2004 Hotels In India - Trends And Opportunity · HVS International Hotels in India - Trends & Opportunities 2001 1 HOTELS IN INDIA — TRENDS AND OPPORTUNITIES 2004 Edition This edition

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01 November 2004

2004 Hotels In India - Trends And Opportunity Manav Thadani, Managing Director Deepika Malkani, Editor HVS International New Delhi

HVS INTERNATIONAL NEW DELHI C – 67,Anand Niketan 2nd Floor New Delhi 110021 India 91(11) 2410 1005 91(11) 2410 1066 (fax)

HVS International Hotels in India - Trends & Opportunities 2001 1

HOTELS IN INDIA —TRENDS AND OPPORTUNITIES

2004 Edition

This edition has been published by the New Delhi Office of HVS International www.hvsinternational.com

Table 1: Number of Hotel Respondents

IntroductionThe scope of this publication is toassess current trends and futureopportunities for the hotel industry inIndia. As always, apart fromconducting specific research for thispublication, we have included macrodata provided by the Department ofTourism. The publication brieflydiscusses the tourism industry inIndia in the context of the currenteconomic scenario and presents theresults of our survey on theperformance of branded hotels,analysed by each segment of the hotelmarket, as well as by major cities. Ourstudy also provides an overview ofsupply and demand conditions in thehotel market in India. As in previouseditions of this report, we have, onceagain, presented our assessment ofindustry trends and developments;this is included as part of the ‘FutureTrends’ section.

In addition to the Hotels in India—Trends and Opportunities we publishThe Indian Hotel Industry Survey on anannual basis, in association with theFederation of Hotel & RestaurantAssociations of India (FHRAI). Thispublication, the only one of its kind inIndia, provides detailed financial and

operating information on the hotelindustry, analysed by star category,across all major cities in the country.The 2003/04 edition will be availableby the end of the year.

This is the eight edition of HVSInternational’s Hotels in India - Trendsand Opportunities publication. Thisyear, 211 hotels, having a total roomcount of 28,870 rooms, participated inour research. The survey does not takeinto account any of the ITDC hotels,resulting in a decline in the totalnumber of participating hotels(compared to 2003). However, overallroom count has increased, reflectingthe opening of new hotels with largeinventories. Table 1 illustrates surveyparticipation for the years 1999/2000to 2003/04.

This being the eight edition, we are ina position to provide information onsurvey participation (as well as theoperating data of participating hotels)from 1995/96. However, in thisdocument, we have chosen to presentinformation from 1999/2000onwards. Data pertaining to theprevious years is available at ouroffice.

The Indian Economy -An Overview:The economy performed extremelywell during 2003/04, with GDPgrowing by 8.2%. While agricultureaccounted for most of the rebound(registering a growth of 9.1%, inresponse to the best monsoon in adecade), other sectors also showed astrong performance. Industry grew atabove 7.0%. Services, which accountfor more than half of total GDP,expanded 8.7%. A key component ofServices - the trade, financial services,hotels, insurance, transport andcommunications component -expanded by a seven-year high of11.2% amid a credit-fuelled consumerspending spree.

The economy’s buoyancy, togetherwith initiatives by the erstwhile NDAgovernment - to improve India’sdeficient infrastructure, divest loss-making enterprises and easerestrictions on foreign investment, andperhaps most importantly, make peacewith neighbouring Pakistan - didmuch to convince the world of India’sinvestment worthiness. More than $10billion in foreign capital poured intoIndia in 2003/04. However, this senseof bullishness has been somewhatdampened, following the NDAgovernment’s failure to return topower in the General Elections inApril-May 2004, despite having donewell in state elections last year.

The present Congress-led UnitedProgressive Alliance (UPA)government’s efforts to ̀ open up’ theeconomy (for example, raising FDIlimits in telecom, aviation andinsurance, which was proposed in therecently announced Union Budget2004-05) are being thwarted by itsmain ally, the Left government. Thereare essential ideological differences

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2 Hotels in India - Trends & Opportunities 2001 HVS International

between the two main parties: theCongress is progressive in outlookand both Prime Minister Singh andFinance Minister Chidambaram havebeen champions of reform; the Left, onthe other hand, is not in favour ofliberalisation and disinvestment. Thishas led to a sense of uncertainty as tothe course government policy willtake, causing foreign investors to holdback, and wait and watch, at least forthe time being.

The Reserve Bank of India andleading research agencies haveforecast a GDP growth of 6.0-6.5% in2004/05, taking into account the likelyadverse effects on agriculture of a lateand erratic monsoon. However, recentdata on first quarter (April-June)performance reveals the economy has,in fact, done better than expected. GDPgrowth for the period April-June 2004is 7.4%. Agricultural productionwitnessed higher-than-expected 3.4%increase. Manufacturing grew at 8.0%during this period, exceeding thestrong growth momentum witnessedin 2003/04. Demand formanufactured goods has, and willcontinue to, benefit from low interestrates, inexpensive and easily availablefinancing options, and an overall risein the purchasing power of India’spopulation, over the last number ofyears. The trade, financial services,hotels, insurance, transport andcommunications component, whichaccounts for 50% of the Servicessector, registered an 11.0% increase.Services and Industry will continue todrive the economy in the current fiscal.

Also in the economy’s favour is itshealth: the balance of paymentsposition is stable, a current accountsurplus is forecast for 2004/05 andIndia’s foreign exchange reserves(US$118 billion as on September) areamongst the highest in the world.Moreover, the finance minister hasstrongly emphasised thegovernment’s commitment toliberalisation and key reforminitiatives, assuring that they will beimplemented, ̀ even if there is a delay’.The government is also contemplatingusing a part of the foreign exchangereserves (say US$10 billion) towardsmajor infrastructure development.

The new government has beenconcerned about inflation, which hasbeen rising steadily over the past threemonths, and touched a four-year highof 8.0% (in August – September). Theincrease is the result of seasonalfactors and the higher prices of fuelsand manufactured goods.

Trends & Developments inTourism:The year 2003 was an outstandingyear in terms of inbound tourism, withtourist arrivals reaching 2.73 million.The strong growth in tourist arrivalsin 2003 (especially in the first half ofthe year) is partly attributable to theoutbreak of SARS in east Asia, as wellas the war on Iraq, which resulted inIndia being perceived as a safe regionto visit. The more fundamental reason,however, relates to a strong sense ofbusiness and investment confidencein India: inspired by India’s strongGDP performance, and initiativestaken by the erstwhile Prime Minister,to make peace with Pakistan,strengthen ties with the developedworld and open sectors of theeconomy to private sector/foreigninvestment. Significantly, the bulk ofinternational arrivals in India, both in2003 and 2004, have been businesstravellers.

Domestic travel, both business andleisure, also benefited from a thrivingeconomy. Prior to being voted out ofpower, the NDA governmentimplemented certain importantmeasures to provide a much-neededboost to travel & tourism. Theseincluded the abolishment of the inlandair travel tax of 15%; reduction inexcise duty on aviation turbine fuel to8%; and removal of a number ofrestrictions on outbound charteredflights, including those relating tofrequency and size of aircraft. Theprovision included allowing Indiancharters to land at all airports in thecountry, and Indian passport holdersto travel on inbound charters. Thegovernment also launched theIncredible India campaign, which hasbeen successful in launching the`Brand India’ image.

The new government, it appears, istaking active interest in developing

tourism in India. The continuedIncredible India campaign has had astrongly positive impact on touristarrivals in 2004. Definite efforts arebeing made to communicate the BrandIndia message: India made itspresence strongly felt at the WTTC-promoted Global Travel & TourismSummit held in Doha, Qatar in Maythis year. India has also been selected(on the basis of competitive bidding)to host the Summit next year.

An important new development is thegovernment’s recent decision to treatconvention centres as part of coreinfrastructure, allowing thegovernment to provide critical fundingfor the large capital investment thatmay be required. The government hasidentified Delhi, Mumbai and Goa asthe markets to develop theseconvention centers, which is likely tofurther fuel demand for hotel rooms.Another effort is the decision tosubstantially upgrade 28 regionalairports in smaller towns, slated to becompleted by 2006. Expressions ofinterest have been received for theproposed privatisation (49% stake) ofthe Delhi and Mumbai internationalairports, but, as expected, the Leftgovernment has opposed the move.

Substantial investments in tourisminfrastructure are, undoubtedly,essential for this industry to continueto evolve and grow, and ultimatelyachieve its potential. The upgradingof national highways connectingvarious parts of India has opened newavenues for the development of budgethotels alongside. Taking advantage ofthis and certain other key locations isthe Tata group (owners of IndianHotel – Taj) that has developedIndiOne, a 101-room economy hoteloutside Bangalore; they hope toduplicate this across India in the nextfew years. Another hotel chain called`Homotel’, being promoted by SarovarPark Plaza group is also likely tocompete in this new economy segment.International majors like Accor are alsoplanning to bring in Ibis into India.

The year 2004 has been a record yearin tourist arrivals, as is evident fromdata on foreign arrivals for the firsteight months of the year. According to


provisional estimates of the Ministryof Tourism, January to August 2004saw approximately 2,093,600 visitorsto India, 25.8% more than in thecorresponding period of 2003.Growth has been spurred by largeincreases in airline passengercapacity: international airlines haveadded more than 4,000 seats a weekon international routes to India in thelast six months alone.

Increases in passenger capacity willplay a significant role in fuellinggrowth in travel & tourism. BritishAirways has recently been permittedto triple its flights to India, and carriersfrom Australia are now allowed to offer4,500 seats a week to India, more thandouble existing capacity. Moreover,Indian private carriers have recentlycommenced flights to the SAARCregion, and have asked thegovernment to be permitted to fly toEast Asian countries. Capacityincreases will not only bring in moreinternational arrivals, but will, over aperiod, reduce airline fares to India,which are currently amongst thehighest in the world.

Assuming a stable economic andpolitical climate worldwide, theoutlook for inbound tourism - bothbusiness and leisure - is stronglyencouraging. Many internationalinvestors, particularly those who haveinvested heavily into China in the pastfew years, are now looking at India asthe next opportunity. Conde NastTraveller, in its readers’ travel awardsfor 2004, has placed India at numbersix among the world’s touristdestinations.

Domestic tourism will continue todevelop rapidly and, according toHVS, will be the real driving force forthis industry over the next decade orso. This segment will be helped by thegrowing wealth base of India’spopulation and discounted fareoptions. A significant newdevelopment is the arrival of low-costcarriers, pioneered in India by AirDeccan, with other industry playerssuch as Air India (short-haul, all-economy flights to the Middle Eastand Southeast Asia) and IndianAirlines readying themselves to enterthe low-cost market.

According to recent estimates of theWTTC, Indian tourism will grow at 8.8per cent over the next 10 years, whichwould place India among the mostrapidly growing tourism markets inthe world. A longer term, sustainedgrowth of the industry depends onhow successfully several issues areaddressed - relating to old and poorlyfacilitated airports, inadequate hotels,poor road and transportinfrastructure, high levels of taxationand a bureaucratic visa processingsystem. As of now, at least, India isclearly taking steps in the rightdirection.

Table 2 reflects key statistics for theIndian tourism industry.

Hotel SupplyIn the recent past, we have been askedseveral times about the actual supplyof hotel rooms in India. Taking intoaccount all approved and un-approved hotels, we estimate thisfigure to be close to 90,000 rooms. Thisis an abysmal figure for a country ofIndia’s size and population. Anincrease in business sentiments,leading to higher business-relatedtravel or increase in foreign touristarrivals, causes occupancy in marketsto go up dramatically.

Table 3 reflects our research on thedevelopment of branded hotels inmajor Indian cities.

Table 2 : Key Tourism Statistics1999 2000 2001 2002 2003 2004*

Number of Arrivals 2,481,000 2,641,000 2,537,000 2,360,000 2,726,000 3,479,000

Foreign Exchange Earnings (US$ billion) $3.00 $3.17 $3.04 $2.96 $3.60 $4.56

Foreign Exchange Earnings Per Visitor $1,209 $1,200 $1,198 $1,254 $1,321 $1,311

Total Arrivals to New Delhi 32.2% 31.9% 33.7% 28.6% 30.8% 31.0%

Total Arrivals to Mumbai 28.1% 28.3% 26.7% 25.4% 24.1% 23.5%

Total Arrivals to Chennai 11.1% 11.3% 12.0% 11.5% 10.5% 10.0%

Total Arrivals to Kolkata 5.2% 5.0% 4.3% 3.8% 3.7% 3.7%

Exchange Rate US$1.00:Rs 43.50 44.90 47.20 48.20 46.00 45.75

* Note: All figures for 2004 and all exchange rates (weighted for the year) are HVS EstimatesSource: Ministry of Tourism and HVS Estimates

Table 3 : Distribution of Existing and Proposed Branded Hotels by Major Cities

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The year 2003, as we all know, showedan especially strong performance ofthe tourism industry. While there hasbeen much talk about foreign arrivals,very little has actually been said aboutdomestic tourism, which has grownby about 40% in the last four to fiveyears. Government statistics point toapproximately 230 million domestictravellers in 2002 and indicate thatthis number has risen between 15-20%in 2003. Domestic tourism has, in fact,been the staple diet on which anumber of domestic leisuredestinations have sustainedthemselves – the hotel markets of Goa,Jaipur, Agra and various hill stationsbeing among these. With disposableincomes having risen significantly inthe last five to seven years, acrossmuch of India’s middle income andupper-middle income segments,families have been taking moreholidays - and spending more on theirvacations - than ever before. Theconcept of travelling for leisure has,in recent years, gained a morewidespread appeal, not only withfamilies, but also young adults, asegment that is earning far more thantheir parents did at that age. With acertain degree of social change takingplace across India, domestic tourismis poised to grow rapidly in the comingyears.

When will India actually touch the‘magic number’ of 5 million touristarrivals? This is a question that thoseinvolved in travel & tourism, or thehospitality industry, often ask. Thisyear, for the first time ever, India isgoing to cross the three million mark.According to our estimates, Indiawould witness nearly 3.5 millionforeign tourist arrivals in 2004. Thesharp rise in arrivals - as well as theincrease in domestic travel - isalready showing in the highoccupancies of hotels across variouscities. Demand for room nights grewat approximately 18% across thecountry in 2003/04 (according toHVS estimates) and is growing at 15-20% in the current fiscal. Taking intoaccount an estimated demand growthof approximately 18% over the nextfew years, we estimate that another65,000-80,000 rooms will need to beadded, across the country, in the next

five years, to be able to meet theincrease in demand. If this does nothappen, room rates will risedramatically, and, consequently,travel will come down, as people willfind it too expensive to travel withinIndia unless absolutely necessary.

In addition to tourism infrastructurein India being woefully inadequate,the current supply of hotel rooms ismuch too small to meet the anticipatedincreases in demand. Our preliminaryresearch indicates that, at best, thereare currently only 35,000 - 40,000rooms under different stages ofplanning and construction that areexpected to enter the market in the nextfive years. The new supply will alsoinclude branded hotels in the budgetsegment being planned by some majorhotel chains across the country.

Four years ago, our survey indicatedthat in the year 2000, 109 hotels wereready to open or were underconstruction. Last year, this number(hotels expected to open in the nextfew years) had declined to 63. Thisyear, the number of new hotels underdevelopment has once again risen to97. Moreover, as per our assumptions,an additional 100 economy hotels willalso be developed in the economysegment. The maximum developmentis likely to be witnessed in theNational Capital Region (NCR),particularly in Gurgaon. Bangaloreand Mumbai are next in line, where atleast 9-10 projects are currently underconsideration. Hyderabad andChennai are also likely to witness 5-6new hotels. We expect the neweconomy hotels to be developed mostlyin secondary and tertiary locations.

With regard to the expected increasein supply, it is entirely possible that anumber of these projects will facefinancial difficulties while inprogress. The blame for this lies withboth the government agencies as wellas the new developers. A classicexample is that of the numerousdevelopments in Gurgaon. The localgovernment is auctioning land forcommercial development (includinghotels) at high prices, thus forcingnew developers (bid winners) to buildhotels that are luxury or upper mid-

market in orientation, whereas theneed of the hour is budget hotels ordedicated extended stay products.Many of the new developers do notwant to be seen building budget hotels,as this does not fit in with the profileof their other businesses. Thus,several such developers are tendingto partner with operators who aredesperate to enter a particular marketand will compromise their standardsfor location / partner and product justto plant a flag. The recent success ofsome hotels in Gurgaon - which havedone extremely well and beyond mostexpectations - has been the mainmotivator for these businessmen.These new owners, it seems, havefailed to realize that when 7-9 hotelsopen at the same time (in the next threeto four years), only those projects thathave been careful planned andexecuted will survive the competitionor the next phase of economicslowdown in the country.

The NCR still remains the favouritedestination, in terms of the number ofnew hotels slated to becomeoperational in the next few years.Seventeen hotels are in various stagesof planning and development in theNCR, of which eleven properties areexpected to be located in Gurgaon. Weunderstand that, apart from these,there may be a few additionalproperties under development in WestDelhi as well.

Survey ResultsThe HVS International survey hasbeen computed by dividing therespondent branded hotels into theirrespective classifications according tostar grading. As before, we haveexamined the performance of ten majorcities across India, wherever areasonable sample allowed. Whilemost of the responses to the surveywere given in Indian Rupees, we havepresented some results in US Dollarsas well.

For the first time in six years, bothoccupancy and average room ratesimproved in 2003/04. Theperformance in US Dollar terms waseven better due to the appreciation ofthe Indian Rupee. Table 4 reflects roomoccupancy, average rate and revenue


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per available room (RevPAR) data byhotel classification for the period1999/2000 to 2003/04, in Rupees.Table 5 reflects the same results in USDollars.

The number of budget hotels in thebranded segment in India hasincreased significantly over the pastseveral years, and today representsapproximately 35% of the total roomsin our survey. The increasedrepresentation of branded budgethotels has lowered the overall industryfigure for average rate. However, itmay be noted that, over a five-yearperiod, the compounded growth hasbeen the strongest in the budgetsegment. The RevPAR of the three-starhotel segment grew at 10.9%, followedby four-star at 8.7%. The slowestgrowth was, in fact, witnessed in thefive-star deluxe segment, which grewmarginally, at 1.2%.

For the second time in a row, there hasbeen an across-the-board improve-ment in occupancy: averageoccupancy rose by 12.6% in 2003/04,compared to 10.9% the previous year.Demand for hotel room nightsimproved across all-star categories in2003/04, with occupancy close to orhigher than double digits, in eachsegment. The five-star category haswitnessed the most growth (16.7%),followed by four-star (15.2%). Theincrease in occupancy levels this yearwas even stronger than in the previousyear.

In terms of average rate, all starcategories experienced healthy growthin 2003/04. The four-star segmentexperienced the most improvement(10.1%), while the five-star segmentwitnessed the least improvement(5.7%). In US Dollar terms the four-starsegment grew at 15.4%, followed bythree-star (12.1%) and five-star deluxe(12.0%).

Average rate in Rupee terms increasedat 8.3% (compared to a 5.7% declinein 2002/03), resulting in an overallimprovement of 21.9% in RevPAR ora 27.6% RevPAR increase in US Dollarterms. Average rate in US Dollar termsshowed a countrywide increase of13.4%.

Table 6 illustrates the hotel occupancyrate for ten key cities in India, between1999/2000 and 2003/04. Table 7illustrates average rates for the hotelsin each of these cities, expressed inRupees. Table 8 presents thecorresponding RevPAR data for eachcity. A new and interesting trend isthat Agra and Jaipur have seensubstantial improvement in theirperformance in terms of occupancy,growing at 53.1% and 29.8%,respectively. This is followed by Delhi,which is part of the ‘Golden Triangle’.Bangalore and Hyderabad - the twoIT giants - are clearly the starperformers, recording occupancy of79.6% and 75.8%, respectively.

Significantly, Bangalore displacesMumbai for the first time and hasbecome the market average rate leaderwith a growth of 28.0%. This is anastonishing achievement for the citywhich, till four years ago, was rankedfifth (behind the four metros). Goa(19.6%) and Agra (17.0%) were theother two cities that showed goodimprovement in average rate.Hyderabad, which has generally beena very price sensitive market, also grewat 12.8%. Three large metros hadmodest increases in average rate, andthat too for the first time in three years:these were Delhi (2.3%), Mumbai(2.2%) and Kolkata (2.0%).

In 2003/04, only two cities exhibiteda small decline in occupancy: these areGoa (6.3%) and Kolkata (4.6%). Thedecline may attributed to new supplyentering these cities. Delhi grew at19.9% and Chennai at 15.8%, followedby Ahmedabad (15.2%), Bangalore(10.6%), Hyderabad (10.0%) andMumbai (8.0%).

In terms of RevPAR in 2003/04,Bangalore was in number oneposition, followed by Delhi, Mumbaiand Chennai, with Mumbai havingbeen relegated to third place for thefirst time. However, the biggestimprovement during 2003/04 interms of RevPAR was seen in Agra(79.1%), followed by Bangalore (41.5%)and Jaipur (39.1%). The only declinein RevPAR was seen in Kolkata(2.7%).

All cities, with the exception ofMumbai and Kolkata, haveexperienced positive improvement interms of compounded growth ofRevPAR. Over a five-yearcompounded period, the two maincentres of IT activity - Bangalore(18.3%) and Hyderabad (17.4%) - havegrown the most. Negative growth waswitnessed in Mumbai (–5.4%) andKolkata (–1.2%) over the same period.This is much to do with a situation ofoversupply in these markets.

The year 2003/04 saw significantsupply additions to several cities,with the maximum growth witnessedin Goa, Mumbai and Kolkata. A hugesurge in demand in Goa and NorthMumbai has helped in absorbing thisnew supply. Goa may haveexperienced decline in occupancy, butits overall performance, in light of thesupply increase, is commendable.With very little new supply expectedin Bangalore, Hyderabad and Goaover the next two years, we expect thesemarkets to improve significantly. Inaddition, in the medium term, evenDelhi, Mumbai and Chennai are likelyto improve. Average rates in cities likeBangalore and Hyderabad are likelyto be substantially higher, withBangalore registering among thestrongest growth worldwide. In theleisure segment, we expect Jaipur tosee a slowdown, however, Goaremains a very strong prospect.

Table 9 presents average roomoccupancy, average rate and RevPARdata for the period 1999/2000 to2003/04 (in Rupees), by major city.Table 10 reflects the same data in USDollars.

Future TrendsHVS has been conducting this surveyfor seven years, and, for, the first time,it appears that Indian hotel industryhas completed a full cycle,experiencing both downswing andupswing periods. The industry isrobust at present, and there are clearindications are that the next two tothree years will be even stronger.Certain markets are already seeinghuge un-accommodated demandduring weekdays, with average ratesin some of these markets witnessing


Table 6 : Occupancy Levels by Major Cities

Table 7 : Average Rate by Major Cities (Indian Rupees)

Table 8 : RevPAR by Major Cities (Indian Rupees)

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Tab

le 9

: K

ey O

per

atin

g C

har

acte

rist

ics

by

Maj

or

Cit

y (I

nd

ian

Ru

pee

s)

Tab

le 1

0 : K

ey O

per

atin

g C

har

acte

rist

ics

by

Maj

or

Cit

y (U

S D

olla

rs)

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

12-M

onth

Com

poun

ded

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

12-M

onth

Com

poun

ded

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

12-M

onth

Com

poun

ded

Grow

thGr

owth

US$

US$

US$

US$

US$

Grow

thGr

owth

US$

US$

US$

US$

US$

Grow

thGr

owth

Agra

40.1

%42

.5%

33.7

%30

.7%

47.0

%53

.1%

4.0%

$38

$35

$39

$41

$50

22.0

%7.

1%$1

5$1

5$1

3$1

3$2

486

.7%

11.4

%

Ahm

edab

ad50

.8%

55.8

%53

.2%

53.8

%62

.0%

15.2

%5.

1%62

6150

4551

13.3

%-4

.8%

3134

2724

3230

.6%

0.1%

Bang

alor

e64

.4%

69.8

%64

.3%

72.0

%79

.6%

10.6

%5.

4%70

8079

7810

332

.1%

10.1

%45

5651

5682

46.0

%16

.1%

Chen

nai

65.3

%64

.6%

56.5

%58

.3%

67.5

%15

.8%

0.8%

7985

7567

7613

.4%

-1.0

%52

5542

3951

31.3

%-0

.1%

Delh

i52

.9%

58.9

%53

.3%

60.4

%72

.4%

19.9

%8.

2%95

101

9285

917.

1%-1

.1%

5059

4951

6628

.3%

7.0%

Goa

53.3

%60

.6%

53.6

%60

.5%

56.9

%-6

.0%

1.6%

6365

5757

7124

.6%

3.0%

3439

3134

4017

.1%

4.7%

Hyde

raba

d61

.3%

69.1

%68

.0%

68.9

%75

.8%

10.0

%5.

5%43

5251

5362

17.0

%9.

6%26

3635

3747

28.7

%15

.6%

Jaip

ur47

.0%

55.0

%48

.3%

44.9

%58

.3%

29.8

%5.

5%45

6562

5764

12.3

%9.

2%21

3630

2637

45.8

%15

.2%

Kolk

ata

54.8

%62

.9%

66.4

%65

.4%

62.4

%-4

.6%

3.3%

8282

7261

656.

6%-5

.6%

4552

4840

411.

7%-2

.5%

Mum

bai

64.5

%64

.6%

52.0

%63

.4%

68.5

%8.

0%1.

5%13

012

410

487

936.

9%-8

.0%

8480

5455

6415

.5%

-6.6

%

Occu

panc

yAv

erag

eRa

teRe

vPAR


unprecedented increases. All the tencities we studied have seen a positivetrend in both occupancy and averagerate. Table 11 presents key operatingstatistics for five-star deluxe and fivestar hotel category in key cities, for theperiod April to August 2004.Comparisons with the correspondingperiod last year have also beenpresented, to illustrate the extent ofchange.

While all cities have seen increasesin rooms occupied per day (over theprevious year’s correspondingperiod), Goa (28.7%) is the marketleader, this is what has allowed thisleisure destination to absorb the newsupply increase of 23.8%. Mumbai(18.1%) has the second highestgrowth. In fact, of the seven citiesstudied by us, Hyderabad was theonly city to have a single-digitgrowth (9.4%). Chennai (17.9%)Bangalore (15.9%), New Delhi(12.9%) were the other strongperformers in the market.

In terms of average rate, Bangalore(58.4%), Hyderabad (21.2%), NewDelhi (9.7%) and Chennai (9.2%) haveall had increases. In fact Kolkata is theonly market which saw average ratesdecline marginally. Year-to-dateoccupancy for Bangalore at 80%means that there is not much potentialfor further increase in occupancy, asweekdays are mostly sold out.Strongly escalating demand hascaused hotels to push rates waybeyond what they should be gettingfor the quality of product they offer.This is certainly true of some of theproperties that never had a properrefurbishment and are now chargingexorbitant rates.

We would expect operators to raiseaverage rates strongly in Hyderabadas well. Recent indications are that thehotels in south Mumbai have alsostarted to see improvements inperformance. This effectively meansthat Mumbai is poised to see goodgrowth in terms of both occupancyand room rate increases as demandoutpaces supply. Goa and Delhi arealso expected to see some rateincreases. Traditionally, average ratesrise in October, therefore, our data is

not reflective of rate increases that arelikely to take place shortly. Many ofthese rates are negotiated rates withcorporates and travel agents whichwill come into effect as the peak seasonkicks in.

The most encouraging developmentduring the first five months of thecurrent year has been the healthyincrease in RevPAR across all cities.Bangalore (61.2%), followed byHyderabad (32.6%), have, for thesecond time in a row, witnessed thehighest growth in terms of RevPAR.Chennai (27.4%), Goa (23.0%) andNew Delhi (12.2%) have seen double-digit growths. Mumbai (9.9%) andKolkata (9.5%) also witnessed singledigit growth.

The Goa market has performedexceptionally well and in the years tocome will be one of the bestperforming markets. The city over thepast two years has seen substantialincreases in rooms supply, despitethis demand continues to outstripsupply, resulting in occupancies togo up marginally even in the currentyear. At present there is not muchnew hotel activity planned for Goa,making this one of the preferredlocation for investment. Anothermarket performing extremely well (butis not part of this survey) is the Punemarket.

The sharp upturn in Bangalore’sperformance is beyond what mosthotel owners and developers hadanticipated. Despite HVS havingforecast the city’s hotel market to doa sharp turnaround we, too, are takenby surprise by the extent ofimprovement. Existing hotel ownerscan expect a windfall gain this yearas well as for the next few years, untilnew supply enters the market. TheLeela Bangalore is amongst thebiggest beneficiaries; this hotel isalready setting records for highestaverage rates in the country for abusiness hotel (US$275 - US$300). Weunderstand that at least 9 hotels areplanning to enter Bangalore. As aresult, we can expect the market toslow down in two to three years withrates declining sharply.

The trends witnessed in Delhi in 2004have been quite positive, reinforcingour faith in the city. Occupancies havepicked up over the past few months,especially in hotels closer to Gurgaon.These hotels enjoy much healthieroccupancies than city centre hotelswhich, in fact, are pulling downoverall occupancy levels. Year-to-dateaverage rate growth is only 3.2%, butis anticipated to increase furtherduring the peak season. Also, with theproposed conversion of Kanishka toShangri la and Ashok Yatri Nivas’ re-development, we can expect furthercompetition within Delhi’s centralbusiness areas. The new TridentHilton (in Gurgaon) has been anextremely good performer and iscurrently market leader in terms ofRevPAR.

OpportunitiesOpportunities for the Indian hotelsector continue to be in the budget andmid-market segment: we anticipatethese segments to witness huge growthand expansion, in the next year or two.The luxury segment is set to performextremely well over the next few yearsuntil the supply- demand gap isbridged.

We expect average rates to grow in allmajor cities across India. Newopportunities lie in the extended staysegment, which many potentialdevelopers are currently shying awayfrom. Also, HVS has observed thatowners interested in developingextended stay properties are keen topartner with existing branded chainsalready operating in India. This,according to us, is an area wherespecialized serviced apartment chainslike Oakwood and Ascot havetremendous scope for involvement.This is particularly true indestinations that are near largeconcentrations of IT and relatedservices development.

Medical tourism could also be the nextbig thing, and, while we are yet to seeany development in this area, weconsider that there could be somepotential. If world class conventioncentres are indeed developed inMumbai, Delhi and Goa (as proposed,with government support), these cities


Table 11 : Supply and Demand Analysis: April – August 2004 vs. April – August 2003

are sure to benefit. Similarly the furtherliberalization of the aviation sectorwould mean additional tourists, andwith supply unable to keep pace withdemand, nearly all segments of thehotel industry would seeimprovement.

HVS is of the view that if you are notalready building a hotel in India, thenyou are late. The present period ofupswing however, we believe, will lastlonger than the previous period ofupturn (1995-97). There are clearindications that travel & tourism inIndia will grow faster now than everbefore this bodes well for the hotelindustry.

In last year’s edition of this report,we mentioned that Agra and Jaipurwere the weak links in the industry.Thanks to increase in both inboundand domestic tourism, the two citieshave experienced the strongestrecovery over the 12-month period.We expect this trend to persist intothe current year as tourist arrivalscontinue to go up. Agra, while havingseen highest improvement, has still along way to go (citywide occupancy47%). There also some unfinishedhotel projects in Agra, which willcontinue to put pressure on the city’sperformance. As regards Jaipur, therecent announcement by a major ITcompany to set up a base outsideJaipur, as well as the stategovernment’s initiative to promote IT-related activity in the city, means thatJaipur can look forward to some

additional room night demand fromthe business segment. Thesedevelopments in the leisure segmentincluding the strong performance inGoa leads us to believe that theleisure segment is clearly benefitingfrom the increase in foreign touristarrivals and growth in domestictravel. We also consider that in thefuture years new leisure destinationsin Kerela and other coastal areas willalso pick up. Recent announcementsby the Government of India topromote tourism in the Andaman andNicobar Islands could not thereforehave come at a better time.

Hotels in metro cities, with an averagerate of Rs 2,600-3,000, and hotels innon-metro cities, with an average rateof Rs 1,800-2,400, are likely toexperience rapid growth in demandin the next year or two. Cities to watchout for, in terms of developmentopportunity, are Pune, Goa, andcertain pockets in major cities likeDelhi (west) and Mumbai (mill lands).We would however, like to cautioninvestors to stay away from the current‘hotspots’ of Hyderabad, Bangaloreand Gurgaon, as large additions tosupply have been planned here. Thereal opportunity, we believe, is in agood mid-market or budget hotel ofinternational standards.

AcknowledgementsThe Hotels in India— Trends andOpportunities has been developed forthe benefit of employees, developers,investors and operators with an

Apr-Aug

2003

Apr-Aug

2004Var

Apr-Aug

2003

Apr-Aug

2004Var

Apr-Aug

2003

Apr-Aug

2004Var

Apr-Aug

2003

Apr-Aug

2004Var

Apr-Aug

2003

Apr-Aug

2004Var

Bangalore 1,347 1,534 13.9% 1,062 1,231 15.9% 79% 80% 1.8% 4,565 7,231 58.4% 3,599 5,803 61.2%

Chennai 1,381 1,388 0.5% 810 955 17.9% 59% 69% 17.3% 3,385 3,675 8.6% 1,985 2,529 27.4%

Goa 1,291 1,598 23.8% 533 686 28.7% 41% 43% 4.0% 2,737 3,237 18.3% 1,130 1,390 23.0%

Hyderabad 1,028 1,028 0.0% 690 755 9.4% 67% 73% 9.4% 2,806 3,400 21.2% 1,883 2,497 32.6%

Kolkata 1,143 1,150 0.6% 630 699 11.0% 55% 61% 10.3% 3,150 3,128 -0.7% 1,736 1,901 9.5%

Mumbai 4,377 5,159 17.9% 2,680 3,165 18.1% 61% 61% 0.2% 4,449 4,882 9.7% 2,724 2,995 9.9%

New Delhi 5,107 5,303 3.8% 2,975 3,359 12.9% 58% 63% 8.7% 3,972 4,100 3.2% 2,314 2,597 12.2%

Source: HVS International Research

RevPARRooms supply per day Rooms occupied per day Occupancy % Average Daily Rate (ADR)

interest in the tourism industry inIndia. The study has been madepossible only with the contributionand support of all the domestic andinternational hotel chains, to who HVSInternational would like to express itsgratitude and appreciation.

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About HVSHVS International has beenoperating in India for seven years.The HVS team has worked onprojects ranging from feasibility andmarketing studies; valuation ofhotels; residual land values;management contract values;operator search & managementcontract negotiations; developmentstrategies for new brands; impactanalysis; research reports,investment services and ECOTEL®

Certification. Our clients in Indiainclude Indian Hotels, EIH Ltd, ITCHotels, Hotel Leela Venture Ltd, FortePlc, Intercontinental Hotels & Resorts,Mandarin Oriental, CarlsonHospitality, Hyatt International,Hilton International, Choice


International, Silver link Holding,Lehman Bros., ICICI Bank, SunGroup, Emaar (Dubai) and the HeroGroup, among others.

In May 2001, we launched HVSExecutive Search, to cater to thestaffing needs of the hospitality andrelated services sectors like media,telecom and aviation. Apart frombeing the first retained search firmfor the hospitality industry in India,HVS Executive Search also providesservices in areas of HR Consultingand Compensation Survey &Design. In addition to its New Delhioffice, HVS Executive Search hasoffices in New York, London andHong Kong.

HVS Executive Search hasalso launched twowebsi tes : 2020skil ls .com andhospitalitycareernet.com . 2020Skills® is an internet- basedassessment tool specificallydesigned for service industryprofessionals, for assessingperformance characteristics andcultural compatibility. 2020 Skills®

was authored by professors FlorenceBerger and Judy Brownell of theCornell University School of HotelAdministration and HVS Executivesearch. The assessment profile hasthree unique levels: senior, mid-management, and line. The site canbe accessed at www.2020skills.com.www.hospitalitycareernet.com is aweb site that provides state-of-the-art solutions for employment news,career advice, compensationassessment, and more. It has becomeone of the most efficient ways torecruit, hire, and retain employees.

The New Delhi office of HVSInternational is also responsible forall ECOTEL® certifications-forenvironmentally sensitive hotels.There are currently four hotels withEcotel certification with another fiveunder development in different partsof Asia.

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from New York University (NYU), prior to which he completed his undergraduateeducation in hotel management at NYU.

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