For global hospitality chain Starwood Hotels, India is fast inching its way to being its top market. Frits van Paasschen, President and Chief Executive Officer, Starwood Hotels and Resorts, says India is set to surge ahead of Canada and become its third largest market.

Eight of the chain's nine brands (Le Meridien, Westin, Four Points, W, The Luxury Collection, aloft, St. Regis, Sheraton) are either already present in India or going to be added soon. Excerpts from an exclusive interview with BrandLine:

Starwood Hotels is the only company that has not taken an equity position in the Indian hotel industry. Do you plan toinvest in hotels here?

The core of our strategy is to manage hotels and as a general strategic direction, we are not looking to invest in real estate projects.

However, before you conclude we are not investing in India, we are investing in creating the organisation, the management team, the call centres and adapting and creating our brands for this market. And we do have a view that we will continue to engage in any opportunistic investment which helps us develop our pipeline. We have told our investors, as a company, our target is to have 80 per cent of our profitability driven by management and franchisee agreements.

Are we going to announce an equity investment with an owner in India? Probably not. But I am not ruling it out. We have been able to open more hotels than our global competitors in India and we have not felt the need to subsidise our brand from a real estate investment perspective.

How is the growth in India panning out for Starwood?

In India the real opportunity is to continuously grow supply in the right possible way. On one hand, we are working towards opening hotels as quickly as possible and on the other hand, we think it's important to be patient to do things right.

Today we have 33 hotels operational in India and 23 hotels are in some form of development. Internally we talk about our plan to have 100 operational hotels by 2015 which reflects the underlying forces of the growing demand in the country.

In terms of the pipeline of hotels, India has already surpassed our third largest market, Canada, where we have 60 hotels. But in terms of operational hotels, India is expected to become our third largest market in the next 24 months.

Several Indian cities are witnessing an oversupply of hotel rooms. How do you view these challenges?

There are certain challenges in the Indian market. The gestation period for building hotels is nearly 5-6 years compared to 2-3 years in other cities. Also, the cost of capital to build hotels is a challenge. Because it is difficult to develop hotels in the country, it leads to massive shortage and leads to an artificial increase in rates. This puts pressure to overcome the impediments to open and operate more hotels, which is followed by a massive influx of hotels which leads to an oversupply. But we usually sign management contracts with our partners for at least 20 years and sometimes 50 years.

The supply is absorbed faster than we think. In fact, supply creates its own demand.

What is the potential you see for the luxury hotel market in the country considering there are strong Indian brands in this space too?

Our strength in the luxury segment is the fact that we have three different brands positioned in the luxury segment – Luxury Collection, St. Regis and W.

They are three different stances on what luxury means. I don't think any brand can compete locally or globally with W and as it appeals to the universal consumer at the same time being locally relevant. St. Regis as a brand did not emerge outside of being a single hotel until 1998.

We are reinterpreting traditional luxury through that brand. What comes behind is the infrastructure of Starwood. Our loyalty programme at our luxury brands is a higher percentage of occupancies than the rest of the brands.

The sales infrastructure cannot be replicated by the local brands.

What about your brand Element? Will you introduce that here?

As far as Element, which is an extended stay brand, is concerned, I think there is place for it in the Indian market and its economic model points to its great viability. We are seeing an interest from the developer community who want to develop a portfolio of hotels.

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