The hotel industry is very sensitive to economic cycles and is therefore intrinsically linked to the state of the economy.
At HVS, we have been tracking trends within the Indian hospitality industry for the last 16 years and have witnessed two economic downturns and a historic growth period during this time.
In 1995/96, when we first started tracking the Indian hotel market, we observed a downturn that lasted until 2002.
Beginning 2005, the markets exhibited significant increases in revenue per available room (RevPAR) year after year until 2008 when a second depression commenced. We are, thus, in a position to provide an insight into the cyclicity endemic to the hospitality industry and the growth stage that it currently finds itself in.
The Trends & Opportunities report assesses key trends in market performance of eleven major Indian cities and also presents HVS's outlook of the markets' performances in the near future. It also outlines existing and future opportunities in the hospitality industry, of specific interest to investors, developers and hotel operators. This report is generated after analysis of the results of the Trends & Analysis Survey conducted by HVS annually; the survey collates data related to key hospitality industry operational characteristics.
When we started collecting data for major Indian cities in 1995/96, only 20 hotels with a total of 18,160 rooms participated in the survey. This year, a record 462 hotels with a total room count of 58,612 rooms participated in the survey: an increase of 55 additional hotels and approximately 9,132 rooms since the last survey. The increase in the number of respondents over the years demonstrates an increase in both HVS's penetration into the market and the market's bandwidth.
Exhibit 1 illustrates survey participation from the years 2001/02 to 2010/11, with 1995/96 being the first year for the survey.
In 2010, one saw mixed economic performances across the world. Many countries that expected the year to mark their period of recovery were met with disappointment. The United States' economy remained in a somewhat precarious state as unemployment touched9.6%, the highest it has seen since 1984.
In Europe, countries such as Germany with a strong manufacturing base did well, however, Portugal, Italy, Ireland, Greece and Spain suffered from weak economies. Despite the global turmoil, India remained resilient and was estimated to grow by 8.6% by the Central Statistical Organisation (CSO) in 2010/11.
For the Indian hospitality industry, 2010/11 was a year of managing revival alongside the country's growing economy. Having battled the dual problems of cost cutting by global corporate houses that resulted in a significant drop in corporate travel, and a perception of being an unsafe destination due to the terror attack in 2008, hotels have moved to improving their performances and managing growth.
Exhibit 1: Sample Size for the Trends & Opportunities Survey for the Years 2001/02-2010/11
Although hotel room supply grew by nearly 15% in 2010/11, growth in demand outpaced supply, and nationwide occupancy grew by 1.7% over that of 2009/10. The growth in occupancy, despite a double digit growth in supply, signals the strength of the hospitality industry in India.
However, as hotels focused on improving occupancies, average rates witnessed a slight drop (1.4%) over that of the previous year. Overall, nationwide RevPAR improved marginally (0.3%).
Support from the government to revive and develop the hospitality industry has come in the form of certain policy changes. While in the past, policies such as declassifying hotels from within commercial real estate (CRE), relaxation in the External Commercial Borrowing (ECB) norms, and investment-linked tax deduction for establishing new hotels of two-star category and above have been implemented; in December 2010, the Union Cabinet approved setting up of a 'Hospitality Development and Promotion Board' (HDPB).
Historically, hotel construction in India has been somewhat cumbersome owing to the multiple clearances/approvals required from central and state government agencies. These clearances/approvals differ from state to state and in some cases, as many as 110 licenses are required by hotel projects.
To ease the woes of developers and investors, HDPB plans to implement a transparent system for the effective monitoring of hotel projects, facilitate timely clearances/approvals by being the single point for receiving applications, and review hotel development policies.
We had highlighted in the 2009 edition of the Critical Issues Facing Hospitality, an HVS White Paper, that a simpler method of approval process – one which is both transparent and swift is greatly needed.
While it is our ardent hope that the proposed HDPB will work towards improving the licensing and approval process and take other necessary steps to benefit the hospitality industry, we remain skeptical about the chances for any radical improvements in the short-term, and fear that investors will continue to face the previously mentioned challenges for a while.
The Indian hospitality industry is now on the path of recovery and the domestic traveller has spearheaded its growth. In 2010/11, domestic traffic was recorded in excess of 740 million
1, an 11-percent rise over that of 2009/10. Segments such as Leisure, Commercial and MICE witnessed a renewed interest from the domestic traveller with rising disposable incomes and improving air and road infrastructure.
In fact, months such as May-July, which are traditional 'low occupancy' periods for most hotel markets in India, are gradually transforming into 'medium occupancy' periods. Since most schools close for holidays during this time, hotels, especially in leisure locations witness heightened demand from the domestic leisure traveller.
In our discussions with hotel general managers across various cities, we understand that domestic MICE demand also witnesses a surge in the summer months.
Vital to the performance of the hospitality sector is the economic scenario of a country. This report discusses the tourism industry in India in relation to the economic scenario and includes macro data from the Ministry of Tourism, Government of India.
The Indian economy has been severely buffeted by, but has withstood the turbulence caused by global economies in the past years with a Gross Domestic Product (GDP) growth of 8.6% in 2010/11 as per the advanced estimates of the CSO.
Broad-based growth acros s most subsectors in Services and Industry including hotels, assisted by a rebound in agricultural production and exports, enabled this upward movement in GDP.
1 - Ministry of Tourism, India Tourism Statistics at a Glance, 2010
Full story:
www.hvs.com/Content/3185.pdf About the Authors
Kaushik Vardharajan is Managing Director HVS Hospitality Services - India. He joined HVS's New York office in 2001 and moved to the New Delhi office in 2008. Kaushik has worked on over 1,000 market studies, feasibility analyses, and valuations in North America and India, with a special focus on large mixed-use projects and portfolio valuations. Kaushik is also a Member of the Royal Institute of Chartered Surveyors (RICS) and is part of the Valuation Working Committee of RICS, which is responsible for establishing professional standards for property valuations in India. He has also taught courses and spoken at New York University, Johnson & Wales University, and the Indian School of Business.
Pooja Goel is an Consulting & Valuation Analyst with HVS's New Delhi office, since August 2010. She holds a Diploma in Hotel Management from IHM Pusa, Delhi and an Advanced Diploma in Human Resource Practices from NMIMS, Mumbai. Prior to her tenure with HVS, she was associated with the Taj Group of Hotels for over seven years and has worked in the accommodations and revenue management streams across various cities in India. As a part of the division, she has performed many feasibility and valuation studies in India and Sri Lanka.
Aditya Karulkar is a Research Analyst with HVS's New Delhi office, specializing in hotel valuation and consultancy. He joined HVS New Delhi in April 2011. He is currently pursuing his MBA in International Hospitality Management from the ESSEC Business School, Paris before which he was associated with the Taj Group of Hotels.
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