The Hindu Business Line : Move to hike room rates — Low tariffs in S-E Asia worries hotel industry

A FURTHER hike in room rates in Indian hotels, forecast by a section of the industry, has triggered a debate on whether the sector's competitiveness would be affected regionally, especially when tariffs are low in neighbouring countries.

When the Federation of Hotel & Restaurant Associations of India (FHRAI) concluded its 2002-2003 survey (across 20 cities), the average all-India room rate was Rs 2,004 ($44.22 at Wednesday's exchange rate of Rs 45.31/ dollar). The average five-star room in New Delhi cost Rs 4,319 ($95, around $110 including taxes).

For 2003-2004, it has been predicted that the average all-India occupancy could be near 70 per cent and the average room rate won't be below Rs 3,000 ($66).

In Bangalore, an industry source said, luxury rooms touched Rs 8,000 ($176). Betraying the trend, The Indian Hotels Company Ltd (IHCL) last week reported a 50 per cent rise in FY04 profit after tax at Rs 60.65 crore (total income Rs 696.07 crore).

Mr Zubin Dubash, Executive Director, IHCL, said at a press briefing, this fiscal the focus would be on enhancing room revenues. Rates were increased in FY04 and the market appeared strong enough to host a revision this fiscal too, even if it were on a higher base.

"You are lucky if you get a room any time of the year in Bangalore," Mr Mark Greedy, Vice-President (Asia / Pacific), The Leading Hotels of the World Ltd, said. Higher room supply in Mumbai and Delhi looked digested already. In India, The Leading Hotels, a luxury hotels marketer, is associated with both the Taj and Oberoi hotel chains with 13 properties from both currently in its portfolio and four more on the anvil.

"There is scope for rate revision," Mr Greedy said. Experience at The Leading Hotels has been that of a luxury segment that doesn't flinch at rate revision as long as the product is dot on.

Still, Indian officials travelling abroad cite low room rates offered under corporate accounts in South-East Asia, particularly in Singapore.

It was about S$100, complimentary breakfast included, at one of the city's Holiday Inn hotels, a senior executive recalled. "If Indian hotel majors hike room rates further in FY05, won't it affect their competitiveness in the region?" he asked.

Closer home, Sri Lanka has good rooms going for $50, its business gaining impetus from Colombo's emergence as a regional airline hub with Indian carriers now feeding into it.

Singapore's attraction with fine rooms retailing at S$170, Mr Greedy said, partly stems from a regulated inventory designed to preserve the island nation's status as a business hub. Kuala Lumpur, suffered from an over supply of rooms that pulled rates down. But they can't go any lower and the destination marketing on for Malaysia and its capital city should push up rates.

Indonesia is on the rebound and in Hong Kong luxury rates are back to what they were a month before SARS, at around $400 . Korea, similarly priced, has high demand and low supply while Japan's indulgent domestic clientele keeps its luxury tariff at $500.

"In general, Asia's hotel industry is experiencing an upturn in business and has recovered from the decline associated with 9/11, SARS and bird flu," Mr David N. Prince, General Manager (Franchise Operations - India), Hilton International, said.

Each market is unique and room rates are necessarily a product of demand-supply and economic growth. Further, business traffic won't easily change destination because it is driven by market-specific economic factors. Leisure travel, which can shift, is on the other hand product or locale-specific. "Room rates are not as important as product, destination or brand in deciding travel," Mr Prince said. As for conventions, the market is propelled by national infrastructure, not room rates on offer.

Broadly, therefore, the verdict is, Indian hotels can revise rates without losing to regional competition. While that may be so, the real cause for concern is the way Indian hotels push up tariffs. An official at one of the industry associations pointed out, both corporate and domestic leisure travel increased by 25 per cent in the last 8-12 months. "If this continues, we will need another couple of thousand rooms over the next one year," he said.

Problem is the Indian habit of grooming a premium, before bringing in fresh inventory. Such rate spikes put off travellers, giving competitive advantage to nearby markets. "The market is buoyant in neighbouring countries and we are seeing a hike in room rates there too," a Mumbai-based senior industry official who did not wish to be named, said. The sector will see how competition abroad moves and position its rates appropriately, he assured.