Indian Hotel Industry

Introduction In India, the hotel industry has monitored enormous boom in current years. The industry is linked with the tourism industry and the growth of hotel industry was fuelled by the tourism industry. It’s been seen that the industry offers luxury and comfort service to increase the foreign exchange of the economy. Early in 1980’s, the hotel industry in India was a budding industry consisting of single hotel companies. Increase in demand for hotels was high in late 1990’s.

The increase in business opportunities and flourished economy has boosted the level of growth in hotel industry.

According to a report, the Indian hotel industry has a current supply of 110,000 rooms and a scarcity of 150,000 rooms. According to ballpark figure, demand will go above supply by 100% within the next 2 years. The hotel industry in India is going to look rosy in the future. For the next few years, it is seen that the mid-market and budget hotel are going to observe massive growth and development while the segment of luxury will continue to carry out well.

The year 2008-09 was one terrible year for Indian tourism because of the terror attack; the hotel industry was affected drastically. The industry experienced a downfall in occupancy and revenue in major cities List of players in the industry * Taj group * Inter-continental * Le meridien group of hotels * Oberoi group of hotels * The park group of hotels * Welcome heritage group of hotels * ITC welcome group of hotels Industry Structure Hotels in India are broadly classified into 7 categories (Five star deluxe, Five star, Four star, Three Star, Two Star, One star and Heritage Hotels)

Premium Luxury Segment This segment comprises the high-end Five Star deluxe and Five Star hotels, which mainly provide to the business and upmarket foreign leisure travellers and present a class quality and range of services Mid Market Segment This segment includes 3 and 4 star hotels which cater to the standard foreign and domestic leisure traveller.

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This segment also accommodate to the middle level business travellers since it offers most of the essential services of luxury hotels without the high costs. Budget Segment These comprise 1 and 2 star hotels known to as “Budget Hotels”.

These categories do not offer as many facilities as the other segments but offers inexpensive accommodation to the highly price-conscious segment of the domestic and foreign leisure tourists. Heritage Hotels In the past four decades, certain architecturally distinctive properties such as palaces and forts, built prior to 1950 have been converted into hotels. The Ministry of Tourism has classified these hotels as Heritage Hotels FDI in hotel Industry The main reason for foreign direct investment policy in India is to promote foreign investment.

The liberalized economic policies have converted India the biggest and largest democracy in the global investment. In hotel industry FDI has been allowed up to 100% through automatic route. Automatic approval is given if: 1. Up to 3 % of the capital cost of the project is proposed to be paid for technical consultancy services. 2. Up to 3 % of the net turnover is payable for franchising and marketing/publicity fees. 3. Up to 10 % of gross operating profit is payable for management fees, including incentives fees. Statistical Data- Indian Hotel Industry Size of the Hotel Industry| USD 3. 8 Billion|

Share of premium segment in the overall hotel market (2008)| USD 2. 3 Billion| Expected growth rate from 2008 to2009| 12 percent| Key Players| Indian Hotels, Leela Ventures, ITC Hotels, Oberoi Hotels, Bharat Hotels, ITDC, Kamat Hotels. | RoomsCurrent SupplyCurrent Demand| About 110,000 hotels roomsAbout 150,000 hotels rooms| Source: Crisil research Annual Review 2009 Growth Rate In a report it is stated that, the Indian hotel industry has a current supply of 1, 00,000 rooms and a scarcity of 1, 50,000 rooms in India. In the estimate the demand is going to cross supply by 100% in the coming next 2 years.

Five star hotels allocate same room for different guest more than once a day. With the difference in demand and supply, the tariffs in hotels are expected to rise 25% annually and 80% of occupancy rate by the next 2 years. To conquer this shortage, the industry is adding 60000 quality class rooms. It is on process with various stages of development which will be all set by 2012. The hotel industry is currently now in an interesting phase. The reason for the boost in demand for hotel rooms is the thriving economy and extreme growth in sectors like IT, Telecom, Retail etc.

Moreover, the decision of government is to advance 28 regional airports in towns and to expand Mumbai and Delhi airports so that the business prospects of Indian hotel industry will progress. The advancement of highways linking to various parts of India has helped to open new budget hotels. The campaign INCREDIBLE INDIA which was promoted by the government of India has helped to increase the domestic and international tourism which led to the growth in hotel industry also. Pattern of growth (Seasonal & Cyclic) In hotel industry, the pattern of growth is cyclic and seasonal as it is related and based with tourism.

As it is inter-related and gone on demand based, in some places like historical places and business centres such as Delhi, Hyderabad etc the demand for hotels are cyclic. Seasonal demand is depended upon location and climate e. g. : beaches in India are visited mainly on summer because of the climate Porter’s Five Force Model Porter’s five forces model determines the attractiveness of long run of a market. The five forces are: * Threats of intense segment rivalry * Threat of new entrants * Threat of substitute products * Bargaining power of suppliers * Bargaining power of consumers 1.

BARGAINING POWER OF SUPPLIERS * A chain of hotels is operating in various services like spa, boatels, resorts, city centers etc. * The customers in the hotel industry are fragmented, so they might have to trim down the bargaining power in order to draw the customers. * They have no substitutes for five hotels and spas. * The top class hotels are being operated by few hotels like TAJ, ITC, THE LEELA PALACE so that they have power over the industry. * The Oberoi, TAJ, ITC etc have different rates and tariffs; it is because of the reason that they have their own brand image. 2. BARGAINING POWER OF CONSUMERS The hotel industry is mainly invested in fixed assets, so they are trying to recover their money quickly. * If the price of the hotel changes is moderate, the customers are price sensitive and have low margins. * The hotels are providing more information about them to attract the customers. * Sometimes hotels provide discounts and incentives in order to reduce the bargaining power of consumers. 3. THREAT OF NEW ENTRANTS When it becomes easy for the other companies to enter the industry, the competition of the industry increases. In such state the new players could change the determinintans of the market environment. Distribution channels and raw materials are controlled by players like TAJ, ITC and LEELA PALACE * In India, the cost of land is 50% of total project as it is 15% in abroad. * Customers brand loyalty like TAJ, ITC and LEELA PALACE influences new entrants. * The hotels in foreign country are in connection with Indian hotels to reduce the starting cost and using latter’s brand name. 4. THREAT OF SUBSTITUTES There is going to be a threat from the substitutes if there are alternative lower priced products with better performance for the same purpose.

These substitute products can attract a part of the market reducing the sales of existing players. * Switching and fixed costs affects the business * Customers brand loyalty is directing the substitutes such as TAJ, ITC etc. * Hotel connection with the customers and cost are the causes for switching to substitutes. * The current demand and supply is another reason for the choice of substitutes. 5. THREAT OF INTENSE SEGMENT RIVALRY High pressure of competition results in hike on prices, pressure on margins and hence for every single company in the industry on profitability. Powerful on cities especially in metro and slowly picking in minor cities. * Because of the healthy competition with all the players, there is an increase in the growth of industry * The competitors in the hotel industry especially the top one’s are having similar service like the five star. Environmental Analysis PEST Model 1. Political factors Certain rules and regulation should be abided by the citizen of India in order to be in the society. This is applicable for corporation also. Though each corporation has to face rules and regulation, each industry has to face different set of rules and regulation.

One should know that in corporation’s perspective the regulation are negative because it takes away their profit or bottom line. However, there is also a positive effect for regulations. Environment is one main factor which the government will have their eye on, and also set up laws that will defend the environment. Hotels are legally responsible to clean up the infected part and other corrective measures under the law and regulation which are associated with environmental matters. Another political factor is that they can impose a law regarding labor in hotel industry 2. Social factors

Social factor is another issue which the hotel industry should look into because it deals and functions with customers with different ethnic, demographic, cultural background. The hotel industry may have a chance to expand by the way of treating each customer in a loyally. 3. Technological factor A hotel must be up to date with all the latest gadgets and technological changes. A hotel must be advanced and should prevent obsolescence. Why it is said to be advanced is that the changes might have an impact on the industry. As it is the 21st century, we all know that there is a strong and powerful focus on technology.

Today the internet is being used everywhere. Now it is a place for shopping, music, games etc. In this factor, the hotels should know that if they don’t have a well developed website, they can loose potential customers. Also they should aggressively advertise through the internet. Further to add in with the discussion, the computers can be use for organizing the operations. So by moving through this direction can make the hotel much attractive, save cost and increase revenue. 4. Ecological factors Environment is something which the living beings link with it every day.

The decisions are often guided by the environmental condition. For e. g. if it is foggy outside, the chances for going for trucking or hiking are very less. The unsure climate can have an impact on hotels mainly situated in ski resorts. To solve this problem is to create a strong brand image in the minds of consumer. Market Trends: Hotels Classification – Occupancy Particular| 2004 -05| 2005-06| 2006-07| 2007-08| 2008-09| Overall Average| 69. 0 %| 71. 5 %| 71. 4 %| 68. 8 %| 60. 3 %| Five Star – Deluxe| 71. 4 %| 73. 8 %| 73. 0 %| 71. 7 %| 62. 3 %| Five – Star| 71. 1 %| 70. 4 %| 70. %| 67. 2 %| 59. 9 %| Four – Star| 71. 8 %| 72. 7 %| 71. 7 %| 68. 9 %| 59. 5 %| Three – Star| 56. 7 %| 65. 9 %| 68. 9 %| 64. 7 %| 57. 5 %| Hotel Classification – Average Rate (US Dollars) Particular| 2004 -05| 2005-06| 2006-07| 2007-08| 2008-09| Overall Average| 95. 73| 122. 34| 162. 17| 198. 52| 170. 71| Five Star – Deluxe| 124. 86| 161. 08| 224. 26| 278. 33| 241. 05| Five – Star| 86. 79| 112. 03| 149. 22| 190. 16| 165. 29| Four – Star| 68. 78| 86. 45| 117. 23| 142. 20| 126. 35| Three – Star| 40. 71| 49. 71| 69. 09| 86. 67| 79. 83| Opportunity and Challenges Opportunities

According to the central statistics organization, India’s GDP was recorded a growth of 6. 7% in the financial year 2008-09. By this GDP growth, we can see that it is a strong service sector, stable FDI and government policies which helped to maintain growth rate. The hotel industry’s market size is more than twice as about USD 1 billion in 2004. It is said that there are chances for India to have something like 40 international hotel brands by 2012. Also the occupancy rates have also increased from 52% in 1999 to 67% in 2008. Inspite of the global recession, the arrival of tourist increased from 4. 8 million to 5. 37 million in 2008. Basically what it means is that there is 100% Challenges * Poor infrastructure * Numerous license are required to approve a lengthy process * Due to economic recession, there’s been a slowdown in demand. Conclusion In recent years, India started examining massive growth in mid market and luxury market will performing very well in the coming years. In future, the industry will have marvellous opportunities because of the booming trends in tourism and government encouraging campaign of INCREDIBLE INDIA and other promotional measures.

Even through the industry is filled with full of opportunities, they are undergoing certain difficulties regarding the cost of land which is 50% of the total cost and also the taxes. The hotel industry is inviting foreign investment which is an excellent indication and the industry is trying to fill the demand and supply gap. Bibliography * http://www. indialawoffices. com/pdf/indianhotelindustry. pdf * http://business. mapsofindia. com/india-industry/hotel-industry-in-india. html * http://www. scribd. com/doc/26045770/indian-hotel-industry-analysis * http://www. madaan. com/sectors. html