Limitation of Indian Hotel Industry Shrinking Manpower The hotel industry is rapidly losing good professionals to other service

segments. With many new opportunities opening up - for both graduates with a hospitality degree and hotel executives with experience and talent - within the business process outsourcing (BPO), ICE and other service segments in India, the hotel is no longer the only career choice. We can go so far as to say that the hospitality industry faces a serious threat from other sectors: those that offer better comparative remuneration, a better work-life balance, a more challenging work environment, or faster professional growth. Shrinking manpower within the industry is, today, a very real problem. This paucity is being felt across all levels of staff and management now, and across all departments. On a pessimistic note, I dare to say that 85% of all management level personnel across hotel chains in India are not happy, and are waiting for the right opportunity to move out. We strongly feel that for any new hotel that plans to open, the biggest challenge would be to source the requisite talent and to retain it. Growing Disillusionment The growing disillusionment within the sector is indeed worrisome. A love for the business of hospitality, and the desire to excel as a hospitality professional considered to be the driving factors for a long-term career in the industry are no longer motivation enough for a new generation of professionals that seeks faster and better gratification. Quite clearly, industry leaders, associations and HR practitioners need to put in time and effort, to provide and prepare for long-term planning to resolve the issues. The issue of quality of working life would be the single deciding factor for the new generation. Changing Aspirations and Expectations The aspirations and expectations of hotel professionals have also undergone a sea change. To quote a senior hotel professional, During our time, it would take as much as 13 years, through various positions, to rise to the level of Food and Beverage Manager. The new Generation Y is not prepared to wait for more than six years. I have, in my three years with HVS Executive Search, not seen such profound change in the attitude of hotel executives. People now want a tangible idea as to how they will progress in the organisation. The pressure of retaining people in todays competitive environment, and the adjustments that this necessitates will, over a period, significantly change both the management structure and working

environment in hotels in India. Managers will need to pay more attention to employee motivation and team-building efforts, and see that these ideas are more regularly - and more effectively - put into practice. Age old policies and super structures, will, we believe, have to pave way to newer and faster career progression. HR concepts once alien to the Indian hospitality, like HRIS, OD intervention and Career Pathing, must now be taken very seriously by Indian hotel companies. It is indeed disappointing that, to date, not one hotel company in India has been ranked in the top three in any field of service orientation, or has been included in the list of best employers or best companies to work for. The industry has, without doubt, been inward looking, and owners and management have been slow to understand, recognise and adopt employee best practices. Attracting Talent The Indian hospitality sector having witnessed a golden year notwithstanding, the industry has failed to create enough excitement for talent from outside the industry to enter and be a partner in its growth. The industry has to find new ways of attracting talent from outside. At the same time, there is a need for senior management to be flexible in terms of their hiring practices, and more accommodating with new recruits. We believe that hoteliers need to let go of apprehensions and doubts, as to whether outsiders would perform well enough, and adopt a longer-term, more visionary approach: invest in finding and attracting talent and devise ways to retain good performers. In other words, the industry needs to become more competitive. Lessons have to be learnt from the telecom and the other newly emerging, fast-growing sectors where people were invited to join the industry and given time and space to perform. Compensation The industrys compensation practices will go through a radical change. Some companies in India have started the process of aligning their pay structure to those of newly emerging sectors, but the differential is still too much, in the range of 30 - 40%. Hotel owners and management need immediately to plan, develop and implement long-term strategies for bridging or, at least, lessening the gap between what the industry offers - and what these professionals would be paid outside. Industry leaders should be more open with their compensation policies and practices. Annual benefits may need to be split into monthly or quarterly incentives, to enable an ongoing process of employee motivation. Performance Management linked incentives must be very carefully monitored and should not be delayed. The practice of delaying compensation should be rectified and given urgent and top priority. In our view, is it imperative to properly address the special issues and concerns facing the hospitality industry in India today. It has become quite evident that a market for the well-trained hospitality professional is beginning to emerge: from the newly liberalising aviation sector; from the retail sector;

and from BPO firms, which were earlier limited to the main metros but are now expanding aggressively into second-tier towns. ITES-BPO jobs in places like Kolkata, Hyderabad, Pune and Cochin are being perceived as attractive options by those hotel professionals who would prefer to stay and work within their local environment, rather than re-locate elsewhere. Such as trend is likely to adversely affect hotels in remote areas as they would find it difficult to attract and retain talent. The Road Ahead... The solution lies in the industry taking some important steps, both in terms of building a productive and positive work culture, where employees are actively encouraged to perform to their best capabilities, as well as making the necessary changes in compensation practices. Hotel owners need to share as much information as possible with management. Managers and team leaders, on their part, need to spend time with their team members, to discuss objectives, provide feedback, ask team members about their difficulties as well as to talk about whats happening in the hotel. International hotel companies such as the Ritz Carlton Company, Four Seasons Hotels and Resorts and Marriott leaders in this industry in guest satisfaction and business profitability are companies that have made a dedicated effort to encourage teamwork, employee empowerment, and a sense of responsibility towards the organisations well-being. Moreover, the organisation has to define and create a clear path of movement for its employees. Quality of working life with international cross-functional exposure should become a key focus. Taking a more macro perspective, the industry as a whole has an important role to play in positively presenting the hotel industry as a career choice. This could be by organising discussion sessions where prominent hoteliers/senior managers and industry persons speak to students and young professionals in this field. Hotels, on the other hand, will increasingly need to market themselves as promising places to work in. Arrogance and aloofness will no longer be the order of the day. Here, I would like to add that companies having their own training school and providing customised training to selected students should broaden their reach: in other words, extend their training programmes to other hospitality institutions and, thereby, increase the pool of talent available to choose from. Another thing to do would be to provide greater education and exposure at the mid-management level. One way to do this is by opening our doors to knowledgeable hotel professionals with international experience, to visit and provide new learning to mid-level managers. Unfortunately in India, hotels have simply not invested enough time and effort in their junior and mid level positions, to provide them new knowledge, and keep them informed of international trends and best practices. The subject of training hotel personnel, too, has simply not been taken seriously enough in India. A few senior people are sent abroad for few weeks and return with no new real value addition. Interestingly, this is also an area where international companies have a distinct advantage: the comprehensive and properly structured training that they are capable of providing is most potent weapon to attract the best resources in the country. Sorry to say, no international hotel firm operating in India has yet used this

tool for differentiating itself with domestic hotel companies. How successful hotels are effectively attracting, managing and retaining good people has a lot to do with their Human Resource departments. To quote once again the example of Four Seasons and Marriott, these companies generally high levels of employee performance and retention are due to the importance given to the HR function, to think, act, and care for their people. For hotels in India, the HR function needs to move out from the job of simply recruiting, and adopt a more holistic picture; in other words, pay attention to the deeper issues that affect their people. I would like to add that the time cycle for HR to take decisions must be reduced, and a vital lesson be learnt: that resources are scarce and that time is running out. In my opinion, what we truly require is a Hotel Infosys (or many such hotels) that would share its profits with all internal and external stakeholders. For all those of us closely associated with the hotel industry in India, it is essential to do some soul searching and contribute effectively to protect our industrys best interests. We, at HVS, would continue to play a meaningful role in encouraging our clients and candidates to look beyond and provide ongoing support to all stakeholders.

Research Challenges facing Indian hospitality HVS Hospitality Services has drawn from its vast knowledge base and put together a research paper, Critical issues facing Indian hospitality - an HVS white paper covering key issues instrumental for the growth of tourism in India. Express Hospitality presents excerpts. The tourism industry is cyclical in nature and highly susceptible to macro-environmental changes. Aviation and hospitality are amongst the first to get impacted by an adverse environment and also the last to recuperate. HVS predicts the financial year 2008/09 as a year that started off with great potential but ended up with huge fiscal deficits at the stakeholder level. The year 2009/10 is also poised for a major downturn in the tourism economy and calls for objective measures to arrest the level of damage. This white paper attempts to estimate the loss of profit or revenue to aviation and hospitality sectors and also highlight the long and short-term issues/challenges that have been impeding the

growth of these two major constituents of the tourism industry. Comparisons are drawn from the best global practices to offer a larger perspective to the reader. The paper also lists down recommendations and measures that it perceives as vital for the growth of the tourism industry in India. Losses to the aviation sector Global aviation currently faces what is probably its most challenging environment ever. In India, the decline in demand has been driven by a combination of the slowing economy and higher airfares resulting from the dramatic increases in fuel prices in the middle of 2008. According to Centre for Asia Pacific Aviation (CAPA), the Indian aviation sector is expected to lose around Rs 8,930 crore for the financial year 2008/09. The consolidated loss estimated for this sector between 2005 and 2009 is expected to be in the range of Rs 15,000 crore. CAPA highlights the following issues as barriers to growth in aviation:

Absence of a civil aviation policy Tough norms for granting international flight licenses Funding issues hampering the operations and growth of most airlines High cost of aviation turbine fuel (ATF) High cost of operation due to inefficient airport infrastructure Insufficient air-traffic management Poor infrastructure support in the form of hangars, hotels, cargo set-ups.

Decline in hospitality sector The hospitality industry is projected to witness a severe decline in its revenue in 2008/09 and 2009/10, when compared with 2007/08 figures. The adverse impact on hotel economy has been assessed on the total nationwide room count of 1,20,000 rooms. Separate set of assumptions have been utilised to project the occupancy and rates for the financial years 2008/09 and 2009/10 for the branded and unbranded hotels. The resultant annual revenues have been compared against the revenue in 2007/08 to understand the level of decline in business. HVS estimates the Indian hotel industry to face a consolidated revenue decline of around Rs 9,731 crore between 2008/09 and 2009/10, from its base year (2007/08) revenues. There is lack of enough fiscal incentives for entrepreneurs to invest in this capital-intensive industry. The hospitality sector in India continues to face the following challenges:

Tourism ministry not equipped with executive powers to bring about sweeping changes in the system Absence of an updated master plan for tourism to take into account a changing global scenario

Tourism considered a state subject, which leads to fragmented and piecemeal approach to address the needs of the sector Absence of 'Infrastructure' status to hotel sector 'Industry' status to tourism not granted by all states Tough lending norms by Indian banks Multiplicity of taxes; local governments unaware of the potential Luxury tax computed on published rates in many states Opaque licensing process a major reason for delay in project execution Archaic laws governing the operations of hotels Hotel classification/rating system outdated Acute lack of value-for-money propositions Poor tourist infrastructure and on-ground support

HVS recommendations In order to address multiple pain points of the hotel industry, HVS recommends the following:

Include tourism as a subject in the Concurrent List of the Constitution of India Grant hotels infrastructure status under Sec 80-IA of IT Act Grant hotels industry status across India Impose a single uniform luxury tax, based on the actual room tariff only, across all Indian states Impose uniform tax rates on rooms, food and beverages, and liquor across the country Give incentives, in the form of tax breaks, to reinvested capital in hotel industry Extend the benefits of Sec 80-ID to other parts of India Rationalise and increase transparency for the entire license/approval process, with minimum documentation Develop a more scientific rating system to truly benchmark hotel quality Grant special incentives for budget hotels across the country to alleviate funding issues Ease restrictions on franchisors operating in India Envision a national tourism master plan with a broad outlook Augment infrastructure at all touch points for tourists Advocate the potential of MICE to state governments (by Ministry of Tourism) to rationalise local taxation guidelines in favour of the sector

Improving the hotel rating process HVS discusses the current star rating process in India and then compares it to that in Egypt. The current methodology or at least the output for ratings of hotels leaves a lot to be desired. Therefore, we study the deficiency of the present method of classification/categorisation of hotels in India. Further, highlights of better rating systems used in other foreign countries are discussed as a suggestive mechanism.

The London office of HVS has had the opportunity to formulate the hotel rating system for the Government of Jordan and is presently involved with a similar exercise in another country. Our experience from these assignments has allowed us to critically examine various approaches to classifying a country's hotel stock. These are the following:

Registration: Basic level of listing of properties that meet agreed basic minimum standards. These would assist tourists in quickly finding the different types of accommodation available, what particular types have to offer and at what price. Classification: Accommodation is listed into a number of categories, which gives consumer information concerning the different services and amenities expected at each level. This approach is the general international standard, with most countries using a five-tier method to indicate these different amenity levels. All establishments would still have to fulfill a basic list of standards. Grading: Accommodation is graded more subjectively by the quality of product and service delivery. When this element is assessed, it is usually applied as supplementary information to a classification scheme. Assessment of this nature is more complex, subjective and time consuming. Hotel services need to be assessed more closely and this involves periodical (at least annual) anonymous inspections.

India has been utilising the 'Classification' system with mixed results for over four decades. However, the hospitality market is maturing and numerous products at varying qualitative levels are available for the consumer. The present system in India needs to be upgraded to the 'Grading' system, to enable it to employ a more discretionary approach to the process. However, the grading process will attract additional cost implications. Rating system in India The Ministry of Tourism of Government of India has instituted a body referred to as Hotel and Restaurant Approval and Classification Committee (HRACC) to inspect and categorise hotels, serviced apartments, motels, guesthouses and other lodging products according to their product and services. The body comprises tourism ministry officials and industry experts, who check on the actual products based upon a pre-defined checklist. However, the checklist has four serious shortcomings:

It is aimed at penalising hotels (by offering a lower star rating) for not adhering to its minimum standards. It does not offer benefits to hotels that are developed even above the prescribed standards. The minimum standards are too weak and lenient. For instance, minimum room size for a five-star hotel including bathroom is 200 square feet, however most luxury hotels in India are being developed with an area in excess of 400 square feet! Again, both three and four-star hotels need to have an identical 140 square feet, which is even smaller than that in quality budget brands. It is focused on the physical infrastructure alone and is ineffective in assessing the quality of services. It has an inconsistent approach, differing between states, for example, the exact replica of a four-star hotel in Mumbai may get five-star status in Chandigarh.

It is confusing for the traveller to find a mid market hotel abroad (like Holiday Inn, Courtyard by Marriott) having the highest classification (five-star) in India, along with significantly better hotels from the same parent companies like Crowne Plaza and Marriott Hotel. One and two-star ratings should ideally be provided to limited service/ budget hotels, which may offer lesser quantum of services without compromising on quality. However, one and two-star rating in India represents poorly run hotels that cannot be accommodated in the three, four and five-star levels. This automatically makes the latter category replete with brand clutter and defeats the purpose of the rating process to guide the consumer in his selection of a hotel. As most of the other aspects of classification are basically commercial or market driven, safety and hygiene could be a first consideration guiding the classification debate. The government concern, therefore, should focus more on ensuring hygiene and personal safety than on the commercial aspects of classification. At present, the rating system unsuccessfully tries to combine both these aspects together and the result is there for all to see. When standards are laid down by governments they tend to remain in force for years at a time, are infrequently checked and rarely updated to meet changes in consumer taste or take account of changes in destinations and markets. The present system needs a complete make-over in order to remain relevant in the changing market scenario. This would allow the HRACC classification in upgrading from a rubber stamp status to one which is seen as a hallmark of a hotel's level of product and services. Egyptian rating system In 2006, Egypt adopted a new rating system for its hotels. This was the first time a new classification system was introduced in the Middle East and Africa, which carried out assessment in two phases. The first dealt with the physical infrastructure, equipment, appliances, etc available within the hotel while the second phase specifically addressed the quality of service, which was carried out through an evaluation system using 'Mystery shoppers', an internationally recognised practice where reviewers, whose identity is hidden, make undeclared visits to the hotel within six months from the date of the first exercise. Seventy per cent of the marks are allocated for the infrastructure of the hotel and equipment, while 30 per cent are reserved for the service levels. A hotel must receive 80 per cent (as a minimum) of the total marks allocated to the category star rating. In case of physical infrastructure and equipment, the evaluation examines specific items, such as the building, guestrooms, restaurants and the public areas (amongst others). Within each of these main items, a comprehensive examination of secondary items is also conducted. For example, in a restaurant, secondary items might include seating, kitchen equipment etc. Each of the primary and secondary items will be awarded a maximum of six points, though the lack of secondary items could lead an item to register negative points. The level of service will

be assessed through undeclared visits by international specialised companies under the auspices of the Egyptian Hotel Association and the Ministry of Tourism. The level of service will evaluate the reservation service, service outside the hotel and car parks, rooms, room service, restaurants, public areas and departure /checkout. The Egyptian Hotel Association is involved in the evaluation committee for both phases of the exercise and all evaluations are approved by the Minister of Tourism, Head of Hotel Control and Chairman of Egyptian Hotel Association. There are a number of hotels throughout India, which historically have not been considered suitable for classification for reasons of size, lack of parking spaces or overall quality. These hotels should be allowed an opportunity to be improving their product and applying for classification. Although an improvement in the quality of the current hotel stock is desirable, it is unlikely that hotel owners will invest money in the refurbishment of the country's hotels merely for the sake of attaining a particular star rating. Fiscal incentives to invest in the improvement of hotel facilities are likely to allow a large number of such hotels to join the mainstream hotel industry and partially reduce the huge gap in value for money accommodation in the country.

By 2015, the Indian Hotel Industry is expected to reach Rs 230 billion, growing at a robust CAGR of over 12.2%. A total investment of Rs 448 billion is expected in the next five years. India is currently ranked 12th in the Asia Pacific region and 68th overall in the list of the world's attractive destinations, according to the Travel and Tourism Competitiveness Report 2011 by the World Economic Forum (WEF). Despite global economic woes, development of hotels in India has been one of the most lucrative investments. As per Cygnus estimates, total supply (number of hotel rooms) in India is expected to reach more than 180,000 within five years. Various domestic and international brands have made significant inroads into this space and more are expected to follow; around 40 international brands will enter the country in the next five years. Indian Hotel Industry holds a huge potential due to the positive impact of demand-supply scenario, growth drivers, investments and government initiatives for tourism sector. To develop a better understanding of the industry, Cygnus has come out with a comprehensive Industry insight - Indian hotel industry, which brings out the past performance, trends and future prospects keeping in mind the various factors. SCOPE OF THE REPORT

Indian and Global Hotel and Tourism Industry Demand-supply scenario, value chain of the industry Proposed investments by domestic and foreign players

Foreign direct investment trends, Factors driving growth, Critical Success Factors, Issues & Challenges Critical business parameters like occupancy rates, revenue per available room (RevPAR) and average room rates (ARR) Technology & Management System in Hotel Emerging trends / concepts such as service apartments, spas, medical tourism, wildlife resorts, cruise tourism, adventure tourism etc. Regulations in Indian market Major players Future Outlook

REASONS TO BUY

To understand the various factors which are fuelling the growth and those which are critical to the industry Comprehensive report covering all the aspects required to understand the industry performance and future prospects. The Impact of tourism industry on Hotel industry