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HOTEL INDUSTRY

PRESENTED BY-

AALOK RATHOD 68

RACHIT KASERA

SHAZIA KHAN

ESHA MATHUR

ALISHA WAICHAL

KRUTI JOSHI


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Contents

1.Overview of the hotel industry2.Developments over the years3.Govt. Policies and its effects on the industry4.Case study

5.

Challenges faced by the industry6.Recommendations7.Works Cited


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THE HOTEL INDUSTRY

-An overview

For many of these travelers, hotels and other accommodations

will be where they stay while out of town. For others, hotelsmay be more than just a place to stay; they are destinations inthemselves. Resort hotels and casino hotels, for example, offer

a variety of activities to keep travelers and families occupied formuch of their stay.

Goods and services. Hotels and other accommodations areas different as the many family and business travelers they

accommodate. The industry includes all types of lodging, from

luxurious five-star hotels to youth hostels and RV (recreationalvehicle) parks. While many provide simply a place to spend thenight, others cater to longer stays by providing food service,

recreational activities, and meeting rooms. In 2008, 64,300establishments provided accommodations to suit many

different needs and budgets.

As per the Travel and Tourism Competitiveness Report 2009by the World Economic Forum, India is ranked 11th in the AsiaPacific region and 62nd overall, moving up three places on thelist of the world's attractive destinations. It is ranked the 14thbest tourist destination for its natural resources and 24th for itscultural resources, with many World Heritage sites, both naturaland cultural, rich fauna, and strong creative industries in thecountry. India also bagged 37th rank for its air transport


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network. The India travel and tourism industry ranked 5th in thelong-term (10-year) growth and is expected to be the secondlargest employer in the world by 2019.

Contribution to the economy

Combining unparalleled growth prospects and unlimitedbusiness potential, the industry is certainly on the foyer towardsbeing a key player in the nation's changing face. Furthermore,banking on the governments initiative of upgrading andexpanding the countrys infrastructure like airports, nationalhighways etc, the tourism and hospitality industry is bound toget a bounce in its growth.

The hotel and tourism industrys contribution to the Indianeconomy by way of foreign direct investments (FDI) inflowswere pegged at US$ 2.1 billion from April 2000 to March 2010,according to the Department of Industrial Policy and Promotion(DIPP).

According to the Travel & Tourism Competitiveness Report2009 brought out by the World Economic Forum, exportearnings from international visitors and tourism goods are

expected to generate US$ 51.4 billion (nominal terms) by 2019.Furthermore, the sector which accounted for 6.4 per cent oftotal employment in 2009 is estimated to rise to 7.2 per cent oftotal employment by 2019.

Indias hotel pipeline is the second largest in the Asia-Pacificregion according to Jan Smits, Regional Managing Director,InterContinental Hotels Group (IHG) Asia Australasia. Headded that the Indian hospitality industry is projected to grow at

a rate of 8.8 per cent during 2007-16, placing India as thesecond-fastest growing tourism market in the world. Initiativeslike massive investment in hotel infrastructure and open-skypolicies made by the government are all aimed at propellinggrowth in the hospitality sector.


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According to industry data, India is expected to double thenumber of branded hotel rooms from 100,000 now in just threeyears. Leading the pack are global hotel chains, which will addover 300 hotel properties (an estimated 55,000 rooms) in the

country by 2013, as per data compiled by companies.As per the press release by Press Information Bureau dated4th March, 2010, the monthly estimates for February 2010,compiled by the Ministry of Tourism on two important indicatorsof tourism sector, foreign tourist arrivals (FTAs) and foreignexchange earnings (FEEs) were as follows:

y FTAs during the Month of February 2010 were 601,000 ascompared to FTAs of 547,000 during the month ofFebruary 2009. A growth of 9.9 per cent was registered inFebruary 2010 over February 2009.

y FTAs during the period January-February 2010 were1,092,000 with a growth rate of 12.7 per cent, ascompared to the FTAs of 968,000 during January-February 2009.

y FEE during the month of February 2010 were US$ 1.4billion as compared to US$ 923 million during the month ofFebruary 2009.

y The growth rate in US$ terms in FEE touched in February2010 over February 2009 was 55.4 per cent.

Exchange rate used: 1 USD = 45.71 INR (as on May 2010)

HotelsIndia currently has around 115,000 hotel rooms spread acrossall the categories and is facing a shortfall of155,000 rooms. Thehospitality sector is expected to see an estimated investment of

US$ 12 Bn in the next2 years, and various new internationalhotel brands will break ground.Given the current growth, demand-supply gap and investmentnorms (100% FDI allowed), the countryprovides opportunitiesfor International brands to enter India with a long termcommitment.


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For the Commonwealth Games in 2010, the government isexpected to provide 10,000 budget rooms ascompared to therequirement for 40,000 to 50,000 of such rooms.

A five-star hotel room requires and investment of US$ 125,000to US$ 210,000 compared with only US$62,000 US$ 83,000for a 3 or 4-star hotel room. The further down budget hotels canhave the hotel up andrunning on limited services platform withan investment of US$ 31,000 for a room. The gestation periodfora 5-star property is 3 years or more, whereas a budget hotelcan be up and running in well under 2 years. The land costshould ideally by 20% to 30% of the project cost, but the trendhas seen thisfigure touching the new heights of 50% to 60% as

well.

Fig.1: Major Hotel Companies in India


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DEVELOPMENTS

According to the Consolidated FDI Policy, released by DIPP,Ministry of Commerce and Industry, Government of India, thegovernment has allowed 100 per cent foreign investment underthe automatic route in the hotel and tourism related industry.The terms hotel includes restaurants, beach resorts and othertourism complexes providing accommodation and /or cateringand food facilities to tourists. The term tourism related industryincludes:

y Travel agencies, tour operating agencies and touristtransport operating agencies

y Units providing facilities for cultural, adventure and wildlifeexperience to tourists

y Surface, air and water transport facilities for touristsy Convention/seminar units and organisationsy The Government of India has announced a scheme of

granting Tourist Visa on Arrival (T-VoA) for the citizens ofFinland, Japan, Luxembourg, New Zealand andSingapore. The scheme is valid for citizens of the abovementioned countries planning to visit India on single entry

strictly for the purpose of tourism and for a short period ofupto a maximum of 30 daysy The tourism master plan, the first for Karnataka, envisages

initiatives to attract private investment ranging from US$2.2 billion to US$ 4.4 billion in the next three to five years.The plan is prepared based on the Vision 2020 documentprepared and adopted by the Karnataka State PlanningBoard. The state government aims to generate 200,000jobs in the tourism sector in the next five years. The

master plan is aimed at making Karnataka the numberone destination for tourism in the country by 2020,according to Mr G Janardhan Reddy, Minister for Tourismand Infrastructure Development


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As per the press release by Press Information Bureau dated17th May, 2010, Ministry of Tourism has sanctioned thefollowing tourism projects:

y A world class illumination technology for promotion ofnight tourism will be employed for projecting the uniquearchitecture of the monuments and buildings ofChandigarh. An amount of US$ 1.1 million has beenearmarked for this venture

y Focussing on promoting tourism, sustainable in harmonywith the surroundings, eco-tourism projects in Morni andPinjore hills (Haryana)to the tune of US$ 729,753,Development of Morni Hills and Tikar Tal to the tune of

US$ 1.1 million is in the pipeline. Besides, eco-tourism inKalesar is being developed for an amount of US$ 697,876y The Minister of Tourism, in a press release dated April 12,

2010 reviewed all the new hotel projects coming up for theCommonwealth Games (CWG), Delhi, 2010 along with thelicensed Guest Houses, Bed & Breakfast establishments,DDA Housing flats located at VasantKunj which would beoperated by India Tourism Development Council (ITDC).Providing an update on the CWG preparations, the review

of the Task Force indicated 8,227 rooms have beencompleted, which account for 75 per cent of the overall10,981 definite rooms. The performance of hotel projectsin respect of Haryana was found to be noteworthy asnearly 80 per cent of the definite rooms have beencompleted.

Medical Tourism

Indian Tobacco Company (ITC) Group opened India's first brandedhotel, the Fortune Park Lake City, which shares its premises with ahospital in Thane. This 58-room business hotel, owned by JupiterLifeLine Hospitals, is built to service medical tourists.

According to PawanVerma, senior executive vice-president, hotelsdivision, ITC the market size of medical tourism in India is worth


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US$ 2.4 billion and is growing at 27 per cent annually. The countryreceived 1.1 million medical tourists in 2009, registering a growth of17 per cent.

According to a report by RNCOS, medical tourism will grow at aCAGR of over 27 per cent in the period 200912 to generate revenuesworth US$ 2.4 billion by 2012. The number of medical tourists isanticipated to grow at a CAGR of over 19 per cent to reach 1.1million by 2012. The report adds that Indias share in the global

medical tourism industry will climb to around 2.4 per cent by the endof 2012.

Hospitality

y Intercontinental Hotels Group (IHG), the worlds biggest hotelcompany, has a belligerent strategy for the Indian market. It

believes the Asia-Pacific region will be responsible for growth,with China and India leading. Considering the immense scope oftourism in India, which constitutes mostly of domestic travel,

Richard Solomon, chief financial officer and head ofcommercial development, Intercontinental Hotels Group (IHG),

observed that there were a total of 500 million trips in India peryear and only five million were international. Elaborating

further on the investments of the company, he stated that thecompany has 12 hotels and has signed another 41deals withmajority of them being under construction.

y ITC, the Kolkata-based cigarette major, also projected its plan toopen 25 new hotels under the Fortune brand over the course ofnext 12-18 months (or by 2011).

y Accor Hospitality, the largest hotel chain in Europe, with 4,000hotels in 90 countries announced that it will invest US$ 130million to come up with 50 hotels in India by 2012.

The Road Ahead

The Indian hospitality sector is certainly the most apt replication of

the belief 'Atithidevobhava'- touch of tenderness, a helping hand and awelcoming visage.


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According to the World Travel and Tourism Council (WTTC), thegrowth in the hospitality industry is pegged at 15 per cent every year,with 200,000 rooms needed, the hotel segment of India is on the brinkof an astounding growth.

According to the Tourism Satellite Accounting (TSA) research,released by WTTC and its strategic partner Oxford Economics inMarch 2009:

y The demand for travel and tourism in India is expected to growby 8.2 per cent between 2010 and 2019 and will place India atthe third position in the world.

y India's travel and tourism sector is expected to be the secondlargest employer in the world, employing 40,037,000 persons by

2019.y Capital investment in India's travel and tourism sector is

expected to grow at 8.8 per cent between 2010 and 2019.

y The report forecasts India to get capital investment worth US$94.5 billion in the travel and tourism sector in 2019.

y India is projected to become the fifth fastest growing businesstravel destination from 2010-2019 with an estimated real growthrate of 7.6 per cent.

An agreement on tourism cooperation was signed between theGovernment of the Republic of India and the Syrian Arab Republic onOctober 08, 1991, the first Joint Working Group Meeting on Tourism

between India and Syria was held in New Delhi on May 11, 2010.The meeting emphasised the need to exchange visits of tour operatorsand travel media to promote tourism between the two countries. Theimportance of interaction between the private tourism stakeholders ofthe two countries was stressed to develop better understanding of thetourism products in each others country and also agreed to have

bilateral exchange of information and list of travel agencies, fairs andtourism related events so as to enable enhanced participation andcooperation from both sides.

Exchange rate used: 1 USD = 45.71 INR (as on May 2010)

Intro of new lodging concepts


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Boutique Hotels (New Consumer) Serviced Apartments (driver: outsourcing/consultant short stays) Timeshare (Increase in leisure travel) Adventure based Eco-Resorts

Spas (Wellness) Medical Tourism

However, high hotel tariffs have had a dampening effect on thedomestic tourism industry to some extent, feel experts.

Hotel tariffs have almost doubled over the last two years andthat has impacted the sentiments to a great extent. Customers

have become price conscious. In fact, some of them have alsoopted for overseas packages as that works out almost at parwith the domestic packages offered, said Mr RakeshLamba,President, Association of Domestic Tour Operators of India.

Fig.: Performance of hotel in india (1998-2005)


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GOVERNMENTS POLICIES & ITSEFFECTSONTHE

INDUSTRY

Initiatives at State-level with Involvement ofLocals:

States are taking initiatives in teaming with locals to provide aflavor of their culture and traditions. Some ofthe key initiativesare mentioned below:

Himachal Pradesh: The Himachal Government has introduceda scheme - Himachal Pradesh HomeStay Scheme 2008 underwhich tourists are given the opportunity see the rural areas ofHimachal andenjoy their stay in comfortable home-stayaccommodations.

Gujarat: Through the Vibrant Gujarat programme, the GujaratGovernment plans to actively market the tourism sector. With a1,650-km coastline, the state has plans of developing beachesin regions like Kutchand Mandvi.

Madhya Pradesh: The Government of Madhya Pradesh iskeen to initiate the development of an artificialbeach in thestate. The concept is based on Ocean Dome artificial beach in

Japan. The total investment for the project is estimated aroundUS$ 440 Mn.

Kerala: Kerala has introduced innovative tourism initiatives.Two of its villages, Aranmula and Kumbalangi,are beingpromoted as tourist destinations in a big way as part of theEndogenous Tourism Project ofthe United NationsDevelopment Programme and Government of India. Anotherconcept called HomeStays, plans to promote rural tourism.

The Dream Season, is another scheme wherein the KeralaTourismDevelopment Corporation has coordinated with mosthotels to offer economical packages. Besides this,the KeralaTravel Mart which is a bi-annual event showcasing the best ofKerala is the only tourism mart inthe subcontinent that bringstogether the business fraternity and entrepreneurs behind thetourism productsand services of the state.


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Rajasthan: Rajasthan has a developed tourism infrastructure,with close to 6,000 hotel rooms spread overmore than 150hotels. Of these, over 1,400 rooms (54 hotels) belong to theheritage category. TourismDepartment has estimated that

investment of over US$ 600 Mn is required in the tourismindustry inRajasthan over the next 10 years. It is estimated thatthe private sectors share of investment can be up to US$ 200Mn.

Andhra Pradesh:Andhra Pradesh has about 18 projects linedup under various categories such as templecircuitdevelopment, eco-tourism projects, adventure tourism and ruraltourism projects with a significantinvestment by the central and

state government. The tourism department is developing thetemple circuitof Tirupati and surrounding regions with aninvestment of US$ 9.5 Mn.

FDI steadily increased as investment regime progressively

liberalized with fewer restrictions.

Fewer restricted industries

Easing of investment process

Removal of Investment Caps and Repatriation

February 2005 Central Government Allows 100% ForeignDirect Investment in construction sector:

Hotels

Resort

Hospitals


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Recreation

Educational Institutions

Hospitals

Regional Infrastructure

Approval process streamlined with minimum hassles.

Incentives (Provided by State Governments)

Exemption of Luxury Tax and Sales Tax for 5-7 Years for new

Projects

Government Programs for Interest free loans

Small capital subsidy for the development of budget hotels

Below market rate allotment of land controlled by State for

development projects.

Provision of electricity a lower than market cost.

Incentives (Provided by Central Government)

Elimination of Customs Duty for Import of raw materials,

equipment, liquor etc.

Capital subsidy program for budget hotels

Hotels are now, Infrastructure status. which allows them

access to term loans at lower rates of interest


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Fig.: Primary drivers of growth in the hotel industry


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Fig.2: Brand Presence of Category-wise Hotels in India

Fig.3: Growth in Indias Service Sector- Post Economic Reform

Era (1991)


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Fig.4: Key Tourism Statistics


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CASESTUDY

Bawa group of Hotels has established four properties conveniently

located in the commercial capital of India, Mumbai, since 1984. The

hotels are endowed with comfort and elegance at affordable prices.

The group has a very peculiar strategy of the locations it chose to

establish its name-

1.Near Airport, Vile Parle- the visitors are mainly thetravellers in transit.

2.Juhu- this site attracts the tourists visiting Mumbai3.Dadar- the site is mainly attracting the office and

company executives and their visitors.

4.Bandra- this boutique hotel is more for business classpeople and meetings and conferences.

The virtue of BAWA has been getting its customers come back by

providing classy facilities and high-end service.

Though the company has presence in Mumbai only but seeing its

strategy to connect to customers it is planning tp venture to

Kolkata and Hyderabad.

We had a chat with the General Manager of the Bawa Group of

Hotels MRS---------------

Q-Maam your view on the current status of industry whichslowed down in 2009 a bit due to global meltdown, terrorist

attacks and swine flu epidemic. Is there been a momentum in2010?

A- There has been some momentum in the industry. But themomentum is more with the 5 stars of the industry because they

were the main who were impacted not the boutique hotels as we

have regular customer base. We were also affected in a controlled


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manner due to which loses were suffered and still the ARR is low for

us and the room tariffs are not as compared to pre-2008.

Q-What according to you is driving domestic tourism

growth?

A-The growth in Indias tourism industry is driven by the budding

Indian middle class which due to rising disposable incomes is

spending of luxury as well as budget travels which in terms is helping

hotel industry grow which is directly related to tourism sector. Also

innovation such as casinos, medical tourism and governmentincentives is driving growth in this sector.

Q- Major reforms for hotel industry since 1991?

o A- Deregulation of Civil Aviation Industry

o Aggressive Marketing Campaign: Incredible India

These 2 reforms I feel are the biggest drivers of this industry.

Q- What about employment. Since country has so many

unemployed youths and many more are adding up every year do

you think hotel industry can share some of the load of the

government?

A-See hotel industry is big but not huge that employment can be

catered to. Also government needs to encourage employment

in this sector by menaas of incentives.

B-The Call Centres which are not the hotspots for youths for

earning fast money has given a setback to tourism related

sector.


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C-This has not only increased the cost of employment to sectors

such as ours but we cannot pass on this to consumers resulting

into losses for us.

Q- What about the FDI in this sector after govt. announced 100 %

FDI through automatic route for hotel industry?

A-The FDI will only increase the cost to consumers because these

5-stars will pass their cost to them and the hotel industry might

suffer on these grounds.

B-Bawa has no plans to get a foreign hand on it. It is strictly Indian

Family group.

Q- In 2009 about 5.13 million people visited Indiaand with CAGR

of 8-10 % more people visiting India. Do you think Indian hotel

industry has enough rooms to cater to the travellers?

A-As you guys have the exact figure that about 2 lacs rooms are

needed in next 10 years but if thats the case I would comment

that the occupancy of this sector is around 75 % in peak season

and 50 % is off season. So who says that we need more rooms?

I would say we need more tourists.

Q- Last question your predictions on Indian GDP growth rate and

Hotel industry?

A-India is the 2nd

fastest growing economy in the world and i ampositive about both India and Hotel sector. Just remember 2

things-

--IF I have a repetitive guest my hotel is successful

--Mouth to Mouth publicity is the main weapon


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CHALLENGESThe tourism industry in India is faced with certain challenges ofregulatory as well as external nature. These are highlightedbelow.

Regulatory Challenges

Complex Tax Structure: The hospitality industry faces multipletax structures at the central and state level. This makespayment of taxes quite cumbersome.

High Taxes: The taxes charged are compounded by theluxury taxes which push up the average room cost.

External Challenges Economic Slowdown: The hospitality industry has been hit bythe global economic meltdown. Foreign tourist arrivals havebeen badly hit and occupancy levels across the country havefallen.

Impact of Terrorism: The recent terrorist attacks in Mumbaihave shaken the confidence of MNCs and business travelers.Many have been forced to re-consider their travel plans and

subsequently, the winter season which implies brisk businessfor the hospitality industry has seen far lower occupancies.

Cost of Land: When compared to other markets across theglobe, in India, the cost of the land constitutes a very largechunk, especially in case of large infrastructure projects. Thisdelays the breakeven of these projects and discourages furtherinvestments.

Cost of Debt: The cost of debt in India is higher than the costof debt in other countries. This againdiscourages furtherinvestments.


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Skilled Manpower Shortage: The industry is facing amanpower shortage which pushes up the cost of acquiringquality talent.

y

Corruption and multi-level bureaucracy

Government Regulations, licenses and approval processonerous.

Over 65 Approvals and licenses required for hotelproject development.

This makes consultants and lawyers professionhappy but developer/investor, not so happy!


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SUGGESTIONS

The product up-gradation in the tourism sector is the call of theday and the government should take a proactive approach in

developing public-private partnerships. It should work towardsdeveloping world class infrastructure and providing services ofthe same benchmark to be effectively termed the preferredtourist destination of world.The Indian market is taking initiatives in this direction. InRajasthan, for example, many luxury trains have been

introduced including Palace on Wheels and Royal Rajasthan onWheels. The Palace on Wheels has been adjudged as thefourth best luxury train in the world creating an example for allothers to follow and achieve similar benchmark.

Recommendations for the Government

Take a close look at ways and means of improving theexisting infrastructure and hygiene conditions at places oftourist interest and public places

Conduct a joint promotional campaign for various states in

India and allocate budgets for marketing at international travelfairs to boost tourist inflow in the country

Play a significant role in rationalizing the cost of landauctioned for hotel development. This would assist the industryin creating value by adding substantial inventory of hotel roomsrequired to diminish the demand-supply gap

Assist in building and developing educational institutions to

fulfill the emerging demand for skilledmanpower in the tourismsector

Grant Infrastructure status to the hotel industry under SEC80-IA of IT Act and increase depreciation on hotels from 10% to20%


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Rationalise Floor Space Index (FSI) /Floor Area Regulation(FAR). This would allow hotels to buildmore rooms on the sameproperty eventually leading to more affordable room rates.Subsequently, the government can reduce development

charges for adding more rooms in existing hotels

Further incentives will boost investments in the sector such asoffering a tax holiday to the industry

Abolition of 12.5% service tax on tour packages

Implement uniform luxury tax code

Extend the 5 year tax holiday scheme which currently coversonly 2, 3 and 4-star hotels and convention centers with acapacity greater than 3,000 to include 5-star hotels too

Recommendations for the Industry

Promote Public Private Participation

Deliver on scheduled timelines and share accountability withthe government on public private partnership projects to reduce

the cost involved in development

Develop an academic think-tank to trigger off the right kind oftraining in hotel management institutes in India

Establish commendable Masters and PhD programs inhospitality

Undertake measures towards employee retention

Coaching, development and training of employees for theirlong-term carrier development and retention process


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WORKS CITED

http://www.bls.gov/oco/cg/cgs036.htm (accessed on 14th sept,

11.20pm)

http://www.ibef.org/artdispview.aspx?art_id=26026&cat_id=120&in

=74(accessed on 14th sept, 11.31pm)

http://www.thehindubusinessline.com/2010/03/08/stories/2010030

852081300.htm (accessed on 14th sept, 11.53pm)

http://www.technopak.com/Perspective/vol2/Indian%20Tourism%2

0Managing%20Growth%20by%20Breaking%20Barriers .pdf(accessed

on 15th sept, 12.07am)

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