Comprehensive Study of Hotel Industry

N L Dalmia Institute of Management Studies & Research, Mira Road, Thane - 401104

Comprehensive Study of Hotel Industry CONTENTS 1. 2. 3. 4. Acknowledgment. Executive Summary Objective of the study Evolution of the Hotel Industry Chapters: Chapter-1 Hotel Industry(Global view) Chapter-2 History of Hotel Industry Chapter-3 Government Policy Chapter-4 Key drivers of Hotel Industry Chapter-5 Cost Structure & Barriers to Entry of Hotel Industry Chapter-6 Demand-Supply in Hotel Industry Chapter-7 Competitive Trends in Hotel Industry Chapter-8 Outlook of Hotel Industry Chapter-9 Major Hotel Chains in India Related Issues -Role of Highway restaurants & Resorts -Hotel equipment Industry Recent Development -Use of Information Technology in Hotel Industry

5.

6.

7. SWOT analysis of hotel Industry in India

Comprehensive Study of Hotel Industry

Executive Summary
Indian Hotels Company Ltd (IHCL) operating under the Taj brand, is the largest hotel chain in the country. EIH operating under the Oberoi brand is the second largest hotel chain followed by ITC Hotels (ITCH). Asian Hotels (AHL), Bharat Hotels (BHL), Oriental Hotels as well as Hotel Leela Venture (HLV) are other major hotels. While the 5-star and 5-star deluxe and to some extent the 4-star hotels are the domain of renowned hotel companies, an unorganized market exists for hotels operating below these ratings. Hotel companies such as EIH and ITCH as well as international hotel chains are aggressively entering into the mid-budget hotel segment. Average room rate (ARR) and occupancy are the two most critical factors that determine the profitability, since most of the marginal revenue gets added to the bottom-line. ARR in turn depends upon location, brand image, star rating, quality of facilities and services offered and the seasonal factor. Land comprises 45-50% of the total project cost and is therefore the single largest cost item in the construction of a hotel in India. It is estimated that the construction cost for a 300 room hotel in Delhi works out to Rs20mn/room. Since fixed costs constitute 60-65% of the total operating cost, break-even levels are very high. Demand for hotels in cities like Mumbai and Delhi are the highest. In fact at present, out of the total of 19,000 5-star and 5-star deluxe rooms in the country, 50% are accounted for by these two cites. These cities along with Bangalore and Chennai serve as gateway to important tourist destinations Presently, the total 5 & 4-star room capacity in the four metro cities is close to 13,000rooms. Mumbai and Delhi account for the bulk of

Comprehensive Study of Hotel Industry the total room availability. In Mumbai room availability is expected to increase by another 3,100 rooms in the next 2-3 years. Chain hotels like IHCL, EIH and ITCH are better placed than single locations hotels like BHL, AHL. Though the latter have hotels at strategic location (Delhi) the risk associated with single location hotel is always higher. In the short term the outlook for the industry appears bleak due to a significant oversupply and weak socio-economic conditions. In the long-term the hotel industry in India has largest potential for growth. This is because India is an ideal destination for tourists as its is the only country with the most diverse topography. At present India attracts approximately 2.5mn tourists every year which is just 0.4% of the world tourist arrivals. Countries such as Thailand and Malaysia, attract thrice as many tourists

Objective of the Study

Comprehensive Study of Hotel Industry

1. To understand the Govt. policy regarding the Hotel Industry in India 2. To understand demand & supply and competitive trends in Hotel Industry in India 3. To know the impact of IT on Hotel Industry in India
4.

To understand the problems of Feast in A Tray as Cooperate Lunch

Comprehensive Study of Hotel Industry Chapter:1

HOTEL INDUSTRY
(A GLOBAL VIEW)

Some basic assumptions regarding hotel industry are; (a)Hotel customers are referred to as Guests as they receive hospitality by way of accommodation or food and drink or all through for which they pay. If satisfied they return for receiving further paying hospitality. (b) A hotel is immovable, in contradistinction to a manufactured product or services which is mobile and can be conveyed from the venue of production to the site of consumption. (c)The capital investment in a hotel industry is generally high and gestation period for adequate returns on the investment is normally long. (d) The demand for hotel facilities has a variety which few manufactured products have. (e)Some hotel facilities like rooms, and covers in restaurants are quickly perishable just as empty airline seats are. (f) Hotels are not only in competition with others, but also with the products and services of there other industries catering to discretionary expenditure

Comprehensive Study of Hotel Industry These assumptions postulates that the economic viability of a hotel depends largely on three factors, - )The speed with which demand for hotel facilities can be generated. - ) The capacity to ensure and retain customer satisfaction which will result in repetitive Business and expansion of business. -) The package ,tenor of atmosphere, service and quality, which build the image of the hotel Hotel industry market segmentation The total hotel market , which consists of the total demand for hotel facilities, may be divided into various segments , These segments are determined as per the needs of the people and the means they posses to pay for their satisfaction. The fullfilment of these means relate to the market package, the market for the hotel will be served according to what is provided ,how it is provided , and for how much. Independent Guests : A common classification of hotel market segments is according to purpose of visit by guests, i.e; holiday/tourism oriented ,business traveler oriented ,conference oriented, or foreign versus domestic traffic oriented. These terms tend to be equivocal as they relate to a particular type of traveler or customer irrespective of the market segments to which he belongs. A foreign tourist staying at a luxury hotel may be on business on his companys expense account, whereas if he comes as a normal pleasure or leisure tourist, he may well stay at a lower tariff hotel.

Comprehensive Study of Hotel Industry Groups : Customers travelling in groups comprise another segment , so do meeting and conference groups. Therefore , the hotel market segments correspond to the basic market packages in terms of spending power as also social classifications, upper /uppermiddle/lower. Special Groups: For us in India there is yet another important group segment, namely non-vegetarian or vegetarian. THE HOTEL PRODUCT The hotel product has a number of components like accommodation, food and beverage, recreation and health , shops, car rental services, apart from others. But of all , the accommodation and food and beverage components are the major once. The accommodation component of the hotel industry products requires a clear identification of the type of clientele the hotel wishes to attract and serve. As customers tend to graduate from one star category to another, accommodation can be either of the luxury type almost regardless of the price. On the other hand , the food & beverage component of the basic hotel products offers grater scope for flexibility. Qualitative differentials can be very wide. It is obvious , however that resident guests in a hotel know what exactly they are buying in room occupancy and in food and beverage sales. Hence their experience of the hotel product will condition their future relationship with the hotels. PRICING : It is difficult for a hotel to exercise differential pricing except for certain specific purpose. These may typically be differential in tariffs and prices during the peak and lean seasons; group rates; contact rates for airline crew; special conference rates; etc. By &

Comprehensive Study of Hotel Industry large hotel pricing tends to follow or conform to pricing standards applicable to the particular city area or resort: to competitive hotels ;hotel location; tourist location; conference venue and so on. Hotel pricing also suffers from a degree of lack of flexibility ,specially cost of empty room-nights on fixes overheads also have a bearing on tariffs and menu price. DISTRIBUTION : The hotel does not journey to its customers to consummate a sale Customers do came to the hotel. Hotel distribution relies on interdependence with other industries serving travelers and tourists, such as the transportation industry(Airlines, Railways, Roadways and Shipping lines) travel agents and tour operators, national and state tourism organizations, shopping and entertainment providers. COMMUNICATIONS: Perhaps the most important elements of the hotel marketing is communication, as its directly responsible for bringing customers to the hotel. Hotel marketing communication are either direct or indirect. The direct communication are through personal selling, advertising, sales promotion and direct mail. Indirect communication for hotels include public relations & publicity. The major elements of the hotel communication mix are , mass media advertising ,direct mail, sales promotion, public relations and publicity

Advertising:

Comprehensive Study of Hotel Industry Hotel advertising is an effective and generally , a long term effort to inform the customers about the existence of the property ,giving details about the location & the type of facilities offered. Informative advertisement is necessary for new hotel or a hotel offering new facilities or service which are different from the past. In the advertising a hotelier is dealing with a non-personal contact with the large audiences. Effective advertisement not only gains attention of the prospective hotel customers, but also make a lasting positive impression on the prospectors mind. Advertisable Hotel products and services :*Conventions, conference & meetings *Room occupancies *Reservations for various hotel facilities *Good eating and top class food *family dinner *Dining, dancing & discotheques *bar & permit rooms *Sophisticated entertainment *popular entertainment etc. Objectives for Hotel advertising: To increase sales To increase awareness or interest in: facilities/service available To increase awareness or interest in: Versatile advantages of hotel To increase awareness or interest in: Resource behind the hotel To increase awareness or interest in: Endorsements from satisfied Guests/customers To effectively counter wrong impression created by competitors, media or public opinion . To educate Guests/customers about facilities

Comprehensive Study of Hotel Industry To create favorable image of hotel Sales promotion : Sales promotion is aimed at generating immediate response in terms of buying decision. For a instance, a hill station hotel which normally has almost empty rooms during the winter or off season may promote its accommodation and another facilities when a famous winter sports festival is to undertake in that area or a national or international conference is to take place or any other convention or workshop when delegates also need relaxation.
Forms of Travel & tourism Consumer and trade promotion schemes:

Types of Promotion 1.Price-off Promotion 2.Premium offers 3.Couponing 4.Loyalty schemes 5.Guarantees 6.Credit schemes 7.Welcome-Cocktail 8.Discounts for travel agents & Airline crew

Example special discounts etc Special package deals e.g three weeks stay for the price of two discounts coupons for shopping, petrol etc X sum of money off next booking if done within a certain period of time. Money back guarantees in case of cancellation of flights, tour failures, bad weather etc. Purchase of tours in installment payment basis, Hotel offer first drink as a free drink

Comprehensive Study of Hotel Industry 9.consumer contest game or other contest & winner get free stay

Specific ongoing sales promotion activities in Hotel Industry:

Sales calls: The sales representative make the sales calls on every conceivable segment of the potential buyer or seller of the hotel products. Sales seminars: sales seminars are normally organized by Government department of tourism, A hotel company, Hotel association, OR tour operators. Trade & Consumer Fairs Exhibitions: The main purpose of these fairs and exhibitions is to exhibit and promote a tourist product. It may well be a hotel product or else. Through these types of fairs a large number of consumers or the potential customers can be approached assuming that the hotel or the hotel organization is interested in the particular market. Direct mailing : The apparent strong point of direct mailing is that it can be pinpointed to reach specific persons for a variety of objectives. The direct mailing should be an integral part of all other selling efforts. it is direct to a perspective client. There are several materials which are using by Hotels. They are *Reservation confirmations *Printed folders -These may be sent with the letterheads *Post cards-single or double *Multi page letterhead *Brochures, scrolls *Greetings -birthday, seasonal & festival greetings

Comprehensive Study of Hotel Industry *Announcements Public relations : It is a very important communication function for Hotel Industry. It is ongoing process for hotel industry at every management level. Here is some of the publics with which hotel industry must maintain good relationship , They are Guest relations, Media relations, Relations with government agencies, Community relations, & Employee relations etc. Publicity: Another most important aspect for Hotel industry is Publicity not necessarily Created by organization and usually generated by media. Hotels overall image is depend on good or bad publicity . -opening for new hotel, restaurant or change In policies & services .

Chapter: 2

HISTORY OF HOTEL INDUSTRY IN INDIA

The Indian sub-continent is vast and with a population of almost 800 million is obviously not homogenous. Apart form Hindi there are

Comprehensive Study of Hotel Industry several languages as well as hundreds of different dialects-at the people of India belong to a variety of faiths. The country is divided into several states and each state has its own culture with traditions that go back thousands of years. Tradition in food too differs from state to state , just as the European food of Italy is totally different to that neighboring France or Germany. Indian cooking has more combinations of flavors and seasoningsthat any other nation in the world. Indians have much to be proud of in their style of cooking and the fantastic range of fabulous foodstuffs from around the country. Hotels and the catering industry started late in the 19th century, with the development if the major cities, easier sea travel and the coming of the railways. In ancient times travelers were a rarity ,but could always rely on a meal whilst passing through. As the centuries progressed, travelers ,mostly pilgrims ,would be cared for the temple or monstries. During the latter part of the 18th centuries , and the formation by the British of the East India company. It was apparent that catering requisites on a more formal basis were required, and with the advent of the railways in the mid 19th century. Small hotels and clubs were becoming part of everybody life for those who could afford to eat out. For the ordinary man in the street, curbside catering was a way of life and for many hundreds of years. Prior to the formation of hotels and hotel companies, the club provided any lodging amenities that were required. These clubs

Comprehensive Study of Hotel Industry were restricted unfortunately, to Europeans or upper class Indians. However it did give many Indians the opportunity to work in an Hotel-type environment and become skilled in the kitchens and restaurants .These skills were often passed down from father to son. The princely palaces of the many Royal Indian maharajahs and families were also run on hotel lines of the present day, at least as far as food and drink were concerned. Kitchens with Indian & European chefs were considered normal and the banquets of yesteryear far outshone any thing that is provided today even in the best of the five star hotels. India & Indians have a long cultured heritage of catering and hospitality. The diversity of the Regional dishes and the talent to produce then has long been inherent and it is because of this fruitful history that India, with its numerous Hotels & restaurants ranks among the worlds leading Hospitality and tourist venues. Railway catering:- In the mid 19th century Railway network began in India railway catering facility. Railway companies even want to the extant of setting up hotels attached to the stations so that passengers who were changing from one region to another could spend the night before or after in relative comfort. The luxury of sleeping cars & restaurant cars were a much later development. Now a days Indian railway catering services are also on contract basis with different Indian Hotels.

Airline catering:-Unlike any other transport system rail or ocean liner-air transport has to carry pre-prepared food on board, as there are no facilities available on any airline for cooking or presentation.

Comprehensive Study of Hotel Industry Most Airlines design and plan flight catering establishments/kitchens to meet their own requirements. Air India floated a subsidiary company known as HCL(hotel corporation of India) with a view to operate a flight kitchens known as chefair and also accommodate travelers in five star category hotels at a major airports (The central group of hotels)

Chapter:3

GOVERNMENT POLICY

Hotels form an important and vital segment of the tourism infrastructure in the country. The economic impact of hotel industry particularly in export earning, employment generation and income distribution is widely appreciated in tourism literature. The tourists

Comprehensive Study of Hotel Industry spend approximately 40% of their funds on room and board considering the importance of this sector in promoting tourism in India, the central government has been continuously emphasizing development of hotels in its tourism policy. In June 1982, the Planning Commission recognised tourism as an industry. In the Seventh and Eight Plans tourism planning got due importance. A National Committee on Tourism was set up by the Planning Commission in July 1986 to evolve a plan for the coming years. In the field of accommodation the recommendations of NCT, 1988 were: Encouragement through suitable incentives to supplementary accommodation like private guesthouses, tourist bungalows, forest lodgings etc. Construction of Yatri Niwas to be left to the private sector. Youth hostels to be provided in as many places as possible. The accommodation sector should be provided with monetary incentives to ease the borrowing and repayment of loans; fiscal incentives to improve the profitability and operational input incentives for greater efficiency in operation and management. NAP 1992 with an objective to increase export earning from Rs. 2400 crore to Rs. 10,000 crores by increasing the Indian share of world tourism from 0.4% to 15 within the next five years, suggested a new action plan, where a lot of emphasis has been laid on promotion of hotel industry. Accordingly, the government of India announced an incentive package that consists of: Fiscal incentive under section 80 HHD of the Income Tax Act where by 50% of the income earned on account of foreign exchange

Comprehensive Study of Hotel Industry earnings of a hotel are exempted from Income Tax and the rest 50% also be exempted if reinvested in tourism industry. Concession that hotels set up in rural areas, hill stations, pilgrim centres and specified destinations will be exempted from expenditures and 50% of income tax for ten years. Interest subsidy on loans for construction of hotels (1% for loans up to Rs. 75 lakh for 4-5 star hotels and 3% for all other approved hotels and subsequently this incentive was discontinued for metropolitan cities and enhanced to 5% for hotels in specified destination.) Incentives to heritage hotels (capital subsidy to the extent Rs. 5 lakhs or 25% of the cost, ten years holiday for expenditure tax and 50% from income tax.) Consequent upon the above incentives there is observed a phenomenal growth in the number of star hotels in all metropolitan cities. However, there is also criticism that the low budget lodgings are not given due importance in the government tourism programs. The mushrooming of up scale hotels is doing a job for the upper end of the market but it should be recognised that the economy hotels attract the international and rich class business tourists remain out of the affordable reach of the domestic middle class tourists. When big league hotels had put up with a major decline in occupancies, the medium priced hotels had few cancellations and a consistent occupancy rate of more than 60%. The table below shows how there has been recent growth in the number of star hotels and how there is a notable decline in their occupancy rate. The prospect of these medium priced hotels is visible in the light of increased growth of domestic tourism. Now around 70% of the applications of TFCI (Tourism Finance Corporation of India) for loan to finance tourism related projects are from entrepreneurs waiting to start medium priced hotels.

Comprehensive Study of Hotel Industry Recent Development in India:

Category Five Star and Deluxe Four Star Heritage Three Star Two Star One Star Classification awaited Total No. of Hotels 1995 92 65 32 204 258 111 216 980 1998* 99 74 46 289 314 142 200 1164 No. of rooms 1995 18025 4888 979 10719 9378 3899 9498 57386 1998* 18610 5450 1292 14676 11136 4912 8397 64573 Estimated average occupation(%) 1995 1998* 72.6 66.6 78.1 52.1 76.7 65.9 68.7 39.4 73.7 64.9 50.8 62.3 55.5 61.2 47.1 62.9

CLASSIFICATION OF HOTELS *Five star deluxe category: This is a qualitative extension of the 5 star category while quantitatively, The basic features are as of a 5 star category. In a 5 star deluxe hotel, The comparative all around standard of service and amenities is of a very superior quality. *Five star category: General features : The faade, architectural features and genera; construction of the building should have the distinctive qualities of a luxury hotel of the category, and there should be suitable for a luxury hotel of this category and there should be adequate parking

Comprehensive Study of Hotel Industry space. The hotel should have at least 25 bed rooms, all with the well appointed attached bathrooms with long baths or the most modern shower chambers, with 24 hours service of hot & cold running water. All public rooms and private rooms should be fully air-conditioned(except hill station) and should be well appointed with superior quality carpets, curtains, furniture etc in good taste. There should be adequate number of lefts in the buildings. There should well designed equipped swimming pool. all the fittings & furnitures are must of highest standard.

Facilities: There should be a reception, cash and information counter attended by highly qualified, trained & experienced personal, conference room/banquet halls & private dining rooms. There should be the book stall, beauty parlor, barber shop, Recognized travel agency, money changing & safe deposit facilities. Florist and shop for toilet requisites and Medicine on the premises. There should be telephone, music system & t.v are must in each room. Where ever permissible by law , there should be an elegant well equipped bar/permit room. Services: The 5 star hotel should offer both international & Indian customers and the food & beverage service should be of the highest standards. There should be efficient & highly qualified trained staff. 24 hours services should be there. There should be a special restaurant /dinning room where facilities for dancing & orchestra provided. *Four star category: General features : The faade, architectural features and genera; construction of the building should have the distinctive qualities of a luxury hotel of the category. The hotel should have at least 25 bed rooms, all with the well appointed attached bathrooms with long

Comprehensive Study of Hotel Industry baths or the most modern shower chambers, with 24 hours service of hot & cold running water. All public rooms and private rooms should be fully air-conditioned(except hill station) & features are same as 5 star category Facilities: There should be a reception, cash and information counter attended by highly qualified, trained & experienced personal, There should be book stall, Recognized travel agency, money changing & safe deposit facilities. There should be telephone, music system & TV are must in each room. & same like 5 star category . Services: The 4 star hotel should offer both international & Indian customers and the food & beverage service should be of the highest standards. There should be efficient & highly qualified trained staff. 24 hours services should be there. There should be a special restaurant /dinning room where facilities for dancing & orchestra provided. *Three star category: General features : The faade, architectural features and genera; construction of the building should have good features & standards. There should be adequate facilities for parking. The hotel should have at least 20 bad rooms all with attached bath rooms with bath tub or showers with 24 hours service of hot & cold running water. At least 50% of rooms should be air-conditioned .other features should same like normal hotel requirements. Facilities: There should be a reception, cash and information counter attended by highly qualified, trained & experienced personal, & same with 4 star category Services: mostly customer are normally Indians so food & beverages service should be suitable for those people & with good standards. The senior staff should have good knowledge of English

Comprehensive Study of Hotel Industry & other facilities should also same like other facilities offer by 4 star hotels.

*Two star category: General features : The building should be well constructed and the locality and environs including the approach should be suitable for a good hotel. The hotel should have at least 10 bed rooms & which at least 75% of rooms should been attached with bath room. with shower or bath room for every 4 of the remaining rooms.25% of rooms should have air-conditioned . Facilities: There should reception counter with telephone. There should be call ball & only Incoming line of telephone should be there in every room. Well equipped restaurants should be there .

Heritage Hotel Category: General Features: The faade, architectural features and general construction should have the distinctive qualities, ambience and dcor in keeping with the traditional way of the places. There should be adequate parking space for cars. All public rooms and areas and the guest rooms should be well maintained and well equipped with quality carpets/area rugs, furniture, fittings, etc. in good taste and keeping with the traditional life style. The guestrooms should be clean, airy, pest free, without dampness and musty dour, and of reasonably large size, with attached bathrooms and modern facilities (e.g. flush commodes, wash basins, running hot and cold water, etc.). There should be well appointed lobby and

Comprehensive Study of Hotel Industry lounge equipped with furniture of high standard, with separate ladies and gents cloak rooms with good fittings. Facilities: There should be a reception, cash and information counter attended by trained and experienced personnel. There should be money changing facilities, left luggage room. There should be a well-equipped, well-furnished and well-maintained dining room on the premises and, wherever permissible by law, there should be an elegant, well-equipped bar/permit room. The kitchen and pantry should be professionally designed to ensure efficiency of operations and should be well equipped. Crockery, cutlery, glassware should be of high standard and in sufficient quantity, keeping in view the lifestyle and commensurate with the number of guests to be served. Drinking water must be bacteria free; the kitchen must be clean, airy, well lighted and protected from pests. There must be three tier washing system with running hot and cold water; hygienic garbage disposal arrangements; and frost free deep freezer and refrigerator (where the arrangement is for fresh food for each meal, standby generator will not be insisted upon). The gardens/grounds must be very maintained. Services: The hotel should offer high quality cuisine and the food and beverage service should be of good standard. There should be qualified, trained, experienced, efficient and courteous staff in smart and clean uniforms and the staff coming in contact with the guests should understand English. Housekeeping at these hotels should be of the highest possible standard and there should be a plentiful supply of linen, blankets, towels etc. which should be of high quality. Each guestroom should be provided with a vacuum jug/flask with bacteria free drinking water. Arrangements for heating/cooling must be provided for the guestrooms in cold/hot seasons. At places, which have telephone lines, there should be at least one phone in the office with call bells in each guestroom. Arrangements for medical assistance must be there. The staff/room ratio must be in keeping with the number of guestrooms in each

Comprehensive Study of Hotel Industry property. These hotels must be run on a professional basis while losing none of their ambience and services. The heritage hotels must present a distinctive and traditional life style of the area and should be of very high quality in terms of service, ambience and cuisine.

Chapter:4

KEY DRIVERS OF HOTEL INDUSTRY

Average room rate (ARR) and occupancy are the two most critical factors that determine the profitability, Since most of the marginal revenue gets added to the bottom-line. ARR in turn depends upon location, brand image, star rating, quality of facilities and services offered and the seasonal factor. Hotel industry is a play on the economy. Buoyancy of tourist as well as business traffic increases with stable socio-economic conditions. In the past, the hotel occupancy rates slumped during the December

Comprehensive Study of Hotel Industry 92 Ayodhya episode and also during the September-October 94 plague scare. During they the nuclear tests conducted had a negative impact on tourist traffic & also due to earthquake . Quarterly Tourist Arrivals Season Apr-June July-Sept Oct-Dec Jan-March

Tourists % 18 23 33 26

Leisure tourist arrivals are seasonal in nature. Because of the climatic conditions, there is a preference for the winter months. Hence occupancy rates are higher during October-March than AprilSeptember. To encourage tourist arrivals in the off-season period many hotels offer hefty discounts on room tariff. Incentives given are therefore inversely related to the level of occupancy rates. Hefty discounts are also offered to repeat customers such as corporate, airline crewmembers and tour groups. Discounts can vary between 10-15% for corporate, to as much as 45-50% for airline crew members. Hence a higher percentage of such guests lowers the ARR of a hotel. Business travelers are not seasonal as tourist travelers but they are more prone to postponing their visits in the event of any disturbance within the country. Therefore, the business traffic correlates to the economic climate within the country. The hotel industry is a net foreign exchange earner. In-fact it is the second largest foreign exchange earner after textiles and garments. Depreciation of the rupee therefore leads to windfall gains.

Comprehensive Study of Hotel Industry Infrastructure facilities in the country have a great bearing on foreign tourist arrivals. Improved travel facilities with an increase in flight seat capacity, expansion in rail and road networks will commensurately increase the industry prospects.

Chapter:5

COST STRUCTURE AND BARRIERS TO ENTRY OF HOTEL INDUSTRY IN INDIA

Operating leverage (proportion of fixed costs/total cost) is approximately 70% for the hotel industry. Consequently while break-even levels are high, income above that level flows straight through to the bottom-line. The high cost for constructing a hotel stems from the fact that land cost comprises 45-50% of the total project cost, about 25-30% goes into construction and the remainder into furniture and fittings. The floor space index (FSI) provided to hotels is the same as residential properties, which is also one of the prime reasons for the high cost

Comprehensive Study of Hotel Industry of land. The cost for a 300-room hotel in Delhi works out to Rs20mn/room. Administrative and other overhead cost comprise approximately 30% of the total operating cost and is the single largest cost component. Food and beverage (15%), Employee (19%) Repairs and maintenance (16%), Power and fuel (12%) and selling expenses (8%) are the other components of operating cost. Cost Structure Component Administrative overheads Employee Repairs and maintenance Food and beverage Power Selling expenses Source:www.indiainfoline.com/hotels/cost % of total cost 30 19 16 15 12 8

The hotel industry in India is heavily staffed. This can be gauged from the facts that while Indian hotel companies have a staff to room ratio of 3:1, this ratio is 1:1 for international hotel companies. Land is the single largest cost item in the construction of a hotel in India. Moreover it is very difficult to find vacant land in cities such as Mumbai and Delhi. Companies operating in these two cities are therefore relatively protected. Construction costs are also very steep. It is estimated that construction cost of land is approximately Rs5mn per room for a 5star hotel and Rs3mn per room for a 4-star hotel. Gestation period for hotel can range between 48-50 mths for a 250 room 5-star hotel. Existing players in the industry have a major advantage in being ahead of others in acquiring low cost leases from governmental bodies. Most of these leases are of a long term nature valid for 99

Comprehensive Study of Hotel Industry years. Hotel majors IHCL and EIH have long-term leases on their prime properties. AHL owns the land on which the Hyatt has been constructed. Moreover, the existing players have a definite edge as they enjoy a strong brand equity. Chain hotels such as Taj and the Oberoi are better equipped to cater to the tourists travelling in the tourist circuit.

Chapter:6

DEMAND-SUPPLY IN HOTEL INDUSTRY

Demand International business travelers will drive demand for premium hotels. These hotels mainly draw their clientele from foreign visitors and domestic business travelers. The fact that these hotels earn almost 70% of their revenue in foreign exchange bears out this dependence. Therefore future growth in premium segment will depend on high spending foreign tourists. While foreign business tourist arrivals are dependent on the investment climate in the country, arrivals of foreign leisure tourists are dependent upon stable socio-political conditions in the country. More often than not the investment climate and socio-political conditions are correlated. This is because, stable political condition

Comprehensive Study of Hotel Industry results in increase in business confidence and this translates into increased investments. When the economic conditions are favorable, hotels enjoy high occupancy rates. This gives them the flexibility of increasing their room rates. During the boom phase most hotel companies operated at very high occupancy rates, which gave them the leeway of increasing their room rates. Amongst the foreign tourists, leisure travelers comprise 76% of the total tourists inflow where as business travelers comprise 21%. Leisure tourist arrivals are seasonal in nature as India's subtropical climate leads to preference for the winter months. Occupancy levels are low between April-September as is reflected in quarterly tourist arrivals. At present India attracts more than 2mn tourists a year. Following economic liberalization, the flow of foreign business travelers increased phenomenally in the early 90's. In FY96 tourist arrivals increased by 21% yoy. Thereafter due to weak socio-economic conditions growth in tourist arrivals petered off. Following political turmoil and the nuclear test, tourist arrivals declined by 5% in FY99. Demand for hotels in cities like Mumbai and Delhi are the highest. In fact at present, out of the total of 19,000 5-star and 5-star deluxe rooms in the country, 50% are accounted for by these two cites. These cities along with Bangalore and Chennai serve as gateway to important tourist destinations. Certain tourist destinations have also seen high concentration of tourist room demand. Destinations such as Agra-Jaipur, Mysore, Bhubaneshwar-Puri-Konark, Jaisalmer- Jodhpur-Bikaner and Mahabalipuram-Pondicherry have been popularized by the tourist operators.

Comprehensive Study of Hotel Industry Trend In Tourist Arrivals Year Arrivals Growth (yoy) 93-94 1.88 94-95 1.82 95-96 2.19 96-97 2.33 97-98 2.37 98-99 2.25 * Source:www.indiainfoline.com/hotels/tour/

-3.19 20.33 6.39 1.72 -5.06

Supply The Department of tourism has pegged the total room availability at 60,000 rooms. There are 42,858 rooms under construction. It is estimated that to attract 5mn tourists the total room availability would have to be approximately 120,000 rooms. Between August 91 and August 1998, 259 foreign collaborations were approved by the Union government out of which 167 proposals were for equity investments to the tune of Rs2.8bn. Presently, there are 127 proposals to set up various grades of hotels at a total investment of Rs10.4bn Investments in the hotel sector has shown a sharp decline of 18% in FY99 as compared to FY98, as many of the projects planned were subsequently called of due to the weak economic conditions and high cost involved in setting up hotels. Also most players also did not have the required free cash to continue with their investments. Presently, the total 5 & 4-star room capacity in the four metro cities is close to 13,000rooms. Mumbai and Delhi account for the bulk of

Comprehensive Study of Hotel Industry the total room availability. The Taj and the Oberoi group have significant presence in all the metro cities. 5 & 4 Star Room Availability In Metro Cities City 5 star Mumbai 3,500 Delhi 5,500 Calcutta 1,000 Chennai 250 Bangalore 800 4 star 1,000 1,000 250 600 150

Tourists frequently visit destinations like Agra, Jaipur and Goa. The total room availability in these cities is to the tune of around 4000 rooms. 5&4 Star Room Availability In Important Tourist Destinations City 5 star 4 & 3 star Agra 750 400 Jaipur 800 200 Goa 1,000 700

There are approximately 5,200 (5 & 4-star) rooms that are presently under construction in the five metro cities. These will be commissioned by FY02. In the last 2-3 years Mumbai has seen massive investments (currently under implementation) in hotel projects. Room availability in Mumbai is slated to increase by another 3,100 rooms In Mumbai, the Sahar region has seen massive investments from major hotel companies which#include Hilton, ITC, Hyatt regency and the Taj group. Lokhandwala in collaboration with Regent group

Comprehensive Study of Hotel Industry is setting up a hotel in Bandra and Marriot in collaboration with Raheja group is setting up a hotel at Powai. The Oberoi group (EIH) is constructing a 500 room hotel at the Bandra-kurla complex

Chapter:7

COMPETITIVE TRENDS IN HOTEL INDUSTRY

Chain hotels like IHCL, EIH and ITCH are better placed than single locations hotels like BHL, AHL. Though the latter have hotels at strategic location (Mumbai and Delhi) the risk associated with single location hotel is always higher. Operating hotel for management fee is extremely profitable and remains an effective way of expanding rapidly without employing capital. Leading hotel chains like the IHCL, EIH and ITCH have been able to leverage on their brand name and earn management fees without having to actually invest in hotels. Hotel companies like IHCL prefer to pick up a minority equity interest in companies they manage thereby ensuring long-term viability of management contracts. Among chain hotels, IHCL has the widest geographical spread, catering to the business traveler with a presence in all major metropolitan cities through luxury hotels, and with first class business and medium tariff hotels in other cities of relevance. The company is equally well established in the leisure segment with its

Comprehensive Study of Hotel Industry hotels being located in all the major tourist destinations of the country. ITCH has greater presence in the tourist locations and therefore has less growth potential than hotel companies having presence in metro cities like Delhi Mumbai, Calcutta and Chennai. Earning from tourist locations are also seasonal in nature. Hotel companies are developing new brands, especially to distinguish between premium hotels and budget hotels. EIH for example has developed the Trident brand as its budget hotel brand. This brand stands for high quality medium priced hotels targeting the business and the local business traveler looking for quality service at a lower price than 5-star deluxe accommodation. Revenue Concentration Of Different Hotel Companies Company % rooms in % of revenue from Mumbai and Mumbai and Delhi Delhi IHCL 57.2 58 EIH 73.7 71 ITCH 0 0 HLV 66.1 90 AHL 100 100

AHL and HLV by virtue of being strategically located have always enjoyed higher operating margins. AHL caters mostly to the business traveler's, which constitutes 75% of its revenues. HLV on the other hand is located close to the airport and therefore has locational advantage compared to other major hotels in Mumbai. IHCL as well as EIH operate on leased land in Mumbai and Delhi the two most important destinations. Since availability and cost of

Comprehensive Study of Hotel Industry land is a major issue in these cities leasing land at comparative rates has put these companies at an advantage over its peers. While IHCL's prime properties in Mumbai are built on land leased by the Bombay Port Trust, the Oberoi group has leased the land from the government. Companies under the Taj and Oberoi banner own properties overseas. The principal reason was to transform the Taj and Oberoi into international brands. This is also a brand building exercise aimed at luring international tourists travelers while on a visit to India. ITCH has pioneered the concept of heritage hotels in the country. In a joint venture with partner ( Maharaja Heritage Resorts) it manages and markets heritage havelies, forts, palaces and resorts under the Welcome Heritage trademark.

Comprehensive Study of Hotel Industry

Chapter:8

OUTLOOK OF HOTEL INDUSTRY

The hotel industry is at present going through one the toughest periods. Weak economic conditions have lead to a steep decline in foreign as well as Indian business arrivals. Tourist arrivals have also seen a marginal decline due to devaluation of the Asian currencies, which have made these countries cheaper than India. Substantial additions to room supply especially in metros like Mumbai will further put pressure on room rentals. The next 2-3 years is not expected to provide any succor to hotel industry due to the overall recession in India and Asia. This has resulted in most of the five star hotels operate at very low occupancy rates. They have been forced to offer discounts on the rack rates. Average room rentals have therefore taken a beating. As there was hereto not much competition, the big five hotel majors were able to unabatedly increase their room tariffs. However, with the major international hotel chains having evinced interest in setting up hotels, there is bound to be a price war. India will become a normal market like the South East Asia with demand and the quality of services offered determining the room rentals

Comprehensive Study of Hotel Industry Another trend, which has been witnessed during the economic slowdown, has been the increasing demand for medium budget hotels due to the exorbitant rates charged by 5-star hotels. Quality budget hotels are expected to be the future of India's hotel industry. Companies in future would like to house their middle level managers in these budget hotels having reasonably good facilities rather than the expensive 5-star deluxe hotels In this regard the Taj group and the Oberoi (through the Trident brand) have made a strong foray into smaller cities having a strong industrial base. Earnings from these hotels are likely to be more stable than the earnings of 5-star hotels. In the long-term the hotel industry in India has latent potential for growth. This is because India is an ideal destination for tourists as its is the only country with the most diverse topography. At present India attracts approximately 2.5mn tourists every year which is just 0.4% of the world tourist arrivals. Countries such as Thailand and Malaysia, attract thrice as many tourists. Globally, leisure and entertainment are seen to be growing industries. Hence stable socio-political and economic conditions coupled with an improvement in infrastructure facilities (roads, airports etc) will improvement the sentiments of the tourists towards India. If the above conditions are met tourist arrivals can increase five-fold from the present levels. In such a situation there will be a surge in demand for rooms in gateway cities like Mumbai and Delhi as well as in certain tourist destinations

Comprehensive Study of Hotel Industry

Chapter:9

MAJOR HOTEL CHAINS IN INDIA

*Indian Hotels Co Ltd*(Taj Group of Hotels)

IHCL has shown a growth of 14% during FY01.This was largely on account of increased business confidence which saw the total demand in terms of rooms pick up as compared with the previous year. However, the major concern for the company of increased capacities remains serious concern to the company's top line. India as a leisure destination is less attractive compared to established tourist destination for various reasons ranging from poor infrastructure to lack of active promotion of India as destination. Tourist arrival grew at 6% in 2000 but still it's on a lower side compared to other South East Asian Countries. Industry sentiment remains mixed with the possibility of good monsoon tampered by the slowdown in major economies especially US. As a result business travel could very well remain subdued. The Indian hotel business mainly focuses largely on foreign tourists with only 30% of the business coming from the domestic business and the leisure travelers. The tourist arrivals in India are seasonal in nature, with the best season being from September to December followed by a steep fall till May. The period June to September gains momentum once the monsoons are over. The slack season is generally used for renovation work and the period is characterized by discounts to attract clients. High capital expenditure acts as an entry barrier in the industry with the availability of prime land at economically viable rates being a

Comprehensive Study of Hotel Industry major constraint. The gestation period is long and break even normally takes five to eight years to happen. Due this the established players like Indian Hotels, EIH, etc. have an advantage over foreign majors as they already have well establishments at prime locations. IHCL, popularly known as the Taj Group of Hotels, is the largest hotel chain in India with its presence in 35 cities around the country. It has around 55 properties under its management (41 in India and 14 abroad). IHCLs hotels located in metro cities contribute around 70% of its turnover. It has hotels in all the categories ranging from 5 star to medium priced hotels. IHCLs medium priced hotels act as a hedge in times of depressed economic conditions

Comprehensive Study of Hotel Industry

*Asain Hotels Ltd*

AHLs performance, linked to sector trends, has been adversely affected on account of fall in business and tourist arrivals. This led to a dip in its room rental and occupancy rates. However the company is undergoing a restructuring exercise through which it expects to yield good results in the long run. Moreover with political stability at the center both tourist as well as business arrivals could gather momentum. During 1QFY2001 the company's turnover declined by 6% to Rs252mn while the profits dipped by 42% to Rs55mn. The hotel industry has seen a steep decline in foreign as well as Indian business arrivals. Tourist arrivals in the past 2 years have seen a marginal decline due to devaluation of the Asian currencies, which have made these countries cheaper than India. The situation is gradually moving back to normal with the tourist arrival figure marginally increasing from 2.3mn in 1997 to 2.5mn in FY00. The industry is growing at a rate of 9%. With the political and economic stability being more clearly visible, both tourist as well as business arrivals are likely to gather momentum in the remaining part of the year. The tourist arrivals in India are seasonal in nature, with the best season being from September to December followed by a steep fall till May. The period June to September gains momentum once the monsoons are over. The slack season is generally used for renovation work and the period is characterized by discounts to attract clients.

Comprehensive Study of Hotel Industry

High capital expenditure acts as an entry barrier in the industry with the availability of prime land at economically viable rates being a major constraint. The gestation period is long and break even normally takes five to eight years to happen. Due this the established players like Indian Hotels, EIH, etc. have an advantage over foreign majors as they already have well establishments at prime locations. AHLs investments in Mumbai and Calcutta will depress its ROCE and RONW in the next 2 years. Moreover the hotels in these cities could face competition from established players like EIH Ltd and Indian Hotels. However they will reduce the risk associated with a one-hotel company. AHLs low valuations reflect un-exciting business prospects. Revenue growth is expected to remain more or less stagnant over the next two years.

Comprehensive Study of Hotel Industry

*EIH Ltd*( Oberoi Group of Hotels)

EIHs operating margins, like many hotel companies, have been declining since the past few years linked to the depressed condition in the hotel industry. The trend during 1QFY2001 improved, when the company reported a 28% rise in net profits to Rs166.7mn. The sales during the said period were up by 11% to Rs1066mn. The massive expansion plan undertaken by EIH resulted in high gearing and hence a rise in the interest expenses. The devaluation of the Asian currencies, the Kargil issue and the parliamentary elections had affected growth in the tourism industry. The situation is gradually moving back to normal with the tourist arrival figure marginally increasing from 2.3mn in 1997 to 2.5mn in FY00. The industry is growing at a rate of 9%. With the political and economic stability being more clearly visible, both tourist as well as business arrivals are likely to gather momentum in the remaining part of the year. The tourist arrivals in India are seasonal in nature, with the best season being from September to December followed by a steep fall till May. The period June to September gains momentum once the monsoons are over. The slack season is generally used for renovation work and the period is characterized by discounts to attract clients. High capital expenditure acts as an entry barrier in the industry with the availability of prime land at economically viable rates being a major constraint. The gestation period is long and break even normally takes five to eight years to happen. Due this the established players like Indian Hotels, EIH, etc. have an advantage over foreign majors as they already have well establishments at prime locations.

Comprehensive Study of Hotel Industry EIH derives 75% of its revenues from the Mumbai and the Delhi properties. Therefore the companys operating income is highly dependent on the business traveler segment which fluctuates with the economic and investment climate in the country. During depressed economic conditions, business travelers normally flock towards lower priced medium budget hotels. This adversely affects EIHs earnings. In order to mitigate this impact, the company now has its budget hotels in place under the Trident brand. EIH is a part of the Oberoi Group of Hotels. EIH management has an excellent track record of growth. The Oberoi hotels have an excellent brand franchise amongst corporate and business clientele. The management has continuously invested in refurbishment to maintain up-market image. Initially the management failed to strengthen the company's position in other upcoming business towns and leisure tourist spots. However having assessed the business potential in these places, EIH under the Trident brand has been aggressively expanding in business cities like Pune and Ahmedabad.

Comprehensive Study of Hotel Industry

*Hotel Leela Venture Ltd *

HLVs performance, linked to sector trends, has been adversely affected on account of fall in business and tourist arrivals. This led to a dip in its room rental and occupancy rates. Apart from this the company has suffered on account of a surge in interest costs as a result of significant capex carried out for their hotels in Goa, Mumbai, Udaipur and Bangalore. The performance of the company will continue to remain depressed as a result of high burden of financial costs. Moreover the fresh issue of equity shares could prove to be a drag on the companys EPS growth. The devaluation of the Asian currencies, the Kargil issue and the parliamentary elections had affected growth in the tourism industry. The situation is gradually moving back to normal with the tourist arrival figure marginally increasing from 2.3mn in 1997 to 2.5mn in FY00. The industry is growing at a rate of 9%. With the political and economic stability being more clearly visible, both tourist as well as business arrivals are likely to gather momentum in the remaining part of the year. The Indian hotel business focuses largely on foreign tourists with only 30% of the business coming from the domestic business and the leisure travelers. The tourist arrivals in India are seasonal in nature, with the best season being from September to December followed by a steep fall till May. The period June to September gains momentum once the monsoons are over. The slack season is generally used for renovation work and the period is characterized by discounts to attract clients.

Comprehensive Study of Hotel Industry High capital expenditure acts as an entry barrier in the industry with the availability of prime land at economically viable rates being a major constraint. The gestation period is long and break even normally takes five to eight years to happen. Due to this the established players like Indian Hotels, EIH, etc. have an advantage over foreign majors as they already have well establishments at prime locations. The world-renowned Kempinski hotels manage HLV. The company pays Kempinski a management fee, which is approximately equal to 3% of the room revenues. Kempinskis strong brand image and the strategic locational advantage of the Mumbai hotel has made the Leela Mumbai one of the most expensive hotels in the country. Competitive pressure is likely to pull down margins. Bombay is expected to witness an addition of more than 2000 rooms over the next 2-3 years near the Sahar airport where the company has its hotel. There is significant over capacity in Goa too. The result of all this would be a fall in average room tariff, which will pull down the companys overall margins. Earnings growth will remain depressed because of a higher incidence of interest and depreciation cost after the completion of Bangalore, Udaipur hotels and the expansion of Mumbai hotel.

*ITC Hotels Ltd *

Comprehensive Study of Hotel Industry ITCHs performance has been affected on account of fall in business and tourist arrivals. This has led to a dip in its room rental and occupancy rates. Planned investments of Rs15bn will take time to yield results. The hotels at Chennai and Calcutta will increase the companys presence in the business traveler segment and will contribute significantly to its turnover in the coming years. Investments by parent ITC in Mumbai and Bangalore will help earn management consultancy fees. The devaluation of the Asian currencies, the Kargil issue and the parliamentary elections had affected growth in the tourism industry. The situation is gradually moving back to normal with the tourist arrival figure marginally increasing from 2.3mn in 1997 to 2.5mn in FY00. The industry is growing at a rate of 9%. With the political and economic stability being more clearly visible, both tourist as well as business arrivals are likely to gather momentum in the remaining part of the year. The Indian hotel business mainly focuses largely on foreign tourists with only 30% of the business coming from the domestic business and the leisure travelers. The tourist arrivals in India are seasonal in nature, with the best season being from September to December followed by a steep fall till May. The period June to September gains momentum once the monsoons are over. The slack season is generally used for renovation work and the period is characterized by discounts to attract clients.

High capital expenditure acts as an entry barrier in the industry with the availability of prime land at economically viable rates being a

Comprehensive Study of Hotel Industry major constraint. The gestation period is long and break even normally takes five to eight years to happen. Due this the established players like Indian Hotels, EIH, etc. have an advantage over foreign majors as they already have well establishments at prime locations.

Releted issues
*Role of Highway Restaurants & Resorts*

Comprehensive Study of Hotel Industry Today the number of Highways being build has increased the tourism in the country. With this ,Growth many restaurants ,bars ,resorts & fast food outlets have emerged to cater to the needs of all types of vehicles running on the highway. these Travelers include motorists, coaches, Holiday makers, corporate houses arranging conferences ,Seminars & training sessions for their executives at hill stations etc. The difference in Running of city restaurants & highway restaurants that people who came to city restaurants are more or less of some or nearby locality whereas in highway restaurants people who came from different part of the country. Highway catering suffers staff problems as most of the sites are away from areas of habitation. Significant management problems such as no fixed working hours, block of inventory & high overheads are other. For a highway restaurants tasty & hygiene food, alert security arrangements, good infrastructure are necessary. It would gives repetitive client advantage.

*Hotel Equipment Industry*

Comprehensive Study of Hotel Industry The performance of Hotel equipment industry has been fairly well despite the odds. Though the industry has not grown in past few years but the business has been stable. One reason for slow growth is that the Indian Hotels are not getting good business. This has resulted in low equipment purchases. The solution for all these ails is that the government should focus more attention on tourism development in the country. Once the industry boom all the other sector connected to the industry will automatically grow. However ,slow down in the hotel industry has meant that we are servicing more of fast food outlets, restaurants outdoor caters, etc. Major problem being faced by the equipment industry is that customers delay in payments .High custom duty is another area of problem. AAHAR is the on of the major exhibitions in the food & equipment segment. It has became ideal ground for buyer-seller interaction and leads to business development with a lot of new client coming in to hotel Industry. Indian trade promotion organization(ITDO) give more weightage to promotion and marketing the equipment. Target market for hotel equipment products is very broad. Hotel, restaurants, fast food joints, Industrial, Hospital canteens, coffee shop, entertainment centers, Ice cream parlors etc. Hotels are the biggest users of these range of equipment.

//Recent Development// *Use of Information Technology in Hotel Industry*

Comprehensive Study of Hotel Industry Today Information Technology is the lifeline of hotel Industry. It has penetrated almost all departments of a hotel and helped the industry in a big way. To be a global player one cannot ignore place on the IT front. What is happening at the movement, is that It is also helping Hoteliers strengthen their relationship with their relationship with their respective guests, The most important assets for any Hotel. *How IT effects hotel? Property management system(PMS) are helping to create a database of guests needs and preference and serving them to the best of their liking without actually interfering with their activity. Its help hotels to reach their customers in better way but also ensure loyalty from their prized guests. The beginning of the IT interface starts right from the check in point. Central reservation system(CRS) is mostly used for reservation purpose in many hotels. with that hotels can know about the availability of room India-wide of their chain of hotels within a key stroke. Most of the 5 star or 4 star hotels are using IT now a days .They have totally computerised accounting department. That is interface with other departments of the hotels. Their supply chain management is also completely IT enabled. At the hotel level, reservations is number one, without IT one cannot even think of such high service delivery. Accounts, HRD , and receivables are some of the areas where IT plays a major role. The web based reservation is fast emerging as a future medium of advance reservation for heritage & independent hotels, Witnessing a 600 per cent increase during 1999-2000*

Comprehensive Study of Hotel Industry According to survey ,jointly conducted by the Federation of Hotel & restaurant Association of India(FHRAI) Hotel web sites at 5.5 % had the highest growth rate over the previous year specially in the heritage sector where it accounted for 12.4 per cent of all advance reservations The report shows the growing importance of IT in the Hotel Industry. The survey indicates That while almost all hotel use some accounting software packages, The penetration of Local area Network(LAN) within hotels is about 40 per cent. About 30 per cent of 1,131 hotels surveyed found using Management Information System(MIS) Web sites are extensively used by the star category hotels as effective marketing media. About 89.9 % of hotel still relay on print media. At the same time 84.4 % five star deluxe &91.3 % five star hotels are found using their web sites as an effective marketing media .

Comprehensive Study of Hotel Industry

SWOT ANALYSIS

STRENGTHS: 1. 2. 3. 4. Dynamism in the Tourism and Hospitality industries. Continuous inflow of Tourists in the country. Indias rich cultural heritage. Low labour costs as against the world standards.

WEAKNESSES: 1. 2. 3. 4. 5. 6. Regional imbalance of hotels. Capital intensive Labour intensive. High taxes and tariffs for every service. Disparity in taxes charged by various States. Lack of aggressive and effective marketing and promotional strategies. 7. Land availability is a major hurdle for any hotel project. Release of land at prime locations is difficult because large tracts of land in such locations come under the Governments control. 8. The prohibitive cost of power in India. 9. High government duty on power tariffs.

OPPORTUNITIES:

Comprehensive Study of Hotel Industry 1. Influx of MNCs in the country after liberalization. This has led to a flurry of industrial activity in the country and thus an increased demand for the hotel. 2. Declaration of the Hotel Industry as a High Priority Industry. 3. Government policy of positioning hotel and other tourism related activities in the private sector. 4. Various incentives/concessions extended by the Government. 5. Approval of the hotel by the Department of Tourism. This approval constitutes a certificate of suitability of the hotel for occupancy by tourists, both foreign and domestic. 6. Higher interest subsidy for hotel projects that are set up in special areas and specified destinations as per the Government. 7. Introduction of the Capital Subsidy scheme for the Heritage class of hotels. 8. Declaration of the hotel and tourism industry as a high priority industry for foreign investment. 9. Liberalization of imports and concessional customs duty. THREATS: 1. Significant over capacity in places like Madras and Goa. 2. Dual pricing is a major deterrent (Indian and Foreign tourists). 3. The continuous change of Governments over the past years has led to a slowdown in both foreign investment and business travel. 4. High capital costs combined with long gestation periods. 5. Inadequate infrastructure development in terms of international airports, roads, communication facilities, cost of communication etc. 6. Competition from international hotel chains like Le Meridien, Marriott International, Radisson (Carlson) and Regent who have

Comprehensive Study of Hotel Industry evinced interest in setting up hotels by taking up equity stakes in hotel projects. 7. Marginal decline in tourist arrivals due to devaluation of the Asian currencies, which have made these countries cheaper than India.