HOTEL INDUSTRY

PRESENTED BY-

AALOK RATHOD 68
RACHIT KASERA
SHAZIA KHAN
ESHA MATHUR
ALISHA WAICHAL
KRUTI JOSHI
Contents
1.Overview of the hotel industry
2.Developments over the years
3.Govt. Policies and its effects on the industry
4.Case study
5.Challenges faced by the industry
6.Recommendations
7.Works Cited
 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, hotels
may be more than just a place to stay; they are destinations in
themselves. Resort hotels and casino hotels, for example, offer
a variety of activities to keep travelers and families occupied for
much of their stay.
Goods and services. Hotels and other accommodations are
as 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 (recreational
vehicle) parks. While many provide simply a place to spend the
night, others cater to longer stays by providing food service,
recreational activities, and meeting rooms. In 2008, 64,300
establishments provided accommodations to suit many
different needs and budgets.

As per the Travel and Tourism Competitiveness Report 2009

by the World Economic Forum, India is ranked 11th in the Asia
Pacific region and 62nd overall, moving up three places on the
list of the world's attractive destinations. It is ranked the 14th
best tourist destination for its natural resources and 24th for its
cultural resources, with many World Heritage sites, both natural
and cultural, rich fauna, and strong creative industries in the
country. India also bagged 37th rank for its air transport
network. The India travel and tourism industry ranked 5th in the
long-term (10-year) growth and is expected to be the second
largest employer in the world by 2019.

Contribution to the economy

Combining unparalleled growth prospects and unlimited

business potential, the industry is certainly on the foyer towards
being a key player in the nation's changing face. Furthermore,
banking on the government’s initiative of upgrading and
expanding the country’s infrastructure like airports, national
highways etc, the tourism and hospitality industry is bound to
get a bounce in its growth.

The hotel and tourism industry’s contribution to the Indian

economy by way of foreign direct investments (FDI) inflows
were 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 Report

2009 brought out by the World Economic Forum, export
earnings 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 of
total employment in 2009 is estimated to rise to 7.2 per cent of
total employment by 2019.

India’s hotel pipeline is the second largest in the Asia-Pacific

region according to Jan Smits, Regional Managing Director,
InterContinental Hotels Group (IHG) Asia Australasia. He
added that the Indian hospitality industry is projected to grow at
a rate of 8.8 per cent during 2007-16, placing India as the
second-fastest growing tourism market in the world. Initiatives
like massive investment in hotel infrastructure and open-sky
policies made by the government are all aimed at propelling
growth in the hospitality sector.
According to industry data, India is expected to double the
number of branded hotel rooms from 100,000 now in just three
years. Leading the pack are global hotel chains, which will add
over 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 dated

4th March, 2010, the monthly estimates for February 2010,
compiled by the Ministry of Tourism on two important indicators
of tourism sector, foreign tourist arrivals (FTAs) and foreign
exchange earnings (FEEs) were as follows:

 FTAs during the Month of February 2010 were 601,000 as

compared to FTAs of 547,000 during the month of
February 2009. A growth of 9.9 per cent was registered in
February 2010 over February 2009.
 FTAs during the period January-February 2010 were
1,092,000 with a growth rate of 12.7 per cent, as
compared to the FTAs of 968,000 during January-
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 growth rate in US$ terms in FEE touched in February
2010 over February 2009 was 55.4 per cent.

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

Hotels
India currently has around 115,000 hotel rooms spread across all the
categories and is facing a shortfall of 155,000 rooms. The hospitality
sector is expected to see an estimated investment of US$ 12 Bn in the
next 2 years, and various new international hotel brands will break
ground.
Given the current growth, demand-supply gap and investment norms
(100% FDI allowed), the country provides opportunities for
International brands to enter India with a long term commitment.
For the Commonwealth Games in 2010, the government is expected
to provide 10,000 budget rooms as compared to the requirement for
40,000 to 50,000 of such rooms.

A five-star hotel room requires and investment of US$ 125,000 to

US$ 210,000 compared with only US$ 62,000 – US$ 83,000 for a 3
or 4-star hotel room. The further down budget hotels can have the
hotel up and running on limited services platform with an investment
of US$ 31,000 for a room. The gestation period for a 5-star property
is 3 years or more, whereas a budget hotel can be up and running in
well under 2 years. The land cost should ideally by 20% to 30% of the
project cost, but the trend has seen this figure touching the new
heights of 50% to 60% as well.

Fig.1: Major Hotel Companies in India

 DEVELOPMENTS

According to the Consolidated FDI Policy, released by DIPP,

Ministry of Commerce and Industry, Government of India, the
government has allowed 100 per cent foreign investment under
the automatic route in the hotel and tourism related industry.
The terms hotel includes restaurants, beach resorts and other
tourism complexes providing accommodation and /or catering
and food facilities to tourists. The term tourism related industry
includes:

 Travel agencies, tour operating agencies and tourist

transport operating agencies
 Units providing facilities for cultural, adventure and wildlife
experience to tourists
 Surface, air and water transport facilities for tourists
 Convention/seminar units and organisations
 The Government of India has announced a scheme of
granting Tourist Visa on Arrival (T-VoA) for the citizens of
Finland, Japan, Luxembourg, New Zealand and
Singapore. The scheme is valid for citizens of the above
mentioned countries planning to visit India on single entry
strictly for the purpose of tourism and for a short period of
upto a maximum of 30 days
 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 document
prepared and adopted by the Karnataka State Planning
Board. The state government aims to generate 200,000
jobs in the tourism sector in the next five years. The
master plan is aimed at making Karnataka the number
one destination for tourism in the country by 2020,
according to Mr G Janardhan Reddy, Minister for Tourism
and Infrastructure Development
As per the press release by Press Information Bureau dated
17th May, 2010, Ministry of Tourism has sanctioned the
following tourism projects:

 A world class illumination technology for promotion of

night tourism will be employed for projecting the unique
architecture of the monuments and buildings of
Chandigarh. An amount of US$ 1.1 million has been
earmarked for this venture
 Focussing on promoting tourism, sustainable in harmony
with the surroundings, eco-tourism projects in Morni and
Pinjore 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 in
Kalesar is being developed for an amount of US$ 697,876
 The Minister of Tourism, in a press release dated April 12,
2010 reviewed all the new hotel projects coming up for the
Commonwealth Games (CWG), Delhi, 2010 along with the
licensed Guest Houses, Bed & Breakfast establishments,
DDA Housing flats located at Vasant Kunj which would be
operated by India Tourism Development Council (ITDC).
Providing an update on the CWG preparations, the review
of the Task Force indicated 8,227 rooms have been
completed, which account for 75 per cent of the overall
10,981 “definite” rooms. The performance of hotel projects
in respect of Haryana was found to be noteworthy as
nearly 80 per cent of the definite rooms have been
completed.

Medical Tourism

Indian Tobacco Company (ITC) Group opened India's first branded

hotel, the Fortune Park Lake City, which shares its premises with a
hospital in Thane. This 58-room business hotel, owned by Jupiter
LifeLine Hospitals, is built to service medical tourists.

According to Pawan Verma, senior executive vice-president, hotels

division, ITC the market size of medical tourism in India is worth
US$ 2.4 billion and is growing at 27 per cent annually. The country
received 1.1 million medical tourists in 2009, registering a growth of
17 per cent.

According to a report by RNCOS, medical tourism will grow at a

CAGR of over 27 per cent in the period 2009–12 to generate revenues
worth US$ 2.4 billion by 2012. The number of medical tourists is
anticipated to grow at a CAGR of over 19 per cent to reach 1.1
million by 2012. The report adds that India’s share in the global
medical tourism industry will climb to around 2.4 per cent by the end
of 2012.

Hospitality

 Intercontinental Hotels Group (IHG), the world’s biggest hotel

company, 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 of
tourism in India, which constitutes mostly of domestic travel,
Richard Solomon, chief financial officer and head of
commercial development, Intercontinental Hotels Group (IHG),
observed that there were a total of 500 million trips in India per
year and only five million were international. Elaborating
further on the investments of the company, he stated that the
company has 12 hotels and has signed another 41deals with
majority of them being under construction.
 ITC, the Kolkata-based cigarette major, also projected its plan to
open 25 new hotels under the Fortune brand over the course of
next 12-18 months (or by 2011).
 Accor Hospitality, the largest hotel chain in Europe, with 4,000
hotels in 90 countries announced that it will invest US$ 130
million 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 'Atithi devo bhava'- touch of tenderness, a helping hand and
a welcoming visage.
According to the World Travel and Tourism Council (WTTC), the
growth 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 brink
of an astounding growth.

According to the Tourism Satellite Accounting (TSA) research,

released by WTTC and its strategic partner Oxford Economics in
March 2009:

 The demand for travel and tourism in India is expected to grow

by 8.2 per cent between 2010 and 2019 and will place India at
the third position in the world.
 India's travel and tourism sector is expected to be the second
largest employer in the world, employing 40,037,000 persons by
2019.
 Capital investment in India's travel and tourism sector is
expected to grow at 8.8 per cent between 2010 and 2019.
 The report forecasts India to get capital investment worth US$
94.5 billion in the travel and tourism sector in 2019.
 India is projected to become the fifth fastest growing business
travel destination from 2010-2019 with an estimated real growth
rate of 7.6 per cent.

An agreement on tourism cooperation was signed between the

Government of the Republic of India and the Syrian Arab Republic on
October 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 operators
and travel media to promote tourism between the two countries. The
importance of interaction between the private tourism stakeholders of
the two countries was stressed to develop better understanding of the
tourism products in each other’s country and also agreed to have
bilateral exchange of information and list of travel agencies, fairs and
tourism related events so as to enable enhanced participation and
cooperation from both sides.

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

Intro of new lodging concepts

• 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 the

domestic tourism industry to some extent, feel experts.

“Hotel tariffs have almost doubled over the last two years and
that has impacted the sentiments to a great extent. Customers
have become price conscious. In fact, some of them have also
opted for overseas packages as that works out almost at par
with the domestic packages offered,” said Mr Rakesh Lamba,
President, Association of Domestic Tour Operators of India.

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

GOVERNMENT’S POLICIES & ITS EFFECTS ON THE
INDUSTRY
Initiatives at State-level with Involvement of Locals:
States are taking initiatives in teaming with locals to provide a flavor
of their culture and traditions. Some of the key initiatives are
mentioned below:

Himachal Pradesh: The Himachal Government has introduced a

scheme - ‘Himachal Pradesh Home Stay Scheme 2008’ under which
tourists are given the opportunity see the rural areas of Himachal and
enjoy their stay in comfortable home-stay accommodations.

Gujarat: Through the ‘Vibrant Gujarat’ programme, the Gujarat

Government plans to actively market the tourism sector. With a
1,650-km coastline, the state has plans of developing beaches in
regions like Kutch and Mandvi.

Madhya Pradesh: The Government of Madhya Pradesh is keen to

initiate the development of an artificial beach in the state. The concept
is based on ‘Ocean Dome’ artificial beach in Japan. The total
investment for the project is estimated around US$ 440 Mn.

Kerala: Kerala has introduced innovative tourism initiatives. Two of

its villages, Aranmula and Kumbalangi, are being promoted as tourist
destinations in a big way as part of the ‘Endogenous Tourism Project’
of the United Nations Development Programme and Government of
India. Another concept called ‘Home Stays’, plans to promote rural
tourism. The ‘Dream Season’, is another scheme wherein the Kerala
Tourism Development Corporation has coordinated with most hotels
to offer economical packages. Besides this, the Kerala Travel Mart
which is a bi-annual event showcasing the best of Kerala is the only
tourism mart in the subcontinent that brings together the business
fraternity and entrepreneurs behind the tourism products and services
of the state.
Rajasthan: Rajasthan has a developed tourism infrastructure, with
close to 6,000 hotel rooms spread over more than 150 hotels. Of
these, over 1,400 rooms (54 hotels) belong to the heritage category.
Tourism Department has estimated that investment of over US$ 600
Mn is required in the tourism industry in Rajasthan over the next 10
years. It is estimated that the private sector’s share of investment can
be up to US$ 200 Mn.

Andhra Pradesh: Andhra Pradesh has about 18 projects lined up

under various categories such as temple circuit development, eco-
tourism projects, adventure tourism and rural tourism projects with a
significant investment by the central and state government. The
tourism department is developing the temple circuit of Tirupati and
surrounding regions with an investment 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% Foreign
Direct Investment in construction sector:
– Hotels
– Resort
– Hospitals
– 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
Fig.: Primary drivers of growth in the hotel industry
 Fig.2: Brand Presence of Category-wise Hotels in India

Fig.3: Growth in India’s Service Sector- Post Economic Reform Era

(1991)
Fig.4: Key Tourism Statistics
 CASE STUDY

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 the
travellers in transit.
2. Juhu- this site attracts the tourists visiting Mumbai
3. Dadar- the site is mainly attracting the office and
company executives and their visitors.
4. Bandra- this boutique hotel is more for business class
people 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 which slowed

down in 2009 a bit due to global meltdown, terrorist attacks and swine
flu epidemic. Is there been a momentum in 2010?

A- There has been some momentum in the industry. But the

momentum 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
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 India’s 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 government
incentives 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.
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 India and 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 that’s 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 am

positive 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

CHALLENGES
The tourism industry in India is faced with certain challenges of
regulatory as well as external nature. These are highlighted below.
Regulatory Challenges
• Complex Tax Structure: The hospitality industry faces multiple tax
structures at the central and state level. This makes payment of taxes
quite cumbersome.

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

External Challenges
• Economic Slowdown: The hospitality industry has been hit by the
global economic meltdown. Foreign tourist arrivals have been badly
hit and occupancy levels across the country have fallen.

• Impact of Terrorism: The recent terrorist attacks in Mumbai have

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 business for the hospitality industry
has seen far lower occupancies.

• Cost of Land: When compared to other markets across the globe, in

India, the cost of the land constitutes a very large chunk, especially in
case of large infrastructure projects. This delays the breakeven of
these projects and discourages further investments.

• Cost of Debt: The cost of debt in India is higher than the cost of debt
in other countries. This again discourages further investments.

• Skilled Manpower Shortage: The industry is facing a manpower

shortage which pushes up the cost of acquiring quality talent.

 Corruption and multi-level bureaucracy

• Government Regulations, licenses and approval process

onerous.
– Over 65 Approvals and licenses required for hotel
project development.
– This makes consultants and lawyers profession
happy but developer/investor, not so happy!
SUGGESTIONS

The product up-gradation in the tourism sector is the call of the

day and the government should take a proactive approach in
developing public-private partnerships. It should work towards
developing world class infrastructure and providing services of
the same benchmark to be effectively termed the preferred
tourist destination of world.
The Indian market is taking initiatives in this direction. In
Rajasthan, for example, many luxury trains have been
introduced including Palace on Wheels and Royal Rajasthan on
Wheels. The Palace on Wheels has been adjudged as the
fourth best luxury train in the world creating an example for all
others to follow and achieve similar benchmark.

Recommendations for the Government

• Take a close look at ways and means of improving the existing
infrastructure and hygiene conditions at places of tourist interest and
public places

• Conduct a joint promotional campaign for various states in India and

allocate budgets for marketing at international travel fairs to boost
tourist inflow in the country

• Play a significant role in rationalizing the cost of land auctioned for

hotel development. This would assist the industry in creating value by
adding substantial inventory of hotel rooms required to diminish the
demand-supply gap

• Assist in building and developing educational institutions to fulfill

the emerging demand for skilled manpower in the tourism sector

• Grant ‘Infrastructure’ status to the hotel industry under SEC 80-IA

of IT Act and increase depreciation on hotels from 10% to 20%
• Rationalise Floor Space Index (FSI) /Floor Area Regulation (FAR).
This would allow hotels to build more rooms on the same property
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 as

offering 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 covers only 2,
3 and 4-star hotels and convention centers with a capacity 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 with the

government on public private partnership projects to reduce the cost
involved in development

• Develop an academic think-tank to trigger off the right kind of

training in hotel management institutes in India

• Establish commendable Master’s and PhD programs in hospitality

• Undertake measures towards employee retention

• Coaching, development and training of employees for their long-

term carrier development and retention process
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