Travel and tourism contributes a tenth of the global GDP. Last year, global travellers made over 1.2 billion trips. This number is forecast to grow to 1.8 billion by 2030. Lodging, therefore, would continue to be among the best global growth markets.

The past five years have seen the Indian lodging sector deliver a muted performance; this year marks the start of an extended up-cycle. Supply that grew in double digits has petered down to sub-9 per cent, and is expected to maintain a single-digit trot over the next 4-5 years. Aggregate room demand has picked up pace, growing over 16 per cent last year and forecast to maintain momentum.

This buoyancy is also reflected in the airline sector, growing over 17 per cent in domestic passenger traffic, from 100 million passengers in 2016 to 117 million in 2017, and expected to reach 150 million by March 2019.

A quick comparison with China highlights the scale of opportunity. China has 307 hotel rooms per 100,000 people; India has only 18.

In India, 320,000 people travel by air daily. Assuming half do return journeys, 160,000 need a place to stay each night. Additionally, 80,000 international visitors need a place every day. This adds up to a requirement of 240,000 beds each night.

Around 1.3 million people travel daily on the Railways. Bisecting the demand for return journeys, 650,000 need a place to stay. Surface transport (cars and buses) load is estimated to be over 1.2 million people every day — a daily lodging demand of 600,000. Thus, the aggregate daily lodging requirement is a whopping 1.5 million beds.

This massive opportunity comes along with three key disruptors that will shape the industry.

Consolidation, new models

Shared economy and peer-to-peer commerce is changing the traditional model of ownership and returns. Airbnb, with its $31-billion valuation, is ahead of InterContinental Hotels Group, Hilton or Hyatt, without owning any hotel real estate.

Separately, consolidation is creating huge scale and sustainable opportunities as evidenced in Marriott’s $13.6-billion buy of Starwood or Accor’s $7.2-billion buy of Fairmont, Raffles and Swissotel, and Accor acquiring Onefinestay for $169 million.

Closer home, OYO Rooms has raised close to $450 million, backed by SoftBank. MakeMyTrip’s acquisition of Ibibo Group, and Sarovar Hotels’ acquisition by Jin Jiang-owned Louvre Hotels demonstrate the urge to control market share by consolidation.

Small- to mid-size firms would experience margin compression. Hotel ownership would rapidly shift to institutional wealth funds and pension funds looking for sustainable returns.

Technology

A large part of the enterprise value of hospitality firms would be derived from their digital assets. For lodging businesses, data management would yield arbitrage greater than that of asset management.

Google, Tencent, Naspers, Alibaba Group, Ctrip and Priceline will deepen their vertical investment in travel. Hospitality firms will need to consider capital reserves for long-term technology investments.

Demographics

With the average age at 28 years, India is a youth-lead economy.

A million people get released into the workforce in India every month, adding to the domestic travel market of over 1.3 billion trips a year.

Also, India added over 90 million people to its urban cities over the last decade.

Such urban clusters have had an unforeseen impact on leisure travel.

Leisure travel, which used to be niche and seasonal, is now mainstream. Hotel firms will benefit from introducing lifestyle brands that speak to these aspirations.

The writer is Member, National Tourism Committee, Confederation of Indian Industry (CII).

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