India’s travel and tourism industry was an interesting smorgasbord last year. While some major establishments went through rebranding exercises, which sometimes resulted in identity crises, some others panicked and lowered their average room rates. The losses by the domestic airlines for three quarters of the year, and high taxation were just some of the ‘highlights’.
Considering that travel and tourism, both casual and business, are important metrics for the health of the economy, we sought to find out what 2014 portends for the hospitality industry? We asked industry people across a reasonably broad spectrum to share their views:
Rattan Keswani, Deputy Managing Director, Lemon Tree Hotels
“It may be a difficult year, unless the elections bring about a stable government. Should that happen business confidence would be optimistic for the second half of the year. While there is a general lack of optimism, demand has grown, mainly from domestic, corporate and leisure travel. However, supply of new hotels/rooms has exceeded the demand upsurge, leading to a drop in occupancy and rates in most cities. New supply injection in the future will be much less and if the demand growth continues, the industry should do better from Q3. Lemon Tree’s business from our direct distribution channels e.g. the website has shown incremental growth and we are optimistic it will grow further. We are also adding more hotels in Mumbai, Kolkata, Hyderabad and Udaipur within the next 24-36 months. We are sure of better demand in the medium term and the higher demographic dividend for our existing hotels. The challenges are common as for the rest of the industry – a policy paralysis leading to flat trends. We’re all hoping that political stability will lead to better business confidence that will get the industry out of the long slump. For the moment, cost optimisation and reduction of waste on one side and focusing on a better share of wallet of the customer is everyone’s mantra.
Virender Razdan, General Manager, ITC Windsor, Bangalore
“The travel &tourism industry is growing at an unbelievable pace, wherein an equally competitive environment, quality will be long remembered when the price is forgotten.” Committed to creating new benchmarks in ‘responsible’ hoteliering, ITC says that enhancing “Responsible Luxury” will continue despite the ups and downs of economic and political uncertainty around the world. According to them, their “…innovation, cutting-edge technology and design integration…” has created new green benchmarks. To wit, the group has won awards that recognise their efforts towards going green. That has not kept them from focusing on the luxury segment and patrons are wooed with special packages such as airport concierges, butler services and other perks. Razdan said that they see 2014 as a year in which they will return to traditional values—where their employees are hosts, who will treat you like guests in their home.
Vaibhav Jain, GM-Sales, Andhra Pradesh, Taj Hotels & Resorts:
“I think 2014 promises to be a better year than the one gone by. We expect demand to go up and lot more activity and interest from both our national and international feeder markets. This is especially expected from the MICE segment. Customers can look forward to more value for their spends this year.”
Rawal Raghvendra Singh, Owner, Samode Hotels & Resorts:
“When my brother and I converted our ancestral palace, Samode Palace, into a luxury hotel for the discerning traveller in the early ‘80s, tourism in Rajasthan was in its infancy. Two more Samode properties—The Haveli in Jaipur and The Bagh near Samode—followed soon after. Both are popular with luxury seeking distant travellers and have won numerous international/ national accolades over the years. Very recently we launched the fourth on our list of charming hotels, The Samode Safari Lodge a luxurious wild life experience, located close to the Bandhavgarh Tiger reserve in Madhya Pradesh. It’s a Relais and Chateaux member hotel. Since the global recession of 2008, the hotel industry in general has seen a drop in occupancy, a phenomenon that has obviously affected our hotels too. But I feel now since the world tourism scenario is looking up and everyone is coming to terms with the global economic meltdown, I’m optimistic that 2014-15 would be a vastly improved season in Luxury and MICE travel. We at Samode Hotels have plans of expanding further with more properties across India in the near term.”
Zubin Songadwala, General Manager, ITC Gardenia Bangalore
“Although Bangalore has seen new players enter the luxury hotel segment, we haven’t seen a dramatic drop in occupancy, indicating a steady growth in demand. As per our forecast, February and March look good with a healthy pipeline of international business travel and conferences on the cards. Overall, hotel occupancies don’t seem to be under pressure but the new supply may lead to yields (room rates) coming under pressure. Further, the development of commercial properties as well as new hotels in the northern and southern parts of Bangalore has led to an emergence of new micro markets. On an optimistic note, the emerging competition in the Central Business District has still ensured that business remains buoyant for ITC Gardenia. On our part, we can’t take this demand for granted and we must endeavour to build and sustain relationships with our guests to ensure retention and loyalty among our key customers while growing the market.”
Shane Krige, General Manager, The Ritz-Carlton Bangalore
“In my view 2014 will be much more promising, with the political situation stabilising after the general elections which would improve the business climate in the country. In the coming year we see good potential for the hospitality market in India. The first few months could be sluggish; however, things would look up after July, which in turn will affect the hospitality and tourism industries. Our focus for the year will be to increase the RevPAR.”
****SIDEBAR****
Interview withS.M. Shervani
President, Federation of Hotel and Restaurant Associations of India (FHRAI)
Last year was a mixed bag for the tourism industry in India. What are your expectations for 2014, especially with an uncertain economy and elections this year?
2013 was certainly a difficult year, with the global slowdown and sharp deceleration in the Indian economy adversely impacting the hospitality industry’s demand scenario. Factors such as high inflation, especially a rapid increase in food and utility costs, rising interest rates and extreme currency volatility, have compressed margins and are squeezing profitability. The scarcity and exorbitant price of land, particularly in metro cities and inordinate delays in securing government approvals have considerably stretched project outlays and are further undermining investor sentiment in the sector.
Towards the end of the year, with the onset of the peak season in October, we have witnessed a visible improvement in average hotel occupancy across several key cities. Hopefully, these much-awaited green shoots would materialise into a steady pan-India recovery in the sector in 2014. With the global economic recovery gaining momentum and a gradual turnaround in domestic business sentiment towards the second half of the year, we expect hotel occupancy to pick up. However, given the strong supply pipeline of new hotel rooms, average room rates and RevPAR will rebound only with a lag.
What do you think hotels will be doing or rather should be doing to attract more guests and travellers?
The growth of Foreign Tourist Arrivals (FTAs) in India was only a modest 4.1% in 2013 and 4.3% in 2012, whereas domestic tourism has been robustly growing at 19-20%. This surge in domestic tourism has the potential to insulate the sector to a large extent, fromthe vagaries of the global market. We are already seeing that the ‘seasonality’ effect in popular leisure destinations such as Goa, Jaipur, Agra, Udaipur and Kerala, is gradually undergoing a change with difference in the demand during peak and lean periods being bridged owing to a reduced reliance on international tourist arrivals. With the US dollar appreciating and holidays abroad becoming increasingly expensive, we anticipate domestic travel toget another fillip. In view of this trend, hotels must actively reorient their value proposition to better cater to the distinct profile of the domestic traveller.
To compensate for the subdued demand, hotels are also seeking to leverage alternative revenue sources such as F&B, MICE etc. FHRAI’s research shows that the contribution of non-room sources to the gross revenue of hotels grew to 47.8% in 2012-13. A burgeoning middle-class with an increasing propensity to spend will continue to drive demand in the F&B and banqueting segment and hotels will seek to augment their internal capabilities and infrastructure to tap these lucrative segments.
How will FHRAI be supporting hoteliers in 2014? Are there any aspects of the hospitality industry in particular that will be FHRAI’s focus in 2014?
One of the pivotal areas of FHRAI’s focus in 2014 will be to address the funding constraints which hotels encounter, especially those in the budget and mid-scale category. Hotels are capital-intensive, long gestation projects and the hospitality industry is inherently cyclical. As such, to be financially viable, they should have access to diverse sources of low-cost long-term finance. In most major countries, hotels are able to avail term loans carrying 5-8% interest rate and repayment period of 20-25 years. However, in India, hotels are currently borrowing at 14-17% for loans with a tenure of just 8-10 years, out of which 3-4 years is typically the time taken for project execution and commissioning. It is evident that our lending parameters are not consistent with the intrinsic nature and requirements of the hotel industry. We must also bear in mind that in view of the ambitious targets envisioned by the Ministry of Tourism for the 12th Plan Period (2012-17), the country is posed to face a significant shortfall of 1,20,000 rooms in the affordable tourist accommodation segment. To bridge this gap, the industry will be required to commit additional capital investment of rupees 50,000 crore in the next five years. To ease the flow of institutional credit to the hotel industry, FHRAI will be pursuing three specific proposals with the government:
1. Reduce the minimum project cost stipulated for inclusion of hotels in the RBI’s Infrastructure Lending List from the present rupees 200 crore to a more reasonable threshold of rupees 50 crore.
2. Bank loans up to rupees 10 crore extended to SMEs in the hospitality industry should be permitted to be classified as “priority sector lending” under RBI norms.
3. Financial institutions such as TFCI, SIDBI, HUDCO and IIFCL should be allowed to issue a special category of tax-free ‘Hospitality Infrastructure Bonds’. The low-cost funds garnered from such bonds will support asset-creation in the tourism sector and help to reduce our industry’s reliance on banks for funding.
How does FHRAI plan on promoting responsible & sustainable tourism?
FHRAI has always articulated that sustainability is a business imperative for our industry and not just a CSR activity. We have encouraged our members to take a holistic approach to sustainability and stakeholder engagement, placing it at the heart of their business strategy. It is gratifying to observe that all industry segments, from high-end luxury resorts to business hotels in metros and standalone properties in tier III cities, are increasingly embracing this view. This is manifested in the commitment to reduce their carbon footprint by investing in efficient technologies forwaste management, water and energy conservation, adoption of green designs and architecture for new projects etc. At both the national and regional level, the hotel industry is also proactively partnering with the government and civil society in major initiatives aimed at preserving natural biodiversity and fragile ecosystems as well as safeguarding the interests of local and indigenous communities. FHRAI’s successful convention in Kochi last year was centred on the theme of sustainable and responsible tourism and served as a vibrant forum for a rich discourse on this vital issue.
FHRAI has worked closely with the Ministry of Tourism to give develop a ‘Sustainable Tourism Criteria’ which strives to balance the goals of economic, social and environmental value-creation by our tourism sector. We believe that facilitating voluntary compliance with global best practices through greater awareness and policy incentives is more effective in promoting sustainability in the industry than imposing rigid guidelines and punitive regulations.
Last year saw a disproportionate growth in supply of hotel rooms compared to the growth in demand, resulting in panic sales. Do you see a similar trend for 2014 as well?
During 2013, the industry is estimated to have added more than 9,000 rooms to its branded room inventory (YoY growth of 10.9%). In a weak macroeconomic environment, this significant fresh supply outpaced the growth in demand, putting hotel occupancies and room rates under considerable pressure. Going forward, the industry’s active development pipeline (i.e. hotels which are in the post-planning and construction phase) is estimated to be about 54,000 rooms, which will enter the market in the course of the next 4-5 years. Therefore, while we are optimistic about a revival in demand this year, the impact of the inventory overhang on the hotel industry’s operating metrics is likely to persist for at least another 12-18 months. This is particularly the case in cities such as Delhi-NCR, Chennai and Ahmedabad, which have seen the maximum addition in terms of fresh supply.
Are you expecting any support or favourable policies from the government this year that could prove buoyant to the hospitality industry?
The government’s ambitious 12th Five-Year Plan (2012-17) has identified tourism as a high priority sector, which can drive inclusive and pro-poor growth. We expect the government to urgently focus on alleviating certain systemic impediments, so that this vision of unlocking the tourism sector’s potential to serve as an ‘economic multiplier’ can be accomplished. In particular, we are hoping for a consensus between the Union Government and the Empowered Committee of State Finance Ministers, which paves the way for the nation-wide implementation of a uniform Goods & Services Tax (GST) within 2014. Similarly, we would like the government to expeditiously move towards streamlining our tourist visa norms, by favourably considering FHRAI’s demand for adopting an electronic visa regime for foreign tourists. We are also hoping for policy support from the Central and State Governments for the industry’s efforts to diversify our existing tourism product portfolio by tapping profitable niche segments such as MICE and beach tourism.
Do you see the hospitality industry gaining greater traction in Tier III and tier II cities this year?
FHRAI is extremely optimistic that led by improving connectivity and upgradation of civic infrastructure, tier II and tier III cities can be key drivers of our future growth and will be major beneficiaries of the current buoyancy in domestic tourism. This optimism is also reflected in the industry’s expansion strategy, wherein it proposes to add nearly 23,000 rooms by 2017-18, in cities other than the traditional top 15 markets. Not only domestic players, but international hospitality chains are also confident of this potential and are increasingly penetrating deeper into tier II and tier III cities by introducing well-known budget/economy brands from their global bouquet. Smaller towns and cities also stand to gain from the Government’s emphasis on promoting integrated tourist circuits/ clusters under the 12th Plan.
With the huge impact of social media, how do you see it influencing marketing and reputation management for the hospitality industry?
We believe that social media is both a challenge as well as an opportunity for the industry. On one hand, it can be strategic business tool that facilitates a deeper and more personalised engagement with customers and act as a dynamic platform for receiving constructive feedback, grievance redressal and also promote brand visibility and differentiation in a cluttered marketspace. However, we are concerned that there have been some instances in the recent past where social media has been misused by vested/biased interests to cause grave reputational harm and consequent financial losses to hospitality establishments, with the concerned establishments having virtually no recourse to undo the damage. FHRAI plans toinitiate an active dialogue with popular social media sites to ensure that even while preserving free speech and expression, reasonable checks and balances are instituted to minimise the prospect of any blatant misuse.
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