The Horwath HTL - Hotel Outlook Survey 2012 has been designed to identify industry sentiments and provide a forward outlook on the hotel market for 2012, while reflecting on performance in 2011.

This report presents summarised responses from hotel General Managers, F&B Managers and HR Managers at hotels in varied segments and different cities of India.

OVERVIEW

The Rooms Department is facing challenges while F&B operations are in a buoyant mood. HR Managers are stressed with shortage of skilled persons and higher than affordable salary and wage expectations. The General Managers are cautious, particularly on the back of challenged market conditions and increasing operating costs.

The overall mood in the F&B segment is upbeat, witnessing demand growth and dynamic activity. Actual market performances are showing growth, riding on increasing consumerism and introduction of newer restaurant and cuisine concepts.

In contrast, the optimism portrayed at the start of 2011 in relation to room rates and occupancy has waned. Rapid inventory addition in the country has continued to cause attrition and poaching worries for HR Managers, while also causing payroll increases – both actual and in the expectation-fulfilment gap.

The near and mediumterm future is expected to be no different. Smart and professionally adept managers are the need of the hour; while employers aim to foster a culture of loyalty and commitment, the industry and individual hotels / chains are challenged in retaining this talent.

2011 PERFORMANCE

ROOMS
At the start of 2011 there was optimism among the General Managers with more than 73% expecting strong to very strong growth in occupancy and 67% expecting moderate to high growth in ADR. This optimism has unfortunately not been borne out:

• 44% General Managers reported ADRs achieved as being lower than expected at the start of the year; only 36% reflected better than expected performance

" Optimism among General Managersat the start of the year has unfortunately not been borne out in 2011"

• From the view point of room occupancy, the performance was slightly better. 42% General Managers reported better than expected performance but 1/4th of the General Managers reported the performance to be lower than their initial expectations
• The lower than expected ADR's are translating into lower than expected revenues at 40% of the participating hotels

FOOD & BEVERAGE

Performance on the F&B side was significantly better.

• 58% of participating hotels achieved better than expected performance, mainly arising from improved banqueting revenue (69%); beverage revenue (55%) and food revenue (53%)
• Another three-eighth of the participating hotels achieved F&B Revenue in line with initial expectations

"Hotels have benefitted from enhanced F&B Revenues"

• Only 5% of the participating hotels reflected lower achievement than the initial expectation at the start of 2011

2012 OUTLOOK

The sentiment for 2012 also reflects a divergence between rooms and F&B operations. The expectation from the rooms department is possibly moderated by the softer than expected performance in 2011. By the same token, F&B departments are expressing greater confidence.

• ADR: 3/8th of participating hotels expect ADR for 2012 to be in line with 2011; while 22% are expecting a reasonable increase, a slightly larger 24% are expecting a decline in room rates. Don't we miss the dual rate structure, in times of the Rupee devaluation!!!
• Occupancy: However, there is greater confidence in demand volumes with a third of the hotels expecting 2012 performance to be in line with 2011 performance and 37% expecting a reasonable increase; 1/6th of the participating hotels are expecting sizeable increase in occupancy but, on the other hand, another 1/6th of the participating hotels are expecting significant decline in occupancies

• Clearly the impact of difficult business conditions and continued supply growth is not really foreseen as impacting occupancies in a material way but is expected to have a significantly diluting impact on room rates
• F&B: Between 35-45% of the respondents are expecting F&B revenues to remain the same as in 2011. About a third of the hotels are expecting reasonable growth of F&B revenues while about 1/4th of participating hotels are estimating strong to very strong improvement in F&B revenues

"Interestingly, the positive outlook on F&B operations comes at a time when some hotels are exploring the option of leasing out these activities"

• Improved F&B revenues are mainly predicated on APC increases - 65% to 70% of the respondents expect buffet prices to increase up to 8%; 55% to 70% of the respondents also expect specialty restaurant and room service prices to improve by 8%
• The positive performance and outlook on F&B operations peculiarly comes at a time when some hotels and hotel chains are exploring the option of leasing out these activities to third parties

OPERATING COSTS

In terms of operating costs, hotels seem to be feeling strong pressure.

• 85% of the hotels expect payroll costs to increase in 2012 with about half of such hotels expecting sizeable cost increases. Considering the slowdown in hiring and variable pay components in the IT and other service sectors, the cost increase expectations of Hotel HR Managers appear to standout
• Notwithstanding the very recent slowdown in food inflation, 70% of the hotels are expecting moderate to large increase in food cost. Such increase, coming in on top of inflation lead high food cost in 2011, could clearly dilute the revenue gains from restaurant and banquet operations impacting F&B margins

"Increasing operating costs are putting pressure on margins"

• With increased F&B Revenues and costs, it will be interesting to watch continuing trends on the scope and demand for profitable F&B operations in the coming year
• Half the hotels expect up to 8% increase in the energy cost; another 25% of the respondents are expecting more substantial energy cost increase

PAYROLL & HUMAN RESOURCE

• Employee attrition is a real concern; in fact, for 2/3rds of the respondents, it was their prime HR concern. While attrition may be somewhat lower in 2012, if alternative service sector jobs are harder to come by, this draining feature will continue to pose challenges to hotels in times to come
• HR Managers are also challenged by a rise in shortage of skilled work force and competition from within the hotel sector; both these factors, combined with inability of new comers to cope with work pressure, are being contributory to the high attrition levels in the industry
• Hotels are challenged to meet the payroll expectations of staff. Clearly, persons working or intending to work in the industry are drawn away to other sectors on payroll considerations and / or on considerations of better work-life balance. About 66% of the HR managers expect a increase in the range of 20-40% in the next three years
• At the same time, there is genuine industry grouse that new and young employees lack sufficient skills because of inadequacy of hotel schools, training curricula and these only serve to exacerbate the problem

"Adequacy of remuneration is a consistent challenge across all segments of managers and staff"

• The shortage of trained manpower combined with the opportunity for increased pay packages provides a perfect situation for hotels to poach staff from competition
• The industry has several excellent General Managers; hotels are frequently seeking to poach them. Fortunately, the non-hotel sector does not draw on their skills. These other sectors are somewhat more interested in poaching entry level staff and middle level managers.
• The shortage of experienced General Managers will be a challenge as more hotels open in the next 3 years
• Work pressure issues are a significant challenge for entrance level staff; the hotel industry is more exacting in its demands than other service industries with long working hours and constant scrutiny by demanding guests. This challenge is possibly further accentuated by inadequate teachings preemployment

OUTLOOK ON GOP - 2012

• Overall, a positive sentiment emerging from the General Managers is that half of them expect GOP to increase in rupee terms; however, only 3/8th of the General Managers expect an increase in GOP margins
• 35-40% of General Managers expect a decline in GOP in 2012, whether in rupee terms or as margins. This is the challenge of a competitive environment and we see this challenge getting more severe in the years to come

"35-40% of General Managers expect a decline in GOP in 2012. This is the challenge of a competitive environment and we see this challenge getting more severe in the years to come"

ABOUT HORWATH HTL
Horwath HTL is the global hospitality consulting brand of Crowe Horwath International. Crowe Horwath HTL Consultants Pvt. Ltd. is a member of Crowe Horwath International; an international network of independent accounting and consulting firms with 590 offices in about 100 countries – ranked 9th globally. Horwath HTL practices in 40 countries – Asia Pacific, North and South America, Europe, CIS countries and Africa. The consulting experience of our team covers 84 Indian cities, towns and destinations and 20 international destinations. Assignments have been undertaken for hotel chains, promoters, development companies, private equity investors, international and lenders.

Contact us:
Crowe Horwath HTL Consultants Pvt. Ltd.
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Tel: +91 (22) 6631 1480 | Fax: +91 (22) 6631 1474
Email: mumbai@horwathhtl.com / consult@crowehorwath.in

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Disclaimer: The results of this Survey are only a general indicator of the business sentiment and outlook, collated from respondents to the survey. These results and the views expressed herein should not be used or relied upon by any party as a basis for forming investment, lending or other decisions involving financial or other commitments to the hotel industry. Crowe Horwath HTL Consultants Pvt. Ltd. accepts no responsibility or liability for the appropriateness, accuracy or achievability of these opinions or analysis.