Economy

Hospitality sector: From ‘Whitney Rack’ to electronic reservation systems

Meenakshi Verma Ambwani | Updated on August 27, 2013

Global players have been the drivers of industry’s growth the past two decades



Dilip Puri‘s first memory of working in the hotel industry is checking the guest reservation system manually through what is called the Whitney Rack System.

Long before the electronic reservation systems became common, luxury hotels used large racks for keeping information related to reservations on colour-coded slips.

Puri, who is the Managing Director – India and Regional Vice-President South Asia at Starwood Hotels and Resorts, remembers how three times a day, the operations staff would check the rack for information on guests arrivals.

Cut to 2013, travellers are using mobile apps to book rooms with a touch of a finger. While Indian travellers’ affluence has grown, so has the access to Internet and smartphones.

Online travel aggregators are tying up with hotels to sell more and more hotel and holiday packages; hotels themselves are launching snazzy apps. From the ease of booking hotels to the plethora of brands and hotel chains to choose from, the Indian travellers are spoilt for choice.

Siddharth Thaker, Managing Partner - Prognosis Global Consulting, said, “The supply of branded hotel rooms in India has increased from an estimated 20,000 rooms 20 years back to approximately 94,000 rooms in 2013-14. The number of international brands has gone up from six to approximately 40 brands during this period.”

Consider this: According to Ministry of Tourism estimates, in 1997, foreign tourist arrivals stood at 2.37 millions which grew to 6.58 millions in 2012. Last year, 14.92 millions went abroad which was a mere 3.73 millions in 1997.

In 1997, about 160 million travelled within the country, which has grown nearly seven times to 1,036.35 million in 2012. The massive growth in domestic tourism and inflow of international tourists have led to organised hotels foraying into the key metros but also tier I, tier II and now even tier III cities.

Going down memory lane, Starwood’s Puri said, “In the past 20 years, the hotel industry has seen two phases of accelerated growth and downturn, leading to a landscape that is now crowded with all major international players and domestic players, with multiple brands competing for a share of the pie.”

He said despite the demand-supply imbalances, India still has fewer numbers of rooms in comparison to key cities around the world.

Economic Liberalisation

The economic liberalisation in the 1990s first fuelled the growth of the hotel industry, believe industry experts. This also led to the growth of hotel rooms in the organised sector known as branded hotel rooms and made international hotel chains eye a share of the pie.

“The opening of the economy in the 1990s, development of infrastructure, opening of new airports as well as increase in domestic and international travel, entry of international players all were the key drivers for the growth of the industry in the past two decades,” said Ajay Bakaya, Executive Director, Sarovar Hotels.

Cyclical Nature

The industry, which is cyclical in nature, has witnessed its own share of ups and downs in the past two decades.

According to a HVS White Paper (2009), a series of domestic and international events during 1998-2004 led to reduced commercial and leisure travel, putting pressure on hotel rates and occupancies leading to stagnation in hotel development activity.

Right from the economic sanctions on India in 1999 after Pokhran Nuclear test to the 9/11 attacks in the US and from the Kargil War to the SARS epidemic in Asia in 2002-03, all impacted the hotel industry adversely. Nonetheless, international hotels started coming in through franchise agreements with Indian players.

Even though the industry saw challenges between 1998 and2003, industry veterans call the period from 2004 to the first half of 2008 the “golden phase” of the hotel industry. Thanks to a consistent GDP growth, increase in business and leisure tourism created an acute demand-supply imbalance. Hotels raised room rates exponentially and yet occupancies peaked. This led international and domestic players to come up with ambitious plans to set up new hotels in this “heady” phase of hotel growth. These plans were announced just before the global economic crisis. The economic slump and cautious business sentiments, eventually led to delays in construction of projects and in some cases, companies even shelved their plans.

The past five years have been the most important in the expansion of hotels in the country, compared to the past 15 years. According to HVS’ latest estimates, a large chunk of India’s 93,000 branded hotel rooms came in the past five years.

In its latest, Trends and Opportunities report, HVS stated that supply increased at a CAGR of 17.8 per cent between 2008-09 and 2012-13.

“As a result of such aggressive increases in supply, a majority of the branded hotels in the country are less than five years old, which basically means that interestingly, a large part of this supply was proposed in 2006 and 2007 when a shortage of hotel rooms led to a sharp increase in occupancy and average rate in different markets, and led investors of all kinds to jump headlong into the sector, with the belief that such results could be consistently attained irrespective of the amount of new supply that was being added.” it said.

Mid-Market Segment

Just as low-cost airlines changed air travel in the country, Patu Keswani, Chairman and Managing Director, Lemon Tree Hotels, believes the growth of mid-market and budget hotels have been game changers in the industry.

“The increase in supply of hotel rooms which served latent demand as well as the growth of hotel rooms in categories beyond the five-star and luxury sector have been important in the growth of the industry,” he added. HVS estimates nearly half of the hotel inventory in India now consists of mid market hotels. Most domestic players who were earlier only focusing on luxury and five-star hotels have also gradually moved to building mid-market and budget segments.

While players like Taj Hotels and ITC Hotels have been expanding hotel rooms across various categories for some time, those like the Lalit Hotel and Park Hotel have been the latest entrants in the mid-market space.

This phase also saw emergence of entrepreneurs like Keswani, who launched brands like Lemon Tree Hotels and Red Fox in the mid market segment. Keswani feels the high cost of land in India is a challenge in the expansion of mid-scale hotels.

International hotel chains have also increased their presence in India in the last seven years as most are racing to launch their brands across segments in the country.

From plain vanilla franchisee agreements, a lot of the players also have moved into management contracts with Indian companies to keep their brand standards intact.

“India is a long term strategic growth market for all international hotel companies and hotel developers have the option to choose from their entire range of brands ranging from luxury, deluxe to economy.

“Beijing has more hotel rooms than the whole of India, this indicates the long term potential for hotels in India,” added Thaker.

Two reasons have been driving international hotels’ greater focus on the Indian market. Not only are they looking to tap into the fast growing domestic demand, they also want to capture the opportunities emerging out of the fast growing outbound market.

International hotels have been trying to woo more and more Indians to become members of their loyalty programmes so that consumers find benefits in sticking to their hotels even when travelling abroad.

At the same time, international hotel chains have had to tweak their business models for India. “International players always have had to raise the service standards for the Indian consumer.

International mid-market hotels in India offer higher service standards and have tweaked their formats compared to what they offer in other global locations,” Keswani added.

Even the domestic players have been looking for faster expansion through management contracts. Building a hotel in India takes much longer than in some of the other countries. According to the estimates, building a 100-room hotel globally takes as much as 12-18 months but in India it takes nearly 36-42 months.

Employment generation

The hotel industry is not only known for its contribution to Indian’s foreign exchange earnings but also to employment generation.

Puri believes India has also emerged as a key talent source for the hotel industry globally. “Earlier, the hotel industry was not among the top jobs for youngsters but now there is a talent crunch in the industry,” he said.

Current Slowdown

The current economic slowdown as well as the oversupply of hotel rooms coming up in the last five years is putting pressures on occupancies as well as room rates for the hotel industry.

Keswani said, “Impact of economic slowdown on demand for hotel rooms and oversupply of hotels in key locations in the country are currently creating challenges for the industry. Also long timelines required to build new hotels, cost of debt financing, high land costs and the hotel industry not having infrastructure status are also key problems for the industry.”

Bakaya added that cost of human resources and energy costs are areas of concern for the industry.

Outlook

Some hoteliers like Puri believes by 2014, as the new supply of hotel rooms tapers down and with the political and economic climate hopefully stabilising, the hotel industry could see the return of good times.

He said he expected to see better times for the industry in the next 12-18 months. Others feel it is difficult to predict how the industry weathers the latest downturn.

meenakshi.v@thehindu.co.in

Published on August 27, 2013

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor