Hotel: These are the hotel where guest stays for a day or even less, they are usually five star hotels. The occupancy rate is usually very high. These hotels are situated near airport.
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Residential hotels: These are the hotel where guest can stay for a minimum period of one month and up to a year. The rent can be paid on monthly or quarterly basis. They provide sitting room, bed room and kitchenette.
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Semi residential hotels: These hotels incorporate features of both transient and residential hotel.
5. Based on Theme Depending on theme hotel may be classified into Heritage hotels, Ecotels, Boutique hotels and Spas. •
Heritage hotel: In this hotel a guest is graciously welcomed, offered room that have their own history, serve traditional cuisine and are entertained by folk artist. These hotels put their best efforts to give the glimpse of their region. Example: Jai Mahal palace in Jaipur.
•
Ecotels: these are environment friendly hotels these hotel use eco friendly items in the room. Example: Orchid Mumbai is Asia first and most popular five star Ecotels.
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Boutique hotels: This hotel provides exceptional accommodation, furniture in a themed and stylish manner and caters to corporate travelers. Example: In India the park Bangalore is a boutique hotel.
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Spas: is a resort which provide therapeutic bath and massage along with other features of luxury hotels in India Ananda spa in Himalaya are the most popular Spa.
6. Based on Target Market •
Commercial hotel: They are situated in the heart of the city in busy commercial areas so as to get good and high business. They cater mostly businessmen.
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Convention hotels: These hotels have large convention complex and cater to people attending a convention, conference Example: Le meridien, Cochin, is a hotel with largest convention center in south India.
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Resort hotels: These leisure hotels are mainly for vacationers who want to relax and enjoy with their family. The occupancy varies as per season. The atmosphere is more relaxed. These are spread out in vast areas so many resorts have solar powered carts for the transport of guest.
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Suite hotels: These hotel offer rooms that may include compact kitchenette. They cater to people who are relocating act as like lawyers, executives who are away from home for a long business stay.
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Casino hotels: Hotel with predominantly gambling facilities comes under this category, they have guest room and food and operation too. These hotels tend to cater leisure and vacation travelers. Gambling activities at some casino hotels operate 24 hours a day and 365 days
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DEMAND DRIVERS
The hotel and restaurant industry of India was Rs. 658.89 billion during 2007-08. Travel & Tourism Industry of India was valued at US$35.73 billion in 2007, contributing 3.56% to India’s GDP. The number of foreign tourists arriving to India reached 5.08 million compared with 4.45 million in the year 2006, showing growth of 14.16%. India’s share in international tourist arrivals at global level gradually improved from 0.46% in 2004 to 0.49% in 2005 and further to 0.52% in 2006 and 0.56% in 2007. The number of domestic tourists in India was 526.57 million compared with 461.76 million in 2006, showing growth of 14.03%. There are 1,437 hotels approved and classified by the Ministry of Tourism, Government of India, with a total capacity of 84,327 hotel rooms as on December 31, 2007. Indian hotel industry is currently adding about 60,000 quality rooms, which are expected to be ready by 2012. International Tourist Traffic
The foreign tourist arrivals in India increased at CAGR of 5.5per cent from 2.29 million in 1996 to 3.92 million in 2005. Significantly, the bulk of international arrivals into India, both in 2004 and 2005, have been business travelers. Main reason for this increase has been following fundamental factors: •India’s strong GDP growth. •Opening of sectors of the economy to private sector/ foreign investment. •Strengthening of ties with the developed world. •Reforms in aviation sector which led to better connectivity with many countries (such as ASEAN) and created additional capacity on existing routes (for e.g. USA, Middle East). Also, introduction of low cost airlines also contributed to the demand. The increase in international flights, seat capacity and frequency into the country and the decision to allow private airlines like Jet Airways and Air Sahara to fly overseas has had a positive impact on tourist and business arrivals into India, by way of providing additional seats to
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Key destinations.
•Development of infrastructure by the Government •India’s emergence as an outsourcing hub. •Success of “Incredible India” campaign and other tourism promotion measures. •India’s growing recognition as an exciting place to visit (‘The Readers Travel Awards 2006’, conducted by Condé Nast Travellers has recently placed India at number four among the world’s must-see countries, up from number nine in 2003) has helped boost its image as a leisure destination. Foreign Tourist Arrivals
Foreign Tourist Arrival (Nos.) Months 2005
2006*
2007*
Percentage Change 2006/05
2007/06
January 385977 444260
514453
15.1
February 369844 407198
462578
10.1
13.6
March
352094 390824
443976
11.0
13.6
April
248416
309775
334558
24.7
8.0
May
225394
258527
271454
14.7
5.0
Total
1581725 1810584 2027019
14.5
15.8
12.0
Foreign Exchange Earnings
Foreign Exchange Earnings (in Rs. billion) Percentage Change MONTHS 2005 2006* 2007* 2006/05 2007/06 January 23.26 27.22 33.00 17.0 21.2 February 23.43 26.36 30.04 12.5 14.0 March 22.11 24.34 27.99 10.1 15.0 April 16.50 21.27 23.41 28.9 10.0 May 14.53 16.74 18.59 15.2 11.0 Total 99.83 15.94 133.03 16.1 14.7
KEY SUCCESS FACTORS
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The market for the hotel industry can be divided into the following key consumer segments based on purpose of visit:
The Business Traveler The Business Traveler is a businessman or a corporate executive travelling for business purposes. This segment includes corporates, both domestic and foreign, who open offices in the hotel premises during start-ups, corporate executives who make extended stay either for long duration projects or while waiting for permanent accommodation (primarily expatriates) and convention arrivals. While the senior executives usually stay in 5 star hotels, the middle level executives, who are much larger in number, stay in the budget hotels. This segment offers better realizations, as they demand relatively smaller discounts on room rents (about 10per cent-15per cent), use more of facilities such as PCs, fax multi-media, conference halls. Also, the Food & Beverage (F&B) revenues are better as they usually eat in the hotel itself due to their busy schedules.
The Leisure Traveler The Leisure Traveler could either be a foreigner or a domestic traveler whose primary purpose of visit is holiday or site seeing. Among non-business foreign tourists the primary motivation for visiting India is largely cultural attraction followed by conferences and conventions, tourist attractions like beaches, wild life, hill resorts etc. Usually, leisure travelers are part of a package run by a tour operator. The margins offered by leisure travelers tend to be lower because of two reasons. Firstly, they seek higher discounts and also provide less F&B revenues as they usually eat out. The business offered by this segment is highly seasonal and tends to peak in the September to March period.
Airline Cabin Crew
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Airline Cabin Crew forms another important segment because of the repetitive and guaranteed nature of the business that they provide. Usually, these are a part of an annual contract whereby, in return for a fixed rate, a certain number of rooms are provided on demand for cabin crews. With discount rates in the range of 40per cent and 50per cent, this represents a low-yield segment for hotels in general
Premium and Luxury Segment This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to the business and up market foreign leisure travelers and offer a high quality and range of services. The segment accounted for 29per cent of the total hotel rooms in the country in December 2005.
ENVIRONMENTAL ISSUES 20
International Society of Hospitality Consultants (ISHC) represents a significant part of the lodging industry's brain power; it was disheartening that rising energy costs and other environment-related issues. Is it any wonder that the lodging industry has such a long way to go to become sustainable? Keeping in mind that there are a lot of positive things happening in the industry, and that there are a lot of industry leaders who do recognize the importance of environmental protection, here is my own list for the New Year: The Environmental Issues Facing the Hospitality Industry in 2009. Staying ahead of rising energy costs. Yes, the industry did get a breather from skyrocketing energy costs in the second half of 2008, but prices were still higher than the previous year for the fifth straight year. Climate change. As evidence continues to mount regarding the reality of global warming, how will the lodging industry react? What companies will demonstrate the greatest leadership? Indoor air quality. Last year saw Marriott, Westin and others transition to 100 percent nonsmoking environments. What chains will be next? Increasingly, voters and travelers are clamoring for clean air. At the association level, the lodging industry is hungry for leadership: individuals to take the lead in pushing the industry toward sustainability. Who will step forward? Meeting planners increasingly will require green practices as they select their meeting destinations. What hotel companies and cities will be best positioned to take advantage of this trend?
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There is a need for a greater environmental presence at the lodging industry's largest trade shows. Will that happen in 2009? The National Restaurant Assn. show in Mumbai will feature a Green Restaurant Products Pavilion for the second year. It will be 40 percent larger than last year. Other major industry shows -- the International Hotel/Motel & Restaurant Show and the many large hotel chain conferences -- should consider similar setups. Green lodging certification programs are popping up at the state level around the country. National level programs also continue to grow in India. Will 2009 be the year when stakeholders in these programs start to talk to one another with the goal of establishing one green hotel rating system? Greenhouse gas/carbon offsetting programs are becoming more common. In 2008, Vail Resorts announced it will offset 100 percent of its energy use by purchasing nearly 152,000 megawatt-hours of wind energy. What other companies will join Vail Resorts and others in doing this in 2009. These are just some of the environment-related issues the lodging industry will face in the New Year. As you meet with your management teams this month, be sure to set measurable, green goals and make the environment a priority. If you do so, you can be sure that 2009 will be a much more profitable year for everyone
DOMESTIC PLAYERS
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Major players in the Indian Hotel Industry: Hotel Chains They comprise major players including Indian Hotels Company Limited (the Taj Group) and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited (the ITC Welcome Group), Indian Tourism Development Corporation (ITDC) and Hotel Corporation of India (HCI) (the latter two being under the Public Sector). Most of these chains had an established presence in one or more metro cities prior to the tourism boom of the 1980s. Subsequent to the tourism boom, these chains aggressively expanded their presence in other locations. The private players among the hotel chains are industry leaders and have well-established brand identities across the different industry segments.
Small Chains They are companies that have come up after the tourism boom of the 1980s and 1990s. Due to lack of prior experience in the hotel industry, these players have preferred to opt for operating/management arrangements with international players of repute. Some of the companies in this category are Hotel Leela Venture (with Kempinski), Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn and Hilton and now with Intercontinental). As late entrants, most of these hotel companies have fewer properties, compared with the big chains. However most of these players have initiated expansion plans during the late 1990s.
Public Sector Chains ITDC and HCI boast of some of the best locations in major cities but are relative underperformers, as compared with their private sector counterparts International Hotel Chains They are also looking at India as a major growth destination. These chains are establishing themselves in the Indian market by entering into joint ventures with Indian partners or by entering into management contracts or franchisee arrangements. Some of the players who have already entered or plan to enter the Indian market include Marriott, Star wood, Berggren Hotels, Emaar MGF. Most of these chains have ambitious expansion plans especially with a strong focus on the budget segment and tier II cities.
Localized Hotel Companies
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They are mainly comprise early entrants who have an established localized presence and who preferred not to expand during the tourism boom but focus on building and catering to a loyal customer base.
PROFILES OF SOME OF THE MAJOR PLAYERS IN THE HOTEL INDUSTRY The Indian Hotels Company The Indian Hotels Company and its subsidiaries are collectively known as Taj Hotels Resorts and Palaces, recognized as one of Asia's largest and finest hotel company. Incorporated by the founder of the Tata Group, Jamsetji N Tata, the company opened its first property, The Taj Mahal Palace Hotel, Bombay, in 1903. The Taj, a symbol of Indian hospitality, completed its centenary year in 2003. Taj Hotels Resorts and Palaces comprises 59 hotels at 40 locations across India with an additional 17 international hotels in the Maldives, Mauritius, Malaysia, United Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East and Australia. The company has had a long-standing commitment to the continued development of the Indian tourism and hospitality industry. From the 1970s through the 1990s, the Taj played an important role in launching several of India's key tourist destinations. Working in tandem with the Indian government, the Taj developed resorts and retreats while the government developed roads and railways to India's hidden treasures.
ITC/ Sheraton Corporation
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ITC's Hotel division was launched on October 18, 1975, with the opening of its first hotel -Chola Sheraton in Chennai. ITC – Welcome group Hotels, Palaces and Resorts, is today one of India's finest hotel chains, with its distinctive logo of hands folded in the traditional Namaste is widely recognized as the ultimate in Indian hospitality. Each of the chain's hotels pays architectural tribute to ancient dynasties, which ruled India from time to time. The design concept and themes of these dynasties play an important part in their respective style and decor. With more and more hotels being added at strategic destinations, the group has joined hands with the Sheraton Corporation to strengthen its international marketing base. A successful marketing franchise for almost 25 years now, there are currently 10 ITC – Welcome group Sheraton hotels, and more in the pipeline
The Leela Group Founded in 1957 by Capt. C.P. Krishnan Nair, the Rs.4.5 billion Leela Group is engaged in the business of ready-made garments and luxury hotels and resorts. The Leela Kempinski, Mumbai and The Leela, Goa are two of the best hotels in India, and have also won Considerable international acclaim. For this to have been achieved in 12 short years is Nothing short of remarkable. Recently in 2001 Capt. Nair fulfilled his longstanding dream of constructing a palace hotel in the garden city of Bangalore. The Leela Palace Kempinski, Bangalore is built in art deco style recreating the grandeur of The Mysore Maharajas Palace. It is set amidst 8 acres of landscaped garden and waterfalls. It is a palace with the heart of a modern hotel. Its 254Kovalam is Kerala’s largest resort, built on a rock face cradled between two wide sweeping Beaches with a stunning view of the famous Kovalam coastline.
The Bharat Hotels Group 25
The Bharat Hotels group is a major player in India’s tourism and hotel sector. It operates its hotels under ‘THE GRAND’ banner and its present portfolio of hotels incorporates 14 luxury hotels in the five-star deluxe segment. These include Intercontinental ‘The Grand’ hotels in New Delhi, Mumbai, Goa & Srinagar and The Grand Ashok Bangalore, The Grand Laxmi Vilas Palace Udaipur and The Grand Temple View Khajuraho. Additionally, soon to open hotels in 2008-09 are – The Grand Great Eastern Kolkata, The Grand Jaipur, The Grand Resort Bekal, The Grand Ahmedabad, The Grand Chandigarh, The Grand Noida and The Grand Fort Dubai. By 2009, the company plans to open hotels in Hyderabad, Amritsar and other key locations.
The EIH Ltd (The Oberoi Group) Asian elegance is the key to running hotels, if you ask EIH (better known as The Oberoi Group). The company owns and operates about 20 luxury hotels, about 10 midrange hotels, and two inland cruises; The Oberoi Group operates primarily in India, but also in Australia, Egypt, Indonesia, Mauritius, and Saudi Arabia. Most of the company's luxury properties bear the Oberoi banner. The company in 2004 joined forces with Hilton International to rebrand most of its mid-range hotels as Trident Hiltons (the former Oberoi Towers is now known as the Hilton Towers Mumbai). The Oberoi Group also operates luxury cruises of the Nile River and India's Kerala region. Jaypee Hotels Ltd. Jaypee Hotels Limited primarily engages in the ownership and operation of hotels in India. The company owns three Five Star Deluxe Hotels, namely Jaypee Palace Hotel at Agra, and Jaypee Vasant Continental and Jaypee Siddhartha Hotel at New Delhi. It also manages the operation of the hotels Jaypee Residency Manor at Mussoorie and Jaypee Green Resorts. In addition, Jaypee Hotels involves in construction operations. The company is headquartered in New Delhi, India. Jaypee Hotels Limited is a subsidiary of Jaiprakash Associates Limited.
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India Tourism Development Corporation (ITDC) / The Ashok Group: India Tourism Development Corporation (ITDC) was established in 1966 as an autonomous public sector corporation, entrusted with the task of helping develop tourism infrastructure and promoting India as a tourist destination. The ITDC Ashok Group of hotel chains manages some of the best five star and luxury tour hotels in the Indian hospitality industry. The hotels run by the ITDC Ashok Group of hotel chains may be divided into different categories; these are elite hotels, comfort hotels and classic hotels. The ITDC Ashok Group of hotel chains manages 33 hotels in 26 different tourist destinations all over India. The management of Ashoka Group believes in offering the best in the hospitality industry and the staff at each of the hotels run by the group is especially trained to be courteous and efficient. The Ashok Group of hotel chains boasts of running some of the best hotels in the Indian hotel industry. The hotels that are a part of the elite and classic category of the ITDC Ashok Group are the Ashok Hotel in New Delhi, the Kovalam Ashok Beach Resort in Kovalam, Kerala, the Agra Ashok in Agra, Hotel Jaipur Ashok in New Delhi and the Qutab Hotel in New Delhi. Most of the hotels managed by the ITDC Ashok Group have had the privilege of playing host to several international and national dignitaries.
The Hotel Corporation of India (HCI) The Hotel Corporation of India Limited (HCI) is a public limited company wholly owned by Air India Limited and was incorporated on July 8, 1971 under the Companies Act, 1956 when Air India decided to enter the Hotel Industry in keeping with the then prevalent trend among world airlines. The objective was to offer to the passengers a better product, both at the International Airports and at other places of tourist interest, thereby also increasing tourism of India.
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GOVERNMENT POLICIES Tourism being a concurrent subject under the Indian constitution, both the central and state governments regulates the hotel industry. The regulations include statutory and regulatory sanctions (or approvals and licenses) from the Central and State departments or agencies. This includes license to operate a restaurant, a hotel license (issued by municipal authorities), license from police (issued by local police) and a bar license (issued by excise department). Tourism Policy In order to develop tourism in India in a systematic manner, position it as a major engine of economic growth and to harness its direct and multiplier effects for employment and poverty eradication in an environmentally sustainable manner, the National Tourism Policy was formulated in the year 2002. Broadly, the “Policy” attempts to: • Position tourism as a major engine of economic growth • Harness the direct and multiplier effects of tourism for employment generation, economic development and providing impetus to rural tourism • Focus on domestic tourism as a major driver of tourism growth • Position India as a global brand to take advantage of the burgeoning global travel trade And the vast untapped potential of India as a destination • Acknowledges the critical role of private sector with government working as a pro-active facilitator and catalyst • Create and develop integrated tourism circuits based on India’s unique civilization, heritage, and culture in partnership with States, private sector and other agencies • Ensure that the tourist to India gets physically invigorated, mentally rejuvenated, culturally enriched, spiritually elevated and “feel India from within”.
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The Government’s major policy initiatives include: • Liberalization in aviation sector • Pricing policy for aviation turbine fuel which influences internal air fares • Rationalization in tax rates in the hospitality sector • Tourist friendly visa regime • Immigration services • Procedural changes in making available land for construction of hotels • Allowing setting up of Guest Houses The Indian Ministry of Tourism has identified 31 villages across the country to be developed as tourism hubs. The states in which these villages have been identified include Himachal Pradesh, Gujarat, Maharashtra, Bihar, Karnataka, Madhya Pradesh, Andhra Pradesh, Kerala, Tamil Nadu, Orissa, Assam, Sikkim, Rajasthan and West Bengal. Government’s Open Skies Policy The Government’s Open Skies policy, permission for domestic airlines to commence International flights, start-up of various low-cost carriers, and fleet expansion by domestic players have created a huge incentive for domestic travelers to explore far-off destinations within and outside India. The booming aviation business is bringing an everincreasing number of passengers to India, and pulling Indians out of their homes and into hotels. The numbers, according to the Ministry of Tourism, speak for themselves: • The number of domestic and international passengers has increased fifteen-fold to 73.34 million in 2005/06 since 1970. • Domestic air passenger traffic grew by 16.8 per cent in 2005/06 compared to 2004/05. • International passenger traffic observed a growth of 16.9 per cent in the same period. • Private airlines accounted for 77.0 per cent of the total domestic traffic.
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Foreign Trade Policy The Foreign Trade Policy announced in April, 2006, offered following incentives to the hospitality industry: Hotels and Restaurants are allowed to import duty free equipment and other items including liquor, against their foreign exchange earnings under the Served from India Scheme. As in previous years, this entitlement is 5per cent of previous year’s foreign exchange earnings for hotels of one-star and above (including managed hotels and heritage hotels) approved by the Department of Tourism and other service providers in the tourism sector registered with it. The stand-alone restaurants will be entitled to duty credit equivalent to 10per cent of the foreign exchange earned by them in the preceding financial year (instead of the earlier 20per cent). Service exports in Indian Rupees, which are otherwise considered as having been paid for in free foreign exchange by RBI, will now qualify for benefits under the Served from India Scheme. Also, foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service by the service providers shall be considered for the purposes of computation of entitlement under the Scheme. Benefits of the Scheme earned by one service provider of a Group company can now be utilized by other service providers of the same Group Company including managed hotels. The measure aims at supporting the Group service companies not earning foreign exchange in getting access to the international quality products at competitive price and providing services of international standards. This new initiative allows transfer of both the script and the imported input to the Group Service Company. The earlier provision allowed transfer of imported material only.
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FDI in Hotel and Tourism Sector 100 per cent FDI is permissible in the sector on the automatic route. The term hotels Include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organizations. For foreign technology agreements, automatic approval is granted if: • Up to 3 per cent of the capital cost of the project is proposed to be paid for technical and Consultancy services including fees for architects, design, supervision, etc. • up to 3 per cent of net turnover is payable for franchising and marketing/publicity Support fee, and up to 10 per cent of gross operating profit is payable for management fee, including incentive fee.
Other Government Initiatives Government has undertaken following initiatives to attract both inbound and outbound Tourists: • Incredible India - Under this program the Government promotes India through various integrated marketing programs. • Atethie devo bhava (guests are equal to god) - Under this program the Government create awareness among Indian people who come in contact with the tourist. • Various Infrastructure building initiatives • Encourage religious tourism for instance promotes various places in India as Buddhist abodes. • Other projects are the Rs. 5,400 million National Highways Development Project, the 5,846 km Golden Quadrilateral and the 7,300 km north-south and east-west corridors. Sagarmala project which intends to create a network of seaports, which will change the way people discover and experience real India.
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FISCAL REGULATION India's credit-starved hotel industry can now afford to heave a sigh of relief. In a move that promises to make credit easily available to the sector, the Union tourism ministry has permitted the hotel industry to go in for external commercial borrowings up to $100 million during the current financial year. Meanwhile, the Reserve Bank of India too has removed hotels from the 'commercial real estate' classification. This two-pronged push will make larger credit available to the capital-intensive and credit starved hospitality industry at lower rates of interest, thus bringing down the high cost of the hotel projects. Tourism ministry sources have that said that efforts are on to obtain infrastructure status for hotel projects and the RBI's approval is being sought for this. This will help the interest rate to go down further to single-digit levels for hotels. Sources said yet another proposal of the ministry pending with RBI is to provide fiscal amenities for creation of additional hotel room capacity to meet the surge in demand in the tourism sector. The ministry has been canvassing that the hotel segment of the tourism industry is highly capital-intensive and has a long gestation period. India is already facing acute shortage of quality accommodation for both international as well as domestic tourists. With the delinking of hotels from commercial real estates, promoters will be able to seek capital loans from banks and ease out the liquidity issues particularly to the new hotel projects, the sources added. Food processing in India covers a spectrum of products from agriculture, horticulture, plantation, animal husbandry and fisheries. While India has an abundant supply of food, the food processing industry is still nascent with only two per cent of fruit and vegetables, and 15 per cent of milk produced being processed. •
The processed food industry food industry ranks fifth in size in the country, representing 6.3 per cent of GDP. It accounts for 13 per cent of the country's exports and 6 per cent of total industrial investment.
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•
The industry size is estimated at US$ 70 billion, including US$22 billion of value added products.
•
FDI in the Food Processing Sector has witnessed over two and a half times increase from Rs 174 crore in 2005 to Rs 441 crore in 2007. It is expected that FDI inflow into the processed food sector would be in the region of Rs 1,300 crore in 2009. This sector is emerging as one of the fastest growing sectors with international retailers like Wal-Mart, Carrefour and Woolworth taking interest in the Indian market.
Policy initiatives •
The Indian government has abolished licensing for almost all food and agroprocessing industries.
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Automatic investment approval (including foreign technology agreements within specified norms), up to 51 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector.
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Wide-ranging fiscal policy changes have been introduced progressively. Excise and Import duty rates have been reduced substantially. Many processed food items are totally exempted from excise duty.
Hospitality industry in India The hospitality Industry in India is poised for major growth. 20,000 more hotel rooms are required for the Commonwealth Games. To cater to the demand for rooms fiveyear tax holiday for two, three and four-star hotels, as well as, convention centers. Hospitality India which encases various categories of equipment being used, offers a platform for the manufacturers and suppliers to display the latest state of the art equipment manufactured by them. For achieving international standards, investment is being made by manufacturers on improving skills of manpower, in quality machinery and tools and latest technology. Areas which have seen remarkable change in these years are bakery, laundry and food service equipment.
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AAHAR 2009 AAHAR 2009 will offer a segmentised platform for showcasing the developments and progress achieved in the processed food and hospitality sectors, through a wide ambit of display covering products, technologies and services, and the scope embodied by them for investment and tech up gradation. On display will be all kind of foods, processed food, alcoholic (subject to obtaining prior permit from the office of Excise Commissioner of NCT of Delhi) and other beverages, food processing, packaging, mill machinery and equipment; poultry and farm equipment and supplies, dairy and confectionery equipment, air-conditioning, refrigeration and cold storage systems, air and water pollution control equipment and accessories, hotel and kitchen equipment and tableware, laundry, interior and house keeping, health and fitness equipment, consultancy services and hospitality supplies. This exposition helps the visitors from the hospitality sector to find a one window solution to their need to provide hygienic environment at back of the house (kitchen), good quality food and higher level of productivity. AAHAR also brings together potential business partners from India and abroad and provides a platform for implementing in government schemes for infrastructural development like establishing food parks, packaging and valueadded centres, integrated cold-chain facility, irradiates and modernized abattoir. It also offers a reliable and time tested forum for B2B transactions, exploration of joint venture and technological up-gradation and sourcing opportunities. Significantly, with 20 per cent rise in participation, the forthcoming edition of the fair will be divided into two independent shows viz. `FOOD INDIA' covering food and food processing sector and `HOSPITALITY INDIA' representing hotel and restaurant equipment and supplies.
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INTERNATIONAL SCENARIO Tourism has suddenly become a booming sector. During 2007, an estimated 4.4 million tourists visited the country, registering a growth of 14 per cent. With this robust trend in tourism, the hotel industry has also witnessed a rise in the growth and over the last decade and half, there has been a mad rush to India for business opportunities, elevating room rates and occupancy. The Hotel Industry in India is second only to China in Asia Pacific. India is a destination for hotel chains looking for growth. According to the World Travel and Tourism Council, India ranks 18th in business travel and will be among the top 5 in this decade. Hotels in India have a supply of 110,000 rooms. At the current trend, demand will soar to 10 million in 2010. With a shortage of 150,000 rooms, likely to result in demandsupply disparity, room rates will see a rise to 25 per cent annually and occupancy would rise by 80 per cent over the next two years. The industry seems to be fast getting rid of competition when it comes to being a cost-effective destination. The industry is adding about 60,000 quality rooms, currently in different stages of planning and development and should be ready by 2012. Government has approved 300 hotel projects, nearly half of which are in the luxury range. The manpower requirements will increase from 7 million in 2002 to 15 million by 2010.The hotel industry is set to grow at 15 per cent 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, the future scenario of the Indian hotel industry looks rosy. The government of India has taken a number of steps to promote tourism. An amount of Rs 0.6 bn is to be allocated for the Commonwealth Games. Income tax exemption for 5 years is granted to two, three or four star hotels established in specified districts having UNESCO-declared World Heritage Sites. 35
The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013. The industry wants it to be treated at par with other infrastructure sectors such as roads, ports and telecommunications and be granted full tax benefits. The slowdown in the global economy, rising crude prices and higher airfares has affected the hotel sector to a certain extent. Due to rising costs, companies are facing pressure on their earnings. Plus, cost cutting measures have led to lower business tourist arrivals in recent times. There is an urgent need for the hotels to adopt cost cutting devices. These can include using resources more efficiently; minimizing waste production; using products and materials that have the least negative impact on the environment, both in use and source of origin; pursuing action programs that benefit the environment in the local community; and fostering the education of environmental awareness, both internally and externally. Waste management; energy conservation; water use; and laundry and dry-cleaning should be given priority because these areas have huge wastages which can be curbed. Paper and stationery can be recycled; air conditioners and other electrical appliances should be switched off when not in use. Some hotels also offer free wine and hence it should be available in only those rooms where it is demanded. People generally tend to misuse the free stuff that is available in the hotels. Hence, it should be made available only on demand. The government should increase its budget towards the hotel industry as it is observing high rates of growth and can lead to India’s development as well. 'Hotel Industry 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.
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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. Indian tourism and hospitality sector has reached new heights today. Travelers are taking new interests in the country which leads to the upgrading of the hospitality sector. Even an increase in business travel has driven the hospitality sector to serve their guests better. Visiting foreigners has reached a record 3.92 million and consequently International tourism receipts have also reached a height of US$ 5.7 billion. Hospitality Industry is closely linked with travel and tourism industries. India is experiencing huge footfalls as a favorite vacation destination of foreigners and natives and the hospitality industry is going into a tizzy working towards improving itself.
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PORTER’S FIVE FORCES MODEL
INTRODUCTION Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and 38
attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.
1.BARGAINING POWER OF SUPPLIERS The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. •
The high class hotels are operating by few hotel chains like-TAJ,EIH,ITC&THE LEELA PALACE so they have a control over the industry.
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There are no substitutes for spas and five star hotels.
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The hotels customers are fragmented, so they have to reduce their bargaining power to attract the customers.
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The Taj, ITC& Oberoi are having various rates and tariffs. Because they are having their own brand image.
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The hotel chains are operating different services like Spas, Boatels, Resorts, City Centers, Heritage HOTELS, etc.
2 . BARGAINING POWER OF CUSTOMERS Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes.
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The hotel industry is one of the most invested in its fixed assets. So they are trying to recover their amount quickly.
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The suppliers are providing better information about them to attract the customers’ .Here the buyers are highly informed.
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If the hotel price changes are moderate, the Customers have low margins and are price-sensitive.
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Some unseasoned timings the hotels are offering discounts and incentives to reduce the bargaining power of buyers.
3.THREAT OF NEW ENTRANTS The competition in an industry will be the higher; the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. •
The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and using the latter’s brand name.
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Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new entrants.
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Access to raw materials and Distribution channels are controlled by Existing players like TAJ, ITC, and LEELA PALACE.
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The acts
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cost of land in India is high at 50% of total project cost as against 15% abroad. This as a major deterrent to the Indian hotel industry.
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%.
4. THREAT OF SUBSTITUTES A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a
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significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. •
Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the substitutes.
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The hotel relationship with customer and costs also the reasons to switching to substitutes.
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The price variation of same class hotel services from various brands is one of the reasons to choose a substitute.
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The present demand and supply of hotel rooms is one of the reasons to choose a substitute.
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More fixed cost and switching costs affects the business.
5. COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. •
The top competitors in hotel industry are having the same services like five star, spas, boatels and motels, heritage hotels and palaces.
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The healthy competition among the all players is helping to increase the industry growth.
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Intense in metro cities, slowly picking up in secondary cities.
MARKET SHARES The tourism in India has seen a steep decline over last 12 months and the effects of that have seen Hospitality Industry in India cut to half. 41
ASSOCHAM recently released the report on the performance of Hospitality Industry. Mumbai terrorist attack combined with the global slowdown, have severely impacted the bottom line to the extent of 64 per cent of the Indian hospitality sector, as per the analysis carried out by the Associated Chamber of Commerce and Industry of India (ASSOCHAM). Here are some of the key findings of the report: •
The average net profit of 10 hotels has declined by 65 per cent in Q4 FY ’09 as compared to the Q3 FY ’09.
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Out of these 10 hotels, in Q4 FY ’09, 8 hotels have registered decline in net profit on sequential basis.
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The interest cost of 10 hotels went up by 51.65 per cent in the fourth quarter of FY ’09.
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The fall in total income was about 4.47 per cent as compared to the third quarter of FY ’09.
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The total expenditure in fourth quarter of FY ’09 rose by 7.47 as compared to the third quarter of FY ’09.
• The share of Travel & Tourism industry to the global GDP was 6.48% in the year 2007 with value of US$ 3,493.19 billion and industry demand contributed to 13.21% of global GDP in 2007. • Middle East was the fastest-growing region in terms of arrivals of international tourists during 2007. • According to the report by World Travel and Tourism Council, India currently ranks 18th in business travel and will be among the top 5 nations by the end of 2010. • ASSOCHAM has projected that Medical Tourism is likely to become the leading foreign exchange earner for India • India is now emerging as one of the hot destinations for medicaland tourism after Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia
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While the inflow of foreign tourist came down sharply and the rates shrieked, there has been a rise in expenses as based on profitability and cost parameters of the hotels on the quarterly results posted by hotel companies listed on the Bombay Stock Exchange (BSE) from 1st April-25th- May 2009. The total income of such hotels, which included income from operation and other income also, registered average decline by 4.47 per cent in Q4 FY ’09 as compared to the Q3 FY ‘09. The income from operation also showed the average decline by 4.63 per cent during Q4 FY ’09. Hotel companies such as TAJGVK Hotels & Resorts Limited has registered decline in net profit by 41.49 per cent in Q4 FY ’09 as compared to the Q3 FY ’09 followed the Jaypee Hotels Limited which registered decline in net profit by 44.86 per cent during the same period. The other hotels which registered major decline in net profit were Oriental Hotels Limited (28.34 per cent), Jindal Hotel Limited (58.12 per cent) and Howard Hotels Limited (57.28 per cent). Performance Analysis of Hotel Industry Parameters Income from Operation Total Income Employee Cost Fuel, Power and Light Total Expenditure Interest Net Profit
Per cent Change -4.63 -4.47 7.47 11.28 19.84 51.65 -64.80
Source: Corporate Announcements for the year ending 2008-09. The cost of power, fuel & light increased by 11.28 per cent in Q4 FY’09 as compared to the Q3 FY ‘09. Among the hotels, Jindal Hotels Limited incurred maximum expenditure on the cost of power, fuel & light by 147.81 per cent, along with TAJGVK Hotels & Resorts Limited (20.34 per cent), Asian Hotels Limited (17.79 per cent) and Despite the decline in income top line and bottom line, the cost of hotel industry went up by 20 per cent during Q4 FY ’09 as compared to the Q3 FY ’09.
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The maximum rise was incurred by Asian Hotels Limited (11.57 per cent) followed by Jaypee Hotels Limited (10.85 per cent) and TAJGVK Hotels & Resorts Limited (8.30 per cent). The rapid pace of expansion in hospitality sector of India raised the interest cost borne by the Indian hotel industry. The borrowing cost of the hotels went up by 51.65 per cent in fourth quarter of FY ’09, while the total income decreased by 4.47 per cent during the period.
The ten hotels analyzed by the AFP registered rise in interest cost, the
maximum increase was incurred by TAJGVK Hotels & Resorts Limited (193.51 per cent) followed by Howard Hotels Limited (164.94 per cent) and Oriental Hotels Limited (89.10 per cent) among others. The employee cost of hotels also registered a rise in the total expenditure during the period. The employee cost of hotels rose by average 7.47 per cent in Q4 FY ’09 as compared to the Q3 FY ’09. The hotels that witness maximum rise in employee cost include Asian Hotels Limited (24.91 per cent), TAJGVK Hotels & Resorts Limited (24 per cent), Howard Hotels Limited (21.65 per cent), Ishwar Bhuvan Hotels Limited (15.45 per cent) and Oriental Hotels Limited (13.27 per cent) among others in Q4 FY ’09 as against Q3 FY ’09.
SWOT ANALYSIS STRENGTHS A very wide variety of hotels is present in the country.
There are international players in the market such as Taj and Oberoi & International Chains
A manpower cost in the Indian hotel industry is one of the lowest in the world. India offers a readymade tourist destination with the resources
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Natural and cultural diversity Demand-supply gap Government support Increase in the market share
WEAKNESSES The cost of land in India is high at 50% of total project cost as against 15% abroad. The hotel industry in India is heavily staffed. High tax structure in the industry makes the industry worse off than its international. Only 97,000 hotel rooms are available in India today. Only limited value added services Poor support infrastructure Slow implementation Susceptible to political events.
OPPORTUNITIES Demand between the national and the inbound tourists can be easily managed due to difference in the period of holidays. In the long-term the hotel industry in India has latent potential for growth. Unique experience in heritage hotels.
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Rising income. Open sky benefits.
THREATS Guest houses replace the hotels. Political turbulence in the area reduces tourist traffic and thus the business of the hotels Changing trends in the west demand similar changes in India 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. Fluctuations in international tourist arrivals. Increasing competition
CONCLUSION
This hotel industry analysis report helps to know the full information of Indian hotel industry. The government support towards the hotel industry and its development is appreciable. It creates interest of the competitors to grow drastically. The hotel industry
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comprises a major part of the tourism industry. The hotel industry contributes employment and economical growth of the country.
The report shows that the present and future skyrocket scenario of the industry. Various classes and categories of hotels and their services of the industry are very effective. The market share and expansion of industry in Indian economy is rosy day by day. At present the government is very liberal in regulating and licensing to the hotels because to increase foreign tourist average daily rate.
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