Luxe class

To awaken quite alone in a strange town,” wrote twentieth century explorer and travel writer Freya Stark, “is one of the pleasantest sensations in the world. You are surrounded by adventure.”

Writing in the last millennium about her frequent travels through West Asia and Afghanistan, Stark’s world is starkly different from the India of the twenty-first century, except for the passionate love for hotels.

Leading global hotel chains, Marriott, Starwood, Carlson Rezidor and InterContinental Hotel, are on the expansion mode in India.

They are scaling up their operations, at a rate, possibly faster than national hotel chains, adding substantially to the number of their properties in the country.

Not without reason. The demand for hotel rooms in India is expected to increase between 12 per cent and 15 per cent at the very least, over the next few years, while supply will expand at a slower pace.

The hotel occupancy rate across India, on an average had crossed 60 per cent by the end of 2015 - for the first time in five years - on the back of improved market sentiment.

A rise in domestic travel and government initiatives such as Make in India, Digital India and the e-visa scheme, are expected to propel the demand for hotel rooms further.

Add to it the element of corporate rivalry. Transnational hotel chains are keen on strengthening their position with online travel agencies and taking on market disruptors like Airbnb.

If things go according to plan, these global hotel chains, who in any case own almost half the branded rooms offered in the country at the moment, seem well set to surge ahead of their Indian rivals by 2020.

A recent study by the leading global hotel consultancy firm HVS South Asia, India, reveals that the country has 125,000 branded hotel rooms, which will grow to 155,000 by 2020.

Take Nasdaq-listed Marriott International Inc, the world’s largest hotel chain headquartered in Maryland, US. It is gearing up to put in place 85 hotels under 15 brands from the group’s stable across India.

The US-based hotel chain, which is present across 19 locations in this country, will soon be visible at 33 other spots, top company officials say. In September last year, Marriott International acquired Starwood for $13 billion to become the world's largest hotel chain.

Says Rajeev Menon, chief operating officer, Asia Pacific (excluding Greater China), Marriott International Inc., “India is the second biggest market for Marriott outside China and recognising the growth potential, we will also grow significantly in the country. We will grow both in the luxury category and in the tertiary sector, that is tier-II cities.”

The group recently threw open JW Marriott Hotel Kolkata, the first hotel in the City of Joy and eastern India by Marriott International and the eighth hotel in India from the JW Marriott Hotels & Resorts’ stable.

The latest offering is a 281-key hotel with 50-unit services residency called Vivara. Interestingly, the hotel was thrown open with occupancy of more than 50 per cent and significant banquet booking for the first month itself.

Two leading realty players, Mani Group and Sattva Group with a total capital outlay of Rs 1,200 crore, developed the property. The duo are coming up with another 130-room property, Courtyard by Marriott in Siliguri, Bengal, which will be thrown open this year.

Neeraj Govil, area vice president, South Asia, Marriott International, says at present 194 big ticket accounts of the hotel chain in India are headquartered in Kolkata, reflecting the potential of Bengal’s capital. The Kolkata property incidentally would aggressively focus on SMEs and meetings, incentives, conferences and events (MICE) business, he points out.

InterContinental Hotels Group (IHG), one of the world’s largest hotel chains, concurs. For IHG, India is the third most important growth market after the US and China.

IHG, which has 29 hotels in India under four brands, InterContinental Hotels & Resorts, Crown Plaza, Holiday Inn and Holiday Inn Express, will add 41 more branches over the next three-five years or so.

That is not all. Shantha de Silva, head of South West Asia, IHG, points out that the leading hotel chain has also lined up an ambitious plan of putting in place 100-150 hotels across India over the next 10 years, bringing in more brands from its global portfolio.

IHG has labels like InterContinental Hotels & Resorts, Crown Plaza, Holiday Inn, Holiday Inn Express, Holiday Inn Hotels & Resorts, Holiday Inn Club Vacations, IHG Rewards Club, Candlewood, Staybridge, Kimpton, Hotel Indigo, EVEN Hotels and Hualuxe. By any reckoning, it is an impressive lineup.

Quite like Marriott, IHG has also thrown open its first Holiday Inn hotel in eastern India recently. Again similar to Marriott, IHG had also teamed up with a leading local developer, Jain Group, to showcase Holiday Inn in east India.

De Silva says the group is looking to tap tier-II, tier III cities and smaller towns in India with its various brands.

It already has two such new properties in the pipeline - one at Durgapur and another at Siliguri- both in West Bengal, with the Jain Group as the developer.

While the Kolkata property of Holiday Inn offers 137 rooms and 6,500 sq ft of banquet facilities, the Durgapur Holiday Inn and Siliguri Holiday Inn will come up with 127 keys and 135/140 keys respectively with nearly 15,000 sq ft of banqueting facility.

Kenneth Scott, general manager, Holiday Inn Kolkata Airport, says they were looking at 58 per cent room occupancy in the initial months, plus the banqueting business. They too expect business travelers and MICE to be the prime drivers of business for the hotel.

IHG has also signed a 20-year management contract with Duet India Hotels, the hotel investment arm of global asset manager Duet Group, to launch 19 Holiday Inn Express hotels in India.

Duet India Hotels has set aside around $145 million (Rs 650 crore) for the project. IHG, which will run the hotels and formulate expansion plans, is in the process of putting in nearly $30 million for a 24 per ent stake in the venture.

Many analysts believe that room rate planning is one of the crucial challenges that these hoteliers face, the absence of which has often marred the sector.

In a recent report, Achin Khanna, managing director of consulting and valuation at HVS South Asia and Diksha Chopra, analyst, point out, “Most hotel companies make vociferous claims that their global brands are the bee's knees. However, one finds sparse evidence of that in their average rate strategy. A marginal ADR increase in a brawny occupancy environment does not point to an acute understanding of revenue management. Most hotel companies prefer the asset-light, management contract-driven path for their growth in India (and the broader Asia Pacific region) and one wonders if they are harnessing the requisite talent that can do justice to the revenue management discipline that is a key influencer in the profitability of hotels. In fact, firms that can offer quality third-party management or hands-on asset management to hotel owners are likely to have an important role in the future.”

Points out a sector analyst: “International chains are expanding faster than their Indian counterparts primarily because they only manage hotels. Large Indian hotel groups like Taj, Oberoi, ITC and The Leela, all have for years been focused on owning and operating their hotels. It is only in recent times that Indian chains have started looking at management contracts as a serious growth model, while international brands have been doing this globally since decades and in India, for at least a decade. Actually Indian hotel chains were forced to turn asset-light and realise the need to expand through management contracts, thanks to increasingly higher cost of land and growing levels of debt.”

The French hospitality firm- AccorHotels, which, currently has 46 hotels with a total of over 8,700 rooms in India under 10 brands including Pullman, Novotel, Ibis, Formule1, Fairmont and Sofitel, among others, ranging from luxury to economy spread across 19 cities, has also adopted the asset light model to expand in India.

For its Guwahati property, for instance, the French Hotel group has teamed up with the Assam-based SM JDB Estate Private Limited.

Says SK Jain, chairman, SM JDB Estate Pvt Ltd & CMD, SM Group: “It is indeed a pleasure for us to partner with AccorHotels to introduce the first Novotel in Guwahati. We have used the best resources available globally to ensure that the people of North-East receive the highest standards of services, which is long overdue and bridge the gaps that exist for a city-centre upscale property.”

A senior official of AccorHotels justified their decision to come up with a hotel property in Assam, saying that Guwahati happens to be the gateway to the seven sisters in North East and over the years, has emerged as an important commercial hub, not just within the region, but also all of South East Asia.

Accor’s next port of call in the North East will be Shillong, pursuing the same model. It is also looking at cities like Lucknow, Nagpur and Coimbatore.

The group is actually pushing hard its budget and mid-market brands, Ibis and Novotel: seven new Ibis hotels and 13 more Novotel hotels are slated to come up in the next three years in India.

It has also set up an investment fund with global travel services firm Interglobe to back up its future expansion plans in the country.

Interestingly, although the rising demand for hotel rooms in India is in the mid scale sector, there are actually more five-star rooms than mid-market ones.

According to many hoteliers, the maximum growth in the days to come is expected from the mid-market segment, or hotels with a room tariff of around $100 (Rs 4,500) per night in big Indian cities.

A recent Deloitte report, quoting statistics from the ministry of tourism, states that the current shortage of rooms stands at nearly 150,000 and most of it is in the mid-market segment.

Just 15 per cent of the existing hotel rooms in India fall in the mid-market segment, compared to 43 per cent in the United States and 35 per cent in Britain, the report said. The room supply structure in India currently is like an inverted pyramid, which is set to change.

An HVS study points out that the sustained growth of this industry can be attributed to the rising middle class, infrastructural reforms, increase in international tourist arrivals and tourism-friendly visa policies such as the extension of e-tourist visa to 150 countries.

Quoting the World Travel & Tourism Council's (WTTC's) Economic Impact 2016 - India Report, it says that the total contribution of travel and tourism to the GDP was Rs 8,309.4 billion (6.3 per cent of the GDP) in 2015. This will eventually reach Rs 18,362.2 billion (7.2 per cent of the GDP) by 2026, it predicts.

International tourist arrivals (ITA) grew by 4.2 per cent in 2015, registering a compounded annual growth rate (CAGR) of 6.2 per cent during the past five years.

The top three source markets for India during the last three-four years continued to be the US (15.1 per cent), followed by Bangladesh (14.1 per cent) and the UK (10.8 per cent).

Branding the e-tourist visa facility as the key initiative, which has boosted arrivals of international tourists in India, the HVS study points out: “As per the ministry of tourism figures, a total of 5,40,396 visitors arrived on an e-tourist visa between January and July last year, as compared to 1,47,690 during the same period in 2015 - a whopping 266 per cent increase.”

With the facility being extended to more countries, this number will go up even further.

Little wonder therefore that AccorHotels plans to add substantially to the nine hotels they already have in India, taking this number eventually to 90 over the next few years. Its final target is to offer a total of over 10,000 rooms across its India properties.

Significantly, IHG's Holiday Inn Express Hotel chain is tailored for the mid-market segment. It is one of the fastest-growing brands in the world, opening two hotels a week on an average, globally speaking.

Considering that seven of the 12 hotels that the IHG currently runs in India are in the luxury segment, the new scheme of things and the expansion plans clearly reflect the changed strategy of the brand as a long term player over the next one decade or so.

It follows naturally that a number of leading global hotel chains have planned massive investments in India's mid-market segment in the next four-five years.

The current thrust of Starwood Hotels and Resorts Worldwide (now taken over by Marriott), which owns labels like Le Meridien and Sheraton, is overwhelmingly in its mid-market brands like Aloft or Four Points by Sheraton.

Quite like Accor, Marriott and IHG, Carlson Rezidor, which operates brands such as Radisson, Park Plaza and Country Inn, is also taking a long-term view of growth in the country.

India is the group’s second most important showcase. According to senior officials in the group, this country is their fortress market in the Asia Pacific. The group not only remains committed, but also keen on accelerating and investing further.

Even for a relatively new entrant like Zinc InVision Hospitality, a joint venture between InVision Hospitality, a Thailand-based hospitality management and consultancy firm and Zinc Holdings, the Singapore-based investment arm of Cinnovation CG, belonging to Nepal's Chaudhary Group, the $100 or less tariff bracket seems to be the most preferred segment to tap into.

Zinc Holdings may have significant stakes in Taj Safari properties, but the JV certainly is a new entrant into India.

And unlike the former, which runs top-end hotel brands like Soma, Zinc Journey, is opting for mid-market brands like Zinc City and Glow Studios for the Indian market.

In line with its strategies, it is evaluating cities like Amritsar, Chandigarh, Haridwar, Noida, Mohali and various other IT hubs and SEZs.

These hotel lines are unanimous in their conclusion that pricing is going to be crucial for them to succeed in the Indian market.

Under the circumstances, one single question that keeps popping up as the most pertinent is this: do facts and figures justify coming up of so many international hotel brands in India?

Putting together international tourists and domestic travelers, India is a hugely undersupplied market, according to a Deloitte report.

If the latest study by Federation of Hotel and Restaurant Associations of India (FHRAI), the apex body of four regional associations representing the Indian hospitality industry is anything to go by, the arrival of foreign tourists is likely to touch 15 million by 2020 and therefore, there is requirement of 180,000 more hotel rooms in the country.

As many as 7.7 million international tourists visited the country in 2014, the FHRAI study pointed out.

Explains Tejinder Singh Walia, vice president, FHRAI and managing director, Hotel Walson: "The growth of the hospitality industry depends on international tourists visiting the country. We are expecting that foreign tourist arrivals will touch 10 million by 2017 and 15 million by 2020. There is requirement of 180,000 more hotel rooms in all categories by the end of 2020."

By way of comparison, India has only 103,000 hotel rooms in all categories compared to Bangkok, which alone boasts of 125,000 rooms.

But this puts into shade the contrast with China; Beijing has more hotel rooms than all of India put together. This despite the fact that the cost of building such hotels in India are relatively modest, as is the price of acquiring land per room.

Points out the Deloitte report: “The number of domestic travellers in India has already reached nearly 563 million compared to inbound arrivals of five million passengers. The country's strong GDP growth would certainly mean more business travel and hotel stay.” Global hoteliers sure know what they are doing.

ritwikmukherjee@mydigitalfc.com