Great expectations for Indian
hotels By Sudha Ramachandran
BANGALORE - India's hospitality industry
is set for dramatic growth in the next couple of
years. There is a serious shortage of hotel rooms,
and demand far outstrips supply. Hotel room rates
are going through the roof, especially in the
cities. But with the industry showing very bright
prospects, investment in the sector is witnessing
a sudden spurt.
For decades, India was a
paradise for backpackers on a shoestring budget or
"nirvana seekers" eager to escape the rat
race
in Western societies. Much has changed since
economic liberalization and the software boom.
While curious backpackers keen to discover India
continue to pour in, it is business travelers who
constitute the bulk of visitors to the country in
recent years. There are medical tourists, too -
those who come to India for inexpensive but
top-class medical treatment. A booming economy,
growing affluence and cheap domestic flights have
induced many Indians to travel as well.
But there aren't enough rooms in hotels to
accommodate them all. The scarcity of hotel
accommodation is obvious from the fact that while
all of India has about 110,000 hotel rooms (about
the same as metropolitan New York), Shanghai alone
has some 130,000 rooms. And only a quarter of
India's 110,000 rooms are in the branded segment.
"India needs another 125,000 hotel rooms
at least by 2010 to meet the surging demand,
particularly in the upper and middle ranges," an
official in the Ministry of Tourism told Asia
Times Online.
"The demand for rooms has
grown across the country. In towns like Agra, Goa
and Khajuraho it is tourists - domestic and
foreign - [who] are driving the demand. But it is
business travelers [who] are pushing up demand for
hotel rooms in Delhi, Mumbai and Bangalore," said.
Bangalore accounts for the bulk of foreign
business travelers visiting India annually - 51%
compared with 35% who go to Mumbai and 26% to
Delhi. Ninety percent of the hotel clientele in
Bangalore consists of foreign business travelers.
The city's booming information technology (IT)
sector is fueling the soaring demand for hotel
rooms here.
Hotel rooms in Bangalore are
booked months in advance. Rooms at the Taj West
End, the Leela Palace Kempinski and the Park Hotel
are all booked through March.
Until a few
years ago, it was possible to get a room in a
luxury hotel in Delhi, Mumbai or Kolkata at about
US$60 a night. Today, the average tariff for a
single-occupancy room in a luxury hotel in India
is about $325 a night.
A study conducted
in 2005 by the travel consultancy Business
Management International found that the average
room tariff in Bangalore's hotels is the
third-highest (after Moscow and Rome) in the
world. The cheapest single-occupancy room at the
Taj West End costs $400 per night (plus 12%
taxes), while at the Leela Palace Kempinski the
tariff for a standard single occupancy is $480
plus taxes.
Room rates in India's top 10
cities are said to have gone up by 30-55% in the
past year. While hotel owners are in high spirits
over the soaring tariffs, industry watchers are
not too pleased with the trend. Manav Thadani,
managing director of HVS International-India, a
consulting firm for the hospitality industry, has
said this will not be beneficial in the long run
as it will turn away leisure traffic and the
lucrative conference segment from India.
The scarcity of hotel rooms and the
exorbitant tariffs of hotels in Bangalore have
prompted some domestic business travelers to stay
in Chennai, 320 kilometers to the east, and to fly
in to Bangalore during the day to do business
here. It is far more economical to book a flight
between these two cities than to shell out for a
room in a Bangalore hotel.
Indian software
giants Wipro and Infosys are taking steps to
provide their guests with accommodation. "Getting
a room in Bangalore is next to impossible," said
Mohandas Pai, director of human resources at
Infosys. "We get about 40-50 visitors a day, apart
from high-value overseas clients. If we manage to
get any rooms at all, the transit time taken to
commute between the hotel and the campus takes
several hours."
This has prompted Infosys
to set up an in-house 500-room hotel-like complex
for its clients and other visitors coming to
Bangalore. By this June, Infosys expects to have
15,000 company-owned rooms across India.
The hunger for hotel rooms is likely to
grow further as the Indian economy expands in the
coming years. In addition there are events such as
the Commonwealth Games in Delhi in 2010 and the
finals of the Cricket World Cup in Mumbai in 2011
that will add to pressure.
The Indian
government is beginning to see opportunity in the
hospitality sector. According to the World Travel
and Tourism Council, the hospitality sector, which
has been growing at an annual rate of 8.8%, has
the potential to earn $24 billion in annual
foreign exchange by 2015.
The government
has approved about 300 hotel projects. Most of
these are likely to be completed in the next three
years and are expected to increase capacity by
about 75,000 rooms. It is also encouraging private
individuals to start up bed-and-breakfast
businesses in their homes.
In addition, it
is allowing 100% foreign direct investment in
hotels. Several international hotel chains are
either entering the Indian market or expanding
their presence here significantly. Leading the
pack are such giants as Marriott, Hilton, Wyndham
and Accor, which have announced different
investment plans.
Hilton, for instance,
has joined hands with Indian real-estate developer
DLF to set up 75 hotels and serviced apartments
over the next seven years. The joint venture is
valued at $550 million. And Accor has formed a
joint venture with Emaar MGF to bring Formula-1
budget hotels to India. Wyndham has teamed up with
Bangalore-based Royal Orchid Hotels to develop 10
Ramada hotels that will have at least 1,000 rooms.
And Indian giants such as ITC and Taj
Group are expanding too, adding rooms and
facilities to their hotels or opening new hotels
in prime locations.
The past year was an
exciting one for India's hospitality sector. Hotel
construction took a giant leap forward.
Thirty-five five-star hotels began functioning
during the year, and 155 more are being
constructed. Some 112 new projects that will open
up some 3,500 rooms were sanctioned in southern
Indian cities, which are at the forefront of the
IT and IT-enabled-services boom. In Bangalore
alone work on 27 new hotels and serviced
apartments was set in motion. That should add more
than 6,100 rooms to accommodation facilities here
in the coming years.
Full or near-full
occupancy in hotels, soaring tariffs and booming
profits over the past year have fueled great
expectations of the future for the hospitality
sector in India. And big business and private
individuals are scrambling for a share in the
cake.
Sudha Ramachandran is an
independent journalist/researcher based in
Bangalore.
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