Patanjali Keswani, managing director, Lemon Tree Hotels, in conversation with Ashish K Tiwari, speaks about the overall business scenario of the hotel industry in India during the December quarter, new developments in the company and other issues. 

How was the business season for the hotel industry in general? 

The third quarter hasn’t been very good for the hotel industry. This I’m not talking about Lemon Tree but the industry in general. For business hotels, the key in the third quarter is when is Diwali. If Dussehra and Diwali are in October then November is very solid. That was not the case this year as Diwali came in the first week of November. So Diwali affected half of the November business season. As a result, there was a huge impact for hotels across India.

This would be true for leisure hotels as well? 

Fortunately, we are not so heavy on the leisure segment yet. For leisure destinations, the airfares offered by the carriers to neighbouring destinations such as Bangkok, Nepal, Dubai, Sri Lanka were often lower to say, Delhi, Goa. There were claims about demand being 30% lower in Goa, it’s a huge fall, especially in the business season, and it would be true for all (markets across India). Hotels may have sold rooms at very high rates like the claims of Rs 11 lakh a night in Jaipur, but the question still prevails if the hotels did well during the entire business season. I don’t think many hotels did well this year compared to the year before. India needs to become more competitive in leisure destinations, both in terms of hotel room rates as well as airfares. In fact, the latter is sometimes killing the hotel industry more.

So the room rate growth expected in Q3 may not have happened?

Room rate growth may have happened, but the demand growth didn’t happen. The bigger issue is that I don’t think the hotel industry across India has been able to increase prices much this year and that’s surprising. I know we have increased prices at Lemon Tree, and our room rates are much higher than some of our competitors. While there is a clear case that hotels overall need to increase rates, but for some reason many of the players do not increase rates.

How does the fourth quarter look like?

It should be very good actually. Our internal analysis shows that the next three months are looking very solid. Demand for rooms is looking very good mainly due to conferences, events and so on. In fact, my view is that the fourth quarter will make up for the shortfall in the third quarter.

You recently launched a new joint venture with Warburg Pincus...

It’s for our foray into student housing and co-living spaces for the millennial population, working professionals and entrepreneurs. I think this is a huge opportunity to be tapped. The existing operators are small players and are very city-focussed. We will be a very large player with plans to set up accommodation facilities with over one lakh beds in the initial few years itself. In terms of overall opportunity I think it’s multifold, you can put up one crore beds and it’ll still be insufficient. We have a very robust business model in place. Normally, if it costs Rs 8 lakh per bed for any existing player, our investment will not be more than a lakh for the same. As a result, we will be able to achieve much more with the Rs 6,000 crore we plan to deploy in the new business. Technically, we will be able to scale much more than the one lakh beds number I said earlier.

You also had an affordable housing JV with Warburg back in 2010-11...

We wanted to do affordable housing, but the residential real estate industry itself went into its own set of challenges. We haven’t yet operationalised that joint venture. We might look at affordable housing at a later stage, not now.