Transcript INDIA’S HOTEL INDUSTRY

INDIA’S HOTEL INDUSTRY
Presented by MEDIA INDIA
India's hotel industry is experiencing an unprecedented boom, driven
by increasing numbers of business and tourist arrivals.
But how long can the good times last?
Business and investments: Current situation
of India’s hotels
Some figures :
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Hotel Imperial New Delhi: 99.57 % occupancy. Hotel Trident Hilton,Gurgaon
(suburban Delhi): 98.3 % occupancy. Indian hotels are witnessing mindblowing
occupancy rates.
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Increase in average room rent for the entire hotel industry over the last year: 35 %.
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Unmet demand for hotel rooms: 150 000 rooms. Additional demand this year: 15 000
rooms.
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The boom has attracted several global players, ranging from Starwood and Mariott to
Four Seasons and ShangriLa. The largest hotel company in the world,French chain
Accor, has entered India and is now devising aggressive plans for expansion in the
market. Several others are racing to increase their presence in India, including the
Marriott group.
Currently Marriott has over 1,000 rooms spread across four properties in Mumbai and
Goa.
A booming market
The established hotel chains
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A number of global players are
already well established in India.
These include Hilton, Shangri-La,
Radisson, Mariott, Meridien,
Sheraton, Hyatt, Holiday Inn,
InterContinental and Crowne Plaza.
Investments
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Now besides hotel companies, even
the investment firms and private
equity companies are beginning to
get excited about India. Berggruen
Holdings India, a subsidiary of New
York-based investment company
Berggruen Holdings,has announced
that it is seed-funding a non-luxury
hotel chain in India.
Private equity firm Warburg Pincus
has picked up around 27 % stake in
Delhi-based mid-price hotel
chain,Lemon Tree, for $ 60.2 million.
The engine of growth
Tourist boom
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The tourism traffic has been growing
between 20-28 % every year for the last four
years and this rate of growth is expected to
continue for the next few years.
The constant boom and the resultant
demand-supply mismatch has led to sharp
increases in the average room rates and thus
pushing up revenues of industry players
(hotels, tour operators, airlines, shipping
lines, etc)
The tourism sector is expected to perform
very well in futureand the industry offers an
interesting investment opportunity for longterm investors.
Most of the five-star hotels are seeing more
than 80 % occupancy and some of the lesserknown five-star hotels are overbooked.
Incredible India
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The Ministry of Tourism is pushing the
great Indian story effectively with its
subtle and charming “Incredible India”
campaign
“We have spent $5 million on this
campaign since December 2002 and plan
to keep it going,” Amitabh Kant, the joint
secretary at India’s Ministry of Tourism.
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According to estimates, another 150,000
rooms will have to be added across the
country in the next five to seven years to
be able to meet the increased demand.
At 6,762 rupees, Bangalore had the
highest ARR across all categories in the
30 cities. New Delhi was the second
highest, registering an ARR of 5,498
rupees. All India ARR increased 26.9 %
over the previous year. Star category
occupancies ranged from 46.3 % to
72.1 %.
The future growth
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Hospitality experts believe that the Indian hotel industry will witness higher than usual
growth in the coming peak season. The good times for the Indian hospitality industry
are here to stay, with top-end hotels experiencing high room occupancy rates even in
the lean season.
“ The lean season has been exceptionally good for us. Our room occupancy rate has
been around 89 per cent and we are looking at over 95 per cent occupancy for the
period September to December,” says Kapil Chopra, general manager, Trident Hilton,
Gurgaon.
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There was an increase of 15 % in the number of international tourist arrivals in India
and 14 % in the foreign exchange earnings in the first quarter of 2006 as compared to
the same period last year.
The non-luxury segment in particular has been perking up with more and more investors
spotting the demand supply imbalance, surge in domestic travel and growth in spending
among middle-class Indians.
The Competition
The world's leading hotel brands joining the battle
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The country has been flooded by some of the
world's leading hotel brands. New brands
such as Amanda, Satinwoods, Banana Tree,
Hampton Inns, Scandium By Hilt and
Mandarin Oriental are planning to enter the
Indian hospitality industry in joint ventures
with domestic hotel majors.
Unitech, which is setting up two hotels in
Delhi,has already formed a joint venture with
Marriott International to run its three new
hotels in India, which are expected to start
operations by 2008. “The three new hotels
will be located in Kolkata, Gurgaon and
Noida. We are investing around 700 crore
rupees to set up these hotels,” says Unitech
managing director Sanjay Chandra.
All other majors including Marriott, Hyatt,
Hilton, Accor, Four Seasons etc are briskly
reinforcing their presence in India.
Indian hotel companies look overseas
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The movement is not one-way. Cash-rich Indian hotel
companies have been acquiring properties overseas.
The Tata group's Indian Hotels Company is in the
process of acquiring Boston-based luxury hotel the
Ritz-Carlton for around $170 million dollars (around
765 crore rupees). Due diligence is likely to be
completed soon. The hotel will be acquired through
the company’s New York-based subsidiary, says RK
Krishna Kumar, vice chairman of Indian Hotels.
Indian Hotels is looking to strengthen its presence in
the United States with this acquisition. It has also set
up properties in the Middle East, the United Kingdom
and Africa. Its fierce rival, Oberoi group, has also been
active overseas with properties in Saudi Arabia,
Mauritius, Egypt, Australia and Indonesia, and
elsewhere.
With growing competition, hotels are under
tremendous pressure to generate new lines of revenue
with creative approaches. With newer players poised
to enter the market one of the key factors that will
drive future demand is alternate revenue streams.
Hotels are trying every possible way to generate cash
from alternative sources to achieve economies of
scale. Reducing transaction costs, increasing
productivity and promoting traditional Indian values
Looking for new niche
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Many business hotels in India are
integrating full-fledged spas on their
premises, originally a main stay of
resort properties.
Another interesting trend in India is
that of mixed-use developments. While
the concept has proved to be
successful abroad, it is still at the
embryonic stage in India. In this type
of development, the real estate would
typically include an apartment block or
a commercial block (retail or office)
along with a hotel.
However, in order to attract more
visitors, India still needs to
dramatically increase the number of
rooms available.
The challenges to face
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The lack of adequate infrastructure
development. The airports at the primary
gateway cities of Delhi and Mumbai have been
privatised, and work has commenced on
modernisation. New privately owned international
airports are expected to be commissioned at
Hyderabad (2008) and Bangalore (2009), which will
give a large boost to the economic growth of these
areas.
There is still need to improve air
connectivity; rail and road connections as well as
general infrastructure like power and water.
The result of the industry's success. As
competition increases, there is a definite
pressure on ARR and operating margins. The
industry market will definitely shift from being
demand-driven to supply-driven and that the hotel
companies will need to revisit their strategies and,
of course, their prices.
Some players are already preparing for the
difficult times when the ARRs are expected
to fall by 30-40 percent in the next 3-4 years
and then the distinguishing factor for the hotels will
be the offer in its entirety rather than just the price
or the facilities that the hotels offer.