Hotel industry becomes a casualty of slowing economy; check-in rates fall http://articles.economictimes.indiatimes.

com/2013-0625/news/40186610_1_royal-orchid-samhi-hotels-hilton-mumbai
Ravi Teja Sharma & Mansi Tewari, ET Bureau Jun 25, 2013, 05.23AM IST

Tags: The situation| Tata Group| real estate| Ravi Teja| Indian Hotels Company| Hotels| Hospitality industry| Hilton Garden Inn| gdp| economy| casualty| Best Western

(Hotel occupancies had reached)

The hospitality industry is becoming another high-profile casualty of the slowing economy, with nearly 75 big hotels putting up the 'for sale' boards and several others raising the red flag amid falling check-ins and wilting room rates. Most hotels in the country are running half empty, as the GDP growth slips to 5% levels this fiscal year, says the Federation of Hotel and Restaurant Associations of India (FHRAI). In a preliminary report, the hoteliers' body has found that average hotel occupancy in 2012-13 dropped to the lowest in a decade at 58.3% and average room rates fell to Rs 6,214, the lowest in six years.
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Hotel occupancies had reached a high of 71.5% in 2005-06 growing from 64.8% in 2003-04. Average room rates peaked at Rs 7,989 in 2007-08. It was Rs 3,569 in 2003-04. The scary turn of events has sent hoteliers scurrying for cover, with disinvestments or restructuring becoming the buzzwords for an industry, which only five-six years ago was charting a decade of boom. "Close to 75 branded hotels across the country, of a total of 550, are on the block," says Kaushik Varadharajan, managing director at HVS India, a hotel consultancy. Another source, who asked not to be identified, said among the hotels on the block include the 386-room Shangri La in Mumbai, the 114-room Hilton Garden Inn at Saket in Delhi, the 171-keys Hilton Mumbai, the 305-room Novotel Hyderabad airport hotel and the 320-room Grand Hyatt in Pune. Other properties sporting "For Sale" signs include the Novotel in Ahmedabad, the Best Western in Delhi's Shahdara area and the Sheraton in Chandigarh, officials and hospitality industry experts say. Some deals have already happened. Royal Orchid sold its hotel in Ahmedabad to institutional investor Samhi Hotels. The promoters of Ista hotels decided to sell stake to an NRI investor and rebrand to Hyatt to improve sales, marketing and distribution capabilities.

Real estate firms like DLF, Parsvnath and Emaar-MGF, which had announced large hospitality plans some years ago, have now junked them altogether and have been selling their land parcels. DLF recently sold four hotel lands. Emaar too is trying to sell its land parcels.

Even those who are building hotels currently have decided to postpone plans for more hotels that they had planned. Logix group has three hotels in Noida, which are currently under construction that it will have to finish as money has been put in. "We have decided to put on hold four other hotels for which we had already signed up operators. This is not the market to start new projects," says Shakti Nath, managing director of Logix group. The brave ones that are still afloat are trying to restructure their operations. In many of these hotels, they have put a freeze on hiring, stopped increments for employees or cut down on frillsright to the level of complimentary fruit baskets, shampoos and soaps. At the Novotel hotel in Mumbai's Juhu area, employees are being encouraged to multi-task. Replacement hirings have slowed down and increments have been halved to 6%. "We are also fine tuning our building management systems to try and bring down our energy costs," says Dinesh Khanna, executive director at Eastern International Hotels, which owns the Novotel in Juhu and the Majorda Beach Resort in Goa. The bigger hotel groups too are seeing pain. Leela Hotels reported a loss for the fifth consecutive quarter. Its debt at the end of the March quarter stood at Rs 4,600 crore, forcing it to sell an IT park in Chennai as part of a business restructuring. EIH Ltd, which runs the luxurious Oberoi hotels, saw its net profit drop 40% in the quarter. The Tata Group's Indian Hotels Company, which runs the Taj hotels, reported a standalone net loss of Rs 339 crore for the quarter ended March 31, 2013.

Hotels Sector Analysis Report

http://www.equitymaster.com/researchit/sector-info/hotels/Hotels-Sector-AnalysisReport.asp

India occupies the sixty-eighth position among the top tourist destinations in the world for 2011. To
encourage the tourism sector, the government in recent times, has taken some measures which will benefit the sector. The Centre and States are also working out a PPP (Public-Private-Partnership) model to increase hotel capacity.

Government of India increased spend on advertising campaigns (including for the campaigns
'Incredible India' and 'Athithi Devo Bhava' - Visitors are like God) to reinforce the rich variety of tourism in India. The ministry promoted India as a sate tourist destination and undertook various measures, such as stepping up vigilance in key cities and at historically important tourist sites.

According to the latest Tourism Satellite Accounting (TSA) research, released by the World Travel and
Tourism Council (WTTC), the demand for travel and tourism in India is expected to grow by 8.2 % between 2010 and 2019. This will place India at the third position in the world. India's travel and tourism sector is expected to be the second largest employer in the world. Capital investment in India's travel and tourism sector is expected to grow at 8.8 % between 2010 and 2019. The report forecasts India to get more capital investment in the travel and tourism sector and is projected to become the fifth fastest growing business travel destination from 2010 through 2020.

India's rapid economic growth has already set the stage for fundamental changes in the country's
population. With more disposable income, the demand for travel and tourism has also grown. Although, currently domestic tourists constitute a very small chuck of the total tourist pie, the segment is growing.

Key Points Supply We have a shortage of 100,000 guest rooms short in the country. This is expected to keep ARRs high for the next few years. Largely depends on business travelers but tourist traffic is also on the rise. Demand normally spurts in the peak season between November and March. High capital costs, poor infrastructure facilities and scarcity of land especially in the metros. Limited due to higher competition, especially in the metros.

Demand

Barriers to entry

Bargaining power of suppliers Bargaining power of customers Competition

Higher in metro cities due to increasing room supply.

Intense in metro cities, slowly picking up in secondary cities. Competition has picked up due to the entry of foreign hotel chains. TOP

Financial Year '12

The performance of the hotel industry is directly connected with global and local economic growth and
investor confidence. A strong underlying economy is a pre-requisite for sustained recovery. Unfortunately, the year 2011 has not been a year of economic recovery either in India or globally. After two exceptionally bad years, the global hospitality industry was expected to recover in 2011. Despite encouraging signs in the first half of 2011, there was growing uncertainty during the latter part of the year. As a result, recovery has been fragile during 2011. The situation in India mirrors this overall global trend.

As per statistics by the Indian Ministry of Tourism, the foreign tourist arrivals in India for 2011, has
been 6.29 million which is an 8.9% increase over 5.8 million tourists of 2010, the growth being higher than the global scenario but less than the overall Asia-Pacific region. Foreign Exchange Earnings from tourism increased to Rs 775 bn in 2011, from Rs 648 bn in 2010, with a growth rate in earnings of 19.6% over 2010. Extension of Visa on Arrival scheme to six more countries (Cambodia, Indonesia, Vietnam, Philippines, Laos and Myanmar) has led to growth in foreign tourist arrivals.

In terms of hospitality industry performance in India, the overall rates, occupancies and RevPAR have
been stagnant owing to the impact of increased supply in the market and the general recessionary environment.

Supply overhang in certain cities, increase in food and fuel costs and rising interest rates eroded the
margins for the Indian hotel industry. The balance sheets of hotel companies remained under stress on account of acquisitions of land banks at unrealistically high prices in the past and the resultant rise in

debt levels. TOP

Prospects

In the long term, the demand-supply gap in India is very real and that there is need for more hotels in
most cities. The shortage is especially true within the budget and the mid market segment. There is an urgent need for budget and mid market hotels in the country as travellers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.

The United Nations World Tourism Organisation (UNWTO) expects growth to continue for the tourism
sector in 2012, although at a slower rate. It forecasts international tourist arrivals to grow in the range of 3% to 4% in 2012. WTTC indicates that this growth will be moderate as the bounce-back for tourism destinations that faced specific challenges last year, will be offset by a weaker performance in other countries. Travel & tourism in China, India, Japan (bounce-back), Latin America and Africa is expected to perform well in 2012. UNWTO predicts that India will receive 25 million foreign tourists by the year 2015.

Despite the economic and political scenarios worldwide, demand for business travel has remained
relatively robust. Companies are likely to increase spends and the multiplier effect of healthy salary increases will drive discretionary spending, especially on leisure travel. The affluent segments plan to spend more on travel in 2012, creating opportunities for the hospitality sector in the luxury space.

India's room supply pipeline represents 17% of the Asia-Pacific pipeline. It was moving at a CAGR of
10.8% for last 10 years and is now poised to grow at a CAGR of 6% in next 5 years. The intense supply pipeline would be backed by addition of room capacity by all the hotels both in India and Internationally. The supply pipeline would beef up also on account of improved foreign tourist arrivals, corporate travels, etc. International hotels like Carlson, Strawood, Marriot, etc are the ones which have chalked out plans to acquire the sufficient market share, thus, giving a thrust to the Indian supply pipeline.

New Delhi: Reflecting increased interest of foreign players in the country's hospitality industry, the hotel and tourism sector witnessed a sudden spurt in FDI in April, attracting USD 2.32 billion. According to the data from the Department of Industrial Policy and Promotion (DIPP), the hospitality industry had received USD 3.25 billion in 2012-13, second only to the services sector in getting foreign direct investment (FDI). The FDI in the hotel and tourism sector in April compares with USD 6.63 billion received during the

13 years ended March 2013, according to the DIPP, an arm of the Commerce and Industry Ministry. Foreign inflows in the sector did not figure in the DIPP's list of top 10 recipients of FDI prior to September 2012. "Opportunities are increasing in Indian hotel and tourism. 100 percent FDI is allowed in the sector and further opening up of civil aviation sector for foreign airlines would help in attracting foreign players," a DIPP official said. FDI into India increased 24.2 percent year-on-year to USD 3.95 billion in April-May of the current financial year. The government is taking several steps to attract foreign investment. It has liberalised the FDI regime in as many as 12 sectors, including retail, power exchanges and telecom. http://zeenews.india.com/business/news/economy/hospitality-sector-fdi-spurts-to-2-23-bnin-april_81732.html