Hospitality Industry

•What is Hospitality Industry?

Hotels, motels, inns or such businesses that provide transitional or short-term lodging.

The hospitality industry consists of companies within the food services, accommodations, recreation, and entertainment sectors.

Major attractions in India are the world's highest mountains, miles of coastline with excellent beaches, tropical forests and wildlife, desert safari, lagoon backwaters, ancient monuments, forts and palaces, adventure tourism and, of course, the Taj Mahal.

Industry Highlights:

• India is one of the fastest growing travel & tourism markets in the world.

• It has reached US$ 91.7 billion & expected to reach US$ 266.1 billion by 2019.

• Indian hospitality industry has increased at a compounded annual growth rate of 16.4% between 2004 to 2009.

• FTAs during the Month of February 2010 were 601,000 as compared to FTAs of 547,000 during the month of February 2009.

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

• The figure is expected to skyrocket in 2010, when Delhi hosts the Commonwealth Games.

• Domestic tourist visits in India were estimated to be 562 million in 2008, a growth of 7 per cent over the previous year.

• International tourist arrivals in India have increased at a CAGR rate of 8.1 percent between 2004 and 2009 to reach 5.1 million.

• Foreign exchange earnings from tourism increased by more than 13 percent to reach US$11.39 billion.

Hospitality industry can be split into following 6 categories: 1. The premium or Luxury sector: 5 star or

deluxe hotels catering to business & up-market foreign travellers. 30% of all hotel rooms fall into this category.

2. The budget sector: four to one-star hotels catering to average & domestic leisure travellers & generally found in smaller towns & cities.

3. Heritage hotels: palaces, mansions & forts that have been converted into hotels, thus mixing effective preservation with commercial capability.

• Resorts and clubs: located on the outskirts of the city, they range from premium to budget quality.

• Restaurants: include food chains & outlets set up in India. They are usually run by international chains like Domino’s Pizza, McDonald’s & Pizza Hut.

• Serviced Apartments: a new concept in India. Except for a few serviced apartments in Delhi Mumbai, the market is in nascent stage.

Key Players

Domestic Players: The Indian Hotels

Company Ltd (IHCL)

East India Hotels (EIH)

ITC Bharat Hotels Asian Hotels Hotel Leelaventure

International Players InterContinental Marriott Starwood Accor

Company Type of propertiesBrands

Indian Hotels

Company Ltd

Luxury, mid-segment and budget

Taj, Gateway, Vivanta and Ginger

ITC Welcomgrou

p

Luxury, budget and heritage hotels

ITC hotel-Luxury collection, WelcomHotel-Sheraton, Fortune and WelcomHeritage

EIH Business hotels, leisure hotels and cruises

Oberoi and Trident

Carlson Luxury, business hotels, economy and cruises

Radisson Hotels and Resorts, Park Plaza, Country Inns & Suites, Park Inn

InterContinental

Luxury, mid-segment and business hotels

InterContinental, Crowne Plaza, Holiday Inn, Hotel Indigo, Staybridge Suites, CandleWood Suites

Key Trends of Hospitality Industry

Serviced Apartments– New concept which is fast gaining popularity in India.– Driven by an increasing inflow of expatriates & travellers

staying for long durations.– Serviced apartments in India include Taj Wellington

Mews, Homestead Service Apartments, Marriott Executive Apartments and Grand Hyatt Residences.

• Budget hotels witnessing strong growth– Driven by the growth in domestic travel– Expansion of business activity to tier II and tier III

cities has created demand for such hotels in these locations.

• Growing demand of niche segments• India is fast gaining popularity as a preferred

destination for medical treatment .• India’s low cost of treatment compared to developed

countries make it a preferred destination for medical tourism.

• Medical tourism expected to grow at 29 per cent to reach US$2.4 billion by 2012.

• With more than 70 national parks & 400 wildlife sanctuaries, other segments such as eco-tourism, wildlife tourism & adventure tourism are gaining popularity in India.

• Demand in smaller cities is increasing• Business travel to smaller cities such as

bhubaneswar, pune, jaipur, Mangalore & kochi is increasing due to IT/ITeS companies expanding their operations in these cities.

• With smaller cities like Udaipur, Thiruvananthpuram and Kochi witnessing a greater influx of foreign tourists, demand for hotels have increased in these cities.

• International players increasing their presence in India:

Almost all the major hotel operators such as Starwoods, Hilton, Intercontinental have significant growth plans for India and have multiple projects in works or in pipeline.

• International hospitality chains are expected to acquire local players to increase their presence in the country.

• Both domestic and international players are expected to form strategic alliances and partnerships with regional players to expand in the country, reduce risk and optimize resources.

Budget Implications

• This year the govt has granted investment linked deduction for developing hotels.

• Hotels commisioned after July 2010 will be granted subsidies

• There is an overall increase in budget outlay to 46%

•A new sub-section in section 35AD has been inserted which provides for full deduction in respect of any expenditure of capital nature (other than expenditure incurred on the acquisition of any land or goodwill or financial instrument) which is incurred for building and operating a new hotel of two-star and above category as classified by Central Government

•100 % FDI is allowed in the industry.

• Five year holiday from income tax being granted to two, three or four star hotels established in specified districts having UNESCO-declared 'World Heritage Sites'; the hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013

• FBT exempted on crche, employee sports, guest houses facilities.

• No specific projections for this sector under the Current Budget.

SWOT ANALYSIS

Strengths

• Rich cultural heritage.

• Vast cultural diversity.

• Huge demand-supply gap leading to higher price and thereby higher revenue.

• Government Support-Proposed budget of Rs 540 Crore and lot more.

• Increase in market share yoy.

Weaknesses

• Poor support of infrastructure , lack of quality.

• Procastination and slow implementation

• Susceptible to political events such as social unrest ,inter-community fights and other such happenings.

Opportunities

• Rising Income

• Open Sky Benefits-Leading to more players in airline industry thereby indicating more competition.

Threats

• Fluctuations in foreign tourist arrivals due to terror threats, policy changes.

• Growing influence of foreign players

• Increasing competiton.

• Uncertain fluctuation in demand due to external as well as internal reasons.

Challenges

• Shortage of skilled workforce.

• Shortage of rooms.

• Negative image of Indian Hospitality Industry.

• Customer Expectations.

• Manual Backend.

• Customers Expectations

•By Ranita Lakra

•Bhadresh Mewada & Samarjit Mahurkar