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Hospitality Insights from the Indian CEOs' Desk.
By Timmy S Kandhari & Sandeep Ladda, PwC India
Friday, 18th January 2013
 
Indian hospitality sector falls within the spectrum of travel and tourism which is estimated to contribute between 8-9% towards the country's GDP.

According to the estimates of World Travel & Tourism Council (WTTC), the direct and indirect contribution of travel and tourism to GDP is expected to grow consistently in the next decade. Past indicators in Foreign Tourist Arrivals (FTAs) as well as domestic travel in 2010 suggest that the number of travelers have almost doubled since 2005.

However with around 6 million FTAs, India accounted for only about 0.6% of the global tourist arrivals indicating a huge area of untapped opportunities in travel.

Growth opportunities in travel & tourism cannot be realised without the development of the hospitality sector. India presently has an estimated 114,000 hotel rooms spread across various hotel categories.

This is around 150,000 rooms short from what is required. While the opportunities are immense, there are also challenges associated with it. The Hotel industry universally is sensitive to economic cycles and does face its troughs as well as highs based on the supply and demand of rooms at any point. Specific India issues like poor infrastructure, high cost of land procurement and multiple licences as well as levies accentuates the challenge of development.

India, presently coming from a period of high growth, has hit a low point with persistent high inflation, high interest rates and policy paralysis in the government leading to reduced growth prospects. In addition, major developed economies like US, UK and Eurozone which have been our major inbound customers in the past, have either decelerated or have had no growth which could lead to reduced travel.

On the positive side though, domestic tourism in India has come of age with better connectivity and is likely to counter any downfall in the international tourist arrivals. However, the increased domestic demand rides on the back of different consumer choices and the future investment plans by the global and domestic players will have to take into account these evolving choices.

Therefore, the Indian hospitality sector is at a very interesting juncture. With a view to bring out the relevant industry insights, we interviewed 20 eminent CEOs on the following parameters:
  • Trends for the future
  • Growth strategies
  • Key to sustainable growth
  • Challenges and expectations
Their responses form the basis of this survey. All hotel chains (Indian and international) having five or more operational properties in India have been considered for this survey. We hope the findings of the survey will help CEOs to make the right decisions and improvise strategies and developmental plans We welcome your feedback on the subject.

Key findings

1. The Indian hospitality sector is expected to witness high growth over the long term. The next one or two years may be a phase of building before the high growth trajectory emerges.

2. Domestic travel is expected to be the primary driver of the sector's growth. High disposable income and the advent of better locations are driving this growth.

3. Business travel and MICE are expected to be the possible growth segments.

4. Evolution into a multi-location and multi-format player is emerging as the most preferred strategy for players in the sector.

5. Maximum investments are expected to take place in the Tier I towns followed by the Tier II towns.

6. Budget and mid-market segments have emerged as the most preferred investment categories.

7. Managing costs better is on the top of the agenda for CEOs, in the operational effectiveness space. Companies are looking at reducing energy consumption, investing in technology to reduce costs and making higher proportion of costs
variable.

8. Potential synergies in operations exist in multiple functions including IT, procurement and sales and marketing. Over 80% of the CEOs believe they will undertake centralisation in procurement.

9. The hospitality sector has unanimously voiced the need for gaining an ‘infrastructure status.

10. Effective single window clearance for obtaining licenses has been identified as a key sector requirement.

11. Rationalisation of the number of tax levies and implementation of single tax regime will benefit the hospitality industry.

12. Talent management is a major challenge for the sector. Inadequate supply of quality talent and increased competition for talent within the sector and from competing service sectors has made attrition a significant issue for the industry.

Full article:

www.pwc.in/assets/pdfs/publications-2012/hospitality-insights-from-the-indian-ceo-desk.pdf

Timmy S Kandhari
Executive Director, Leader, Hospitality and Leisure, PwC India


Sandeep Ladda
Executive Director, Tax Leader, Hospitality and Leisure, PwC India
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