Full Of Promise - The Development Of India's Hotel Industry
On the move - domestic tourism explodes
As the domestic market continues to expand, the escalating economy provides the rising middle classes with increased disposable income. The arrival of low cost airlines and the associated price wars have given domestic tourists more options than ever before. The 'Incredible India' destination campaign has also helped the growth of many domestic markets including religious tourism. As a next step, the government has recently launched the 'Atithi Devo Bhavah' (ADB) campaign aimed at increasing awareness of tourism in India.
To respond to the needs of this growing giant, companies like Choice and Best Western plan to significantly increase their portfolio over the next two years, by 100% and 50% respectively. Other hotel companies have also taken steps to ensure they benefit from the country's huge domestic demand. Indian Hotels launched its IndiOne brand with huge success last June in Bangalore. Accor has entered into a joint venture with InterGlobe Enterprises to introduce 25 Ibis branded hotels, the first will arrive in 2006. InterContinental Hotels Group is also introducing their economy brand, Holiday Inn Express, with ten properties planned, starting later this year. Marriott has also announced plans to introduce the Courtyard brand in India.
Catching the eye of the international market
Currently corporate travel dominates the international arena. The Indian subsidiary of Kuoni estimates that 80% of foreigners staying in their hotels are there on business. While corporate business will naturally continue to expand as the economy grows, there is enormous untapped potential in the country's leisure market. "Incredible India" has focused not only on promoting traditional holiday attractions and cultural experiences, but on defining unique markets from medical to religious tourism. In fact, India has already seen growing Japanese arrivals due to the promotion of Buddhist travel.
But India still faces many challenges in attracting the international traveller. This will continue whilst the government addresses the quality of India's infrastructure. Although the World Travel and Tourism Council rated India second in price competitiveness (after Brazil) there are many factors which need to be dealt with to encourage foreign visitors. Poor roads, overstretched railways and old airports discourage international travellers. Add to that hotel taxes higher than most Asian countries and a bureaucratic visa process - and you start to get a clear picture of the challenges facing India.
Maximising hotel performance
Key Indian markets revPAR growth - 12 months to February 2005 versus same period in 2004
Source: HotelBenchmark Survey by Deloitte
Amongst the unique features of the hotel industry in India is the sheer volume of the domestic market. Hotels receive twice as many domestic guests as international guests. With most branded supply in India sitting in the top tier of the market, the hotel industry is currently very top heavy. While many companies are addressing the needs of the growing domestic market for more economical hotel products, most projects are still in development. Future growth of the hotel industry will not be helped by archaic land laws that make construction of new hotels time-consuming and expensive.
What is interesting to note, is that the demand for hotel rooms far exceeds the country's supply. While an opportunity exists to develop the hotel industry to meet this demand, India experiences large seasonal shifts in demand and corporate travellers currently represent the bulk of guests. Due to the lack of a widely distributed business mix, annual occupancies and average room rates in India did not rank very high in the 2004 HotelBenchmark Global Ranking Index. The industry must explore ways to seize untapped potential demand whilst addressing the down-time to maintain profitable operations. Developing a more diverse business mix is key.
The advancing airline industry
The open skies policy has benefited both international and domestic travel. On the international front, the capacity and availability of destinations serving India continues to grow. In late 2004, India and the UK agreed to double (in phases) the number of direct flights per week. Earlier this year, Malaysia Airlines announced their plans to add 18 new routes in India within the next five years. Jet Airways and Air Sahara, two privately owned airlines have launched services to other South Asian destinations, and will shortly launch services to Singapore.
The increasing competition in the domestic airline industry will continue to drive the growth of India's domestic market. In May, two new private domestic airlines (SpiceJet and Kingfisher Air) are expected to enter the market. They will compete head on with current operators Jet Airways, Air Sahara and Air Deccan. It is expected that the tumbling cost of travel will continue, given the growing number of seats available.
The government has expanded the scope of airline liberalisation with its approval in January for private airlines to fly all international routes excluding the Gulf. To qualify the government requires a company to have a fleet of at least 20 planes and five years domestic experience. Jet Airways and Sahara will be able to benefit immediately. In three years time India's state-run carriers will also have to share their Gulf routes. These routes currently earn them most of their operational revenue and profit. The recent IPO (Initial Public Offering) by Jet Airways was over-subscribed several times - indicating the confidence this industry has gained over recent years.
Encouragingly major government initiatives such as 'Incredible India' and tax policy revision are well underway. With the growth of the economy expected to continue, and considering the size and dynamics of the domestic market, Indian hotel performance will be exciting to watch over the coming years. Future performance should reflect a country of vast opportunities, especially as mid-market products develop to satisfy the country's thriving domestic market.
Notes: All analysis in Indian rupees
The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,500 hotels and 1.2 million rooms every month. Monthly surveys are produced on the following areas:
- Four regional rate and occupancy surveys covering Asia-Pacific, Europe, Central & South America and the Middle East & Africa.
- 12 country/sub-regional rate and occupancy surveys for Australia, Belgium & The Netherlands, China, Germany, India, Italy, New Zealand, Nordic Countries, Paris, Qatar, South Africa, Spain, UK and London.
- Profitability surveys on Germany and London.
- Two city rate and occupancy surveys for Paris and London.
- On an annual basis we produce profitability surveys tracking performance across all regions of the world.
For further information on the India edition of the HotelBenchmark Survey please contact Mindi Green on +44 (0) 207 007 1235.
Phone: +44 (0) 20 7007 0981