HOTELS IN INDIA— TRENDS & OPPORTUNITIES 2007 Edition This edition has been published by the New Delhi office of HVS Hospitality Services. www.hvs.com Introduction future opportunities for the hotel developed in major cities over the HVS has been in the forefront of industry across key markets in next five years. For each city we providing strategic advisory for India. As always, apart from have presented the number of virtually every major industry conducting specific research for new hotels under various stages participant for the past 11 years. this publication, we have of development, their market Having reviewed the market included macro data provided by orientation and suggested the performance for over a decade, the Department of Tourism. The active development ratio. As in it has been particularly publication briefly discusses the previous editions of this report, interesting to observe and draw tourism industry in India in the we have, once again, presented statistical co-relation on context of the present economic our assessment of industry trends benchmark performances, scenario and presents the results and development opportunities; market segments and demo- of our survey on the performance this is included as part of the graphic customer profiles for the of mostly branded hotels, ‘Future Trends’ section. Detailed industry over the long-term analysed by each segment of the analysis of new hotel supply has horizon. This eleventh edition of hotel market, as well as by major allowed us to predict the kind of HVS’s Hotels in India - Trends and cities. man-power requirements the Opportunities publication country needs to just match up provides us with a unique The hospitality boom in India is to the expected growth. opportunity to understand led not only by the buoyancy in industry dynamics through the Indian economy, but also by In addition to this document, we twelve years of performance the supply-demand imbalance publish The Indian Hotel Industry trends representing periods of that currently exists in most Survey on an annual basis, in peaks and troughs. cities. Therefore, in the 2007 edition we have focused association with the Federation The article also assesses current extensively on the quantum and of Hotel & Restaurant trends and presents our views on classification of new hotels being Associations of India (FHRAI). This publication, the only one of Table 1: Number of Respondents its kind in India, provides 400 400 detailed financial and operating information on the hotel 300 300 industry, analysed by star category, across all major cities in the country. The next edition 200 200 (2006/07) will be available by the end of the year. Number of Hotels 100 100 Number of Rooms (00's) This year, a record 268 hotels with a total of 34,784 rooms, partici- 0 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 pated in our survey. Table 1 illustrates survey participation for Number of Rooms (00's) Number of Hotels Average Number of Rooms Per Hotel the years 2001/02 to 2006/07. HVS Hospitality Services Hotels in India - Trends & Opportunities 2001 1 The Indian Economy - An population and plays an Business Services witnessed a Overview important role in the Indian slowdown, growing by 10.6% in Rapid growth and strong macro- economy, volatility in agricultural 2006/07 as compared to 10.9% economic fundamentals have production has serious recorded in 2005/06, as per characterised developments in implications for the country’s independent sources. the Indian economy in the past overall growth as witnessed with financial year. GDP is estimated regards to inflation in the last The inflation rate at the beginning to have grown at a robust 9.4% financial year. of 2006/07 stood at 3.9% with an during 2006/07 as against 9.0% upward trend through the year in 2005/06. The only time the The industrial sector, improving ending at 6.9% in March 2007. economy has grown faster was in consistently over the last five Inflationary pressures may be 1988/89. This acceleration in years, grew at 11.1% in 2006/07 attributed to both demand and growth rates was led by propelled by the robust growth of supply trends. According to the Industrial and Services sector the Manufacturing sub-sector Reserve Bank of India (RBI), activities, which exhibited (12.3% in 2006/07). According to demand pressures stemmed from double-digit growth. Increase in the Economic Survey 2006/07, elevated asset prices and high tourist arrivals and visits, Industry had never consistently investment and consumption augmentation of grown at over 7.0% per year for demand, while supply side telecommunication services, more than three years in a row pressures emanated from low escalated development in before 2004/05. This sustained domestic production of major Information Technology (IT) & IT growth has led to increased food grains amidst rising global enabled Services (ITeS) and investments and efficiency in prices. Using the various improvement in the financial utilization of capital. It is believed instruments at its disposal, the services sector has kept the that the Industrial sector would RBI has tried to contain the Services sector buoyant in recent have performed better had the inflation in this financial year years. Maintaining the trend Mining and Quarrying sub-sector effectively and aims at containing highlighted last year, this sector achieved higher growth. it at below 5.0%. continues to be a major demand Electricity, Gas and Water supply generator for room nights in most grew by 7.2% in 2006/07 as Furthermore, 2006/07 saw the of the primary cities and against 5.3% in 2005/06. The Indian rupee gaining strongly increasingly in the secondary Construction sector, though a against the US dollar. The Indian cities of India. The impact on major propeller of GDP, showed rupee stood at 44.9 to the US travel expenditure budgets by the a decline as compared to last year dollar in April 2006, after which IT sector due to recent pressures because of rising interest rates. it gained strength and touched on margins owing to rupee 43.1 by March 2007 averaging to appreciation is also likely to The Services sector showed a 43.6 for the previous financial influence demand in the short to healthy growth of 11.2% in 2006/ year. We expect the currency to medium term. 07 as compared to 9.8% in 2005/ remain strong in the short term 06 benefiting from the availability as it is being driven by capital Growth in Agriculture and Allied of skilled labour. Trade, Hotels, flows and strong demand for activities decelerated from 6.0% Transport and Communication exports. To substantiate the in 2005/06 to 2.7% in 2006/07 continued to develop at an above, the Indian rupee has resulting in its declining share in accelerated pace recording a remained on an upward the overall GDP of the country. growth of 13.0% during 2006/07 trajectory ranging between 39.0 This was attributed to uneven as against 10.4% in 2005/06. and 41.0 against the US dollar in rainfall, low investment, Community, Social and Personal 2007/08. imbalance in fertilizer use, Services continued to expand at distorted incentive system and 7.8% in 2006/07 showing Going forward, this financial year low post-harvest value addition. marginal increase over the has witnessed the adoption of a As this sector still employs a previous financial year. Financial, single currency system by substantial section of the Insurance, Real Estate and hoteliers across the country due 2 Hotels in India - Trends & Opportunities 2001 HVS Hospitality Services to the weakening of the dollar been lagging behind the world in merged. Kingfisher Airlines also against the rupee. It is believed promoting exports through aims at using this ally to fly that there is more value for money Special Economic Zones (SEZs), abroad in case the government earned in rupees resulting in a it is slowly catching up owing to does not relax the five-year decision to price hotel services in the considerable change in the domestic operation norm for rupees. Foreign customers government’s outlook and Indian carriers. however, are given the option to policies towards SEZs. The SEZ settle their bills in an international Act 2005 along with the two Low fare airlines, namely, Air currency. amendments (August 2006 and Deccan, SpiceJet and GoAir and March 2007) has led to certain other existing airlines have A well-performing global regulations being done away increased their frequency of economy has provided an with and the process of starting operations in the existing environment within the country, a business has been simplified by domestic sectors and started which is conducive to develop- bringing in the single window flights to new sectors also. New ment. Purely for monetary policy clearance policy. The policy low fare airlines namely IndiGo purposes, the RBI - in its Annual allows 100% FDI in most and Indus Air have also started Statement in April 2007 - has manufacturing activities and the operations in 2006/07. positioned the real GDP growth government is also looking at Cumulatively, all the players in removing sectoral FDI caps in all this sector have contributed for the current financial year at sectors for units located in SEZs. significantly towards domestic air around 8.5% exclusive of any Most of the SEZs in the country passenger traffic showing an significant internal or external are presently located in the south increase by 38.5% in 2006/07 as developments. followed by west, north, east and compared to 2005/06. central India. International passenger traffic The Congress-led United registered an increase of 15.1% in Progressive Alliance (UPA) has Airport Infrastructure the same period.