Hotel Confidential.
By Sourish Bhattacharyya
Thursday, 18th May 2006
HVS International's latest annual survey for the Federation of Hotel & Restaurant Associations of India has depressing news for the Great Indian Travellers

For the Great Indian Travellers (GIT), the arrival of no-frills domestic carriers shouldn't make a serious difference to their travel plans. Domestic hotel charges are spiralling out of control, so what they'll save by travelling cheap will be offset by what they'll pay for their hotel accommodation, unless they choose to ‘trade down' when the entire world is trading up.

The basis of my gloomy prediction is the annual survey that HVS International conducts on behalf of the Federation of Hotel and Restaurant Associations of India (FHRAI). The 63-page, 19-city survey is full of happy news for hoteliers, but when you read between the lines, the bad news for domestic travellers simply piles up. The report foresees the average room rates (ARRs) of hotels going up by 20-25 per cent, year on year, in the coming four or five years, because of ‘unaccommodated demand', which means that hotels are getting many more guests than their stock of rooms can accommodate. The market is confronting a demand-supply gap of unprecedented proportions and this is pushing prices northward.

It isn't coincidental that the percentage of domestic guests in hotels has dropped steadily from 76.9 per cent in 2002-03 to 71.7 per cent in 2004-5. As room prices continue to go up, we are likely to see a further drop in the percentage of domestic guests. Why is this happening? More and more Indian companies are reducing the number of executives entitled to stay in hotels and also cutting down the number of occasions they have to travel outside their base offices. And when they travel, apart from flying cheap, they check in at guest houses managed by their companies, or by independent operators. Infosys has taken the lead by setting up a 500-room company ‘hotel', run by hotel management professionals, on its Bangalore campus. Sula Vineyards CEO Rajeev Samant bought a flat in Delhi for himself and his executives when he found that it's impossible to get a room in the Capital for love or for money.

It's cheaper, as they'll convince you in Infosys, to build a ‘hotel' than pay the hotel bills of your travelling executives. If you're planning your company's travel policy, you may be better off renting, or buying, accommodation in cities where your staff has to go for business. For other cities, promote the notion of same-day return, unless it's impossible. And when you organise your next marketing conference, follow the exodus to Kolkata, which, because of lower hotel prices and greater availability of room, is emerging as a preferred location for conferences and seminars.

Rising prices are driving domestic leisure travellers out of hotels. Many of them now find it cheaper to go on vacations in neighbouring destinations, from Sri Lanka to Indonesia, taking advantage of discounted airline packages and lower hotel rates. Not surprisingly, Sri Lanka, Thailand and Malaysia are becoming the weekend destinations of the GIT. In a market whose dynamics are clearly weighted in favour of the hotel industry, domestic travellers aren't left with much choice, especially because offbeat destinations are not only badly connected, but also poorly served by quality hotels. The accommodation available at these destinations is both limited and expensive.

Not only did domestic travellers get edged out, the survey numbers tell me, international leisure travellers lost out as well. They got downgraded to the five-star (non-deluxe) and four-star segments. Their share in five-star deluxe rooms dropped from 10.4 to 8.1 per cent, but nearly doubled from 5.6 to 10.9 per cent in the five-star (non-deluxe) category.

But why is good news for hoteliers directly proportional to depressing news for domestic travellers? For the third consecutive year, hotels, across star categories, have registered higher occupancies. The national average was 63.6 per cent, but five-star deluxe hotels were far ahead with 71.4 per cent.

Most cities recorded higher occupancies than in 2003-04, with Bangalore way ahead of the other metros, registering 79.8 per cent. For a booming city with just 800 rooms in the five-star deluxe category, the high occupancy figure doesn't translate into a success story – the terrible time that the international visitors to the Bangalore Air Show had in getting rooms and the astronomical prices they paid for what they got must have confirmed their worst fears. Bangalore's economic growth hasn't matched its infrastructure's capacity to sustain it. From a hotelier's point of view, it's all right to charge Ritz Carlton rates when you're functioning in an overheated market, but when people pay that much money, they expect Ritz Carlton service standards and amenities.

In the HVS International survey, some cities did better than the rest – the occupancy rates ballooned from 61.6 to 73.3 per cent in Chennai, 66.3 to 74.9 per cent in Mumbai, 69.1 to 76.6 per cent in New Delhi, 62.1 to 77 per cent in Pune, and in Visakhapatnam, from 70.1 to 80.6 per cent. But why do these percentages translate into bad news for the GIT? The impressive occupancy figures have been driven mainly by the rise in the influx of foreign business travellers – their share in hotel occupancies went up from 21.1 to 28.6 per cent between 2003-04 and 2004-05. It was a growth that had to follow the upward mobility in the GDP growth rate and the steady expansion of the IT, BPO and ITeS sectors.

It explains why cities like Visakhapatnam and Chennai have shown the sharpest increases between 2003-04 and 2004-05. Chennai's IT corridor on the Old Mahabalipuram Road has been attracting the attention of global players, driving traffic to the city. Similarly, Visakhapatnam is getting noticed after HSBC set up its BPO in the port city. The other big actors in the Visakhapatnam's success story are Satyam, NuNet Technologies and Gallega Software Solutions.

The significant rise in the number of foreign business travellers is placing an enormous strain on the limited stock of hotel rooms available in cities. The supply-demand gap is pricing hotels, especially those in the five-star deluxe, five-star and four-star segments, out of the independent traveller's pocket. The gap isn't likely to get smaller in the next four or five years remain more or less untouched.

The World Travel & Tourism Council (WTTC) estimates that India's tourist arrivals will grow, year on year, at 8.8 per cent over the next ten years (2005 to 2015), which makes India the world's second most rapidly growing tourism market. Based on these demand projections, Siddharth Thacker of HVS International calculates that at least 1,00,000 to 1,25,000 hotel rooms, across star categories, will have to be added in the next five to seven years.

"With an estimated 26,000 rooms in the branded hotel segment, the hotel industry's size continues to represent an abysmal figure for India's size and growth prospects," he says.  "Our preliminary research indicates that, at best, there are currently only 45,000-50,000 rooms under different stages of planning and construction that are expected to enter the market in the branded segment in the next five years." Many of these rooms will most likely enter the market in the next three years, but the demand-supply gap will keep exerting upward pressures on room prices.

Of the 155 new hotels reported to be under development, at least 110 are in six cities – Delhi/NCR (27, including 20 in Gurgaon; 4,900 rooms); Bangalore (27; 6,100 rooms); Mumbai (19; 4,950 rooms); Chennai (14; 2,900 rooms); Kolkata (12; 2,000 rooms) and Pune (11; 1,600 rooms). All these developments are taking place in the non-economy, non-budget segments, and as we have seen in the case of the Fortune and Park Plaza hotels in Gurgaon, the pressure on the Delhi/NCR market has driven their rates up to five-star (non-deluxe) and four-star brackets. Not only is the branded budget and economy sector yet to take off, but the accommodation available is becoming increasingly inaccessible to people who should be benefiting from it.

Where does this leave the GIT? Booking the next flight to Sri Lanka, I guess.

A professional journalist for 22 years and a former editor with the Hindustan Times, Sourish Bhattacharyya now is a columnist with four leading Indian newspapers -- Mumbai Mirror, The Hindu Businessline, The Asian Age and Deccan Chronicle. He's the Executive Director of the Indian Wine Academy and Editor of delWine, daily e-newsletter of the Indian Wine Academy. He's also the author of Sakura's Kitchen: The Culture & Cuisine of Japan.

For comments: sourishb2002@yahoo.co.in
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