India Tourism Report Q3 2011

Market Overview Hospitality

Hotels
Indias hotel industry has suffered from the downturn in tourist arrivals. Previously, India had particularly high room occupancy rates, making it uncompetitive in the region. High-end hotels were charging up to US$400 per night in New Delhi prior to the downturn in 2008. However, the slowdown in tourist arrivals, alongside the increase in rooms from new hotel construction ahead of the October 2010 Commonwealth Games, is encouraging a downturn in prices. For instance, some hotel chains offered discounts of 30-40% in H109, often with further discounts on offer for longer stays. A survey in India found that the average rate for a five-star room in Delhi was US$215, while a similar room in Mumbai cost US$235, well below the published rates. Although this is negative in the short term for hotel profits, in the medium term it will help make the Indian tourist industry more competitive and attract returning-tourist inflows once the global economy picks up again.

While the Commonwealth Games in October 2010 went better than expected given the concerns about the level of preparation beforehand, it was not so positive for the hotel industry. Considerable expansion of hotels and construction of new accommodation took place prior to the games, especially Delhi. However, Saeed Shervani, head of the Hotel and Restaurant Association of Northern India, reported that many hotels experienced extremely low occupancy rates. He said that for some 1-3 star hotels the rate was as low as 20%, with 50% being the average even for higher-level hotels. The hotel industry may now suffer a slowdown, with an oversupply of rooms putting pressure on prices in 2011, particularly in Delhi.

The Ministry of Tourism has said that it is looking to increase the number of quality tourists to India those who stay for a long time and spend more money. Luxury tourism to resorts such as Alwar and Rajasthan is growing at rates of 20-25% according to industry estimates. At the other end of the spectrum, the ministry has approved 102 rural tourism infrastructure projects. According to the government, rural tourism is aimed at spreading tourism and its socioeconomic benefits to identify rural sites having tourism potential.

Indian Railways has also decided to utilise its land inventory for hotels. In 2007, its Indian Railways Catering and Tourism Corporation (IRCTC) subsidiary said it was planning to set up 100 budget hotels across the country within the next two years. It has already awarded projects for upgrading its existing hotels in New Delhi, Ranchi and Puri, as well for setting up new hotels in Mumbai. IRCTC will issue tenders for new hotels in Chandigarh, Hyderabad and Bangalore.

In addition, the Ministry of Tourism published guidelines for classification of apartment hotels, time share resorts and guest houses. It has sanctioned a capital subsidy for 43 budget hotels and an interest subsidy for 86 hotels of the same category. The ministry decided to build up the required inventory of

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budget category rooms through recognition of spare rooms available with various house owners by classifying these facilities as Incredible India Bed & Breakfast Establishments, under gold and silver categories.

Table: Hotels Data, 2007-2015 (000)

2007 Number of hotel rooms Number of hotel beds 86 173

2008 89 180

2009 94 200

2010 110 235

2011f 125 270

2012f 145 315

2013f 165 363

2014f 184 409

2015f 205 461

e/f = BMI estimate/forecast. Source: UNWTO

A number of factors should boost the fortunes of the Indian hotel industry over the medium term, among them the introduction of low-cost airlines which has boosted domestic tourism alongside the Indian Tourism Boards Incredible India marketing promotion campaign and the countrys emergence as an outsourcing hub for foreign banks and IT concerns. The governments ambition is for 100,000 hotel rooms to be constructed within the next four years. BMI feels that this target may be slightly overambitious, given that hotels take a long time to build and that the slowdown in the tourism industry will prevent firms making speculative property investment or investing in long-term projects. Our forecast for 2015 is for about 205,000 rooms to be available in India.

The government recognises the opportunities presented by the hospitality sector. According to the WTTC, the sector has the potential to earn India US$24bn in annual foreign exchange by 2015.

To date, the government has approved about 300 hotel projects. Most of these are likely to be completed in the next three years and are expected to increase capacity by about 75,000 rooms. It is also encouraging private individuals to start up bed & breakfast businesses in their homes. In addition, it is allowing 100% foreign direct investment in hotels. Several international hotel chains are either entering the Indian market or expanding their presence there significantly.

Accommodation Developments
Some international hotel chains took the opportunity of the downturn to expand their presence in India, gambling on a revival of tourism by the time the new hotels are complete. Starwood operates 23 hotels in India but has 15 under development, while 2010 featured the first opening of its Aloft brand in India. Likewise, Accor plans to operate 50 hotels in India by 2012, with particular attention paid to the development of its economy Ibis brand.

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Accor opened its first Novotel in Hyderabad in 2009. ITC is adding a third hotel to its two properties in Chennai; and the Oberoi Group is looking to build a third hotel in Delhi. Pan-Asian company ShangriLa is also planning an ambitious assault on the Indian market, with three new hotels up and running in Bangalore in 2009.

Oberoi Group is looking to improve its performance by teaming up with Hilton; another multinational entrant, along with Four Seasons, Shangri-La and Amanresorts. Hilton has been involved in India twice before, yet withdrew both times due to poor market conditions. The firm is to manage the Oberoi in Mumbai, in tandem with the entire firms Trident Group hotels this gives the international operator a strong immediate foothold in India. Hilton is also tying up with Blue Coast Hotels and Resorts in a joint venture deal, which could see up to INR5bn invested in new hotels in Mumbai, Goa and Bangalore. Moreover, Four Seasons is forming a venture with Jatia Group, which owns Asian Hotels. One firm that has a more entrenched history in India is InterContinental Hotels Group (IHG), which operates from six sites in the country, and Best Western also has an established presence. As a vote of confidence for the industry, Carlson Hotels announced plans in late 2009 to expand its luxury Regent Hotels & Resorts brand into India, with the Regent Gurgaon (in the Delhi satellite city of Gurgaon) scheduled to open by 2013. Carlson is planning to ramp up its presence in India, and plans to open 15 new hotels by the end of 2011. These new hotels will be in the brands of Radisson, Park Inn, Park Plaza and Country Inns and Suites and will take the companys number of hotels in India to just over 50.

There has also been a sharp rise in the number of budget hotel chains entering the Indian market. The Indian Hotels Company (Taj Hotels), a subsidiary of industrial conglomerate Tata, is introducing its Ginger brand of economy hotels, with an ambitious roll-out plan of one new hotel every six weeks. Taj is seeking to increase the number of brands it operates in the market. In October 2010, Taj launched the new Vivanta brand, which replaces the Taj Residency brand, and is positioned between Gateway hotels and Taj hotels. Around 19 hotels have now been rebranded as Vivanta. Taj also operates the Gateway brand, which was launched in 2008 and is just above the Ginger brand in terms of price.

In May 2006, easyJet founder Stelios Haji-Ioannou unveiled plans to introduce the easyHotel franchise in India. The UK-based entrepreneur has formed an alliance with Istithmar Hotels to open a chain of budget hotels across the country. As part of the deal, Istithmar Hotels, a subsidiary of UAE-based group Istithmar World, plans to open eight new budget hotels across major metropolitan cities in India over the next four years. The first easyHotel properties will open in Mumbai, Chennai, New Delhi and Kolkata over the next two years.

Accor remains committed to building up its presence in India, in partnership with its strategic partner InterGlobe. Accor plans to have 90 hotels open in India by 2015, Accor began cooperating with InterGlobe in 2004, and since then it has opened eight hotels with 1,525 rooms, and is committed to opening another 52 hotels, of which 21 are scheduled to open by the end of 2012. Accors joint venture

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covers a number of different brands, ranging from economy brand Ibis to higher end brands such as Sofitel and Pullman. The hotel chain notes that it expects demand for Ibis hotels to continue rising, given the sharp increase in domestic business and tourism travel.

In April 2007, it was announced that Royal Indian Raj International Corporation, a Vancouver-based company, is to invest about US$4bn in building 100 hotels across India, in collaboration with domestic company Choice Hotels India, The new builds should create approximately 15,000 new budget hotel rooms for Choices brands: Comfort Inn, Quality, Sleep Inn and Clarion.

Marriott is also continuing to expand its operations in India. The chain opened eight hotels in India in 2009, in Gurgaon, Pune, Hyderabad, Ahmedabad and Mumbai. By 2012, a further 14 Marriott hotels are scheduled to open. With the eight new hotels open in 2009, Marriotts room capacity came to almost 4,000. Marriott has 18 hotels and resorts in India.

Gaming
In terms of gross profits, reports suggest that Indias gambling industry ranks ninth in the world, despite the fact that lotteries are only permitted in 13 states. Other than lotteries, which earn an estimated INR450bn a year, gambling in India is limited to horse racing. Gambling on other sports, including cricket, is prohibited. A more liberal approach to the gambling industry would undoubtedly boost revenues for Indias tourism industry.

Goa is the only Indian state that has legalised casinos. It has seven casinos and six floating casinos, which are located offshore in an effort to defuse local hostility towards the increasing number of gambling establishments. Previously, local opposition meant gambling was limited to one floating casino and a handful of five-star hotels with slot machines.

Most gambling is largely frowned upon in Indian society, although the country has long had a culture of betting on horse racing. In recent years, several hotel chains have lobbied to change the law, arguing that that tourists will instead go to Nepal and Sri Lanka where gambling is permitted.

Goa appears to be replicating the success of another former Portuguese territory, the Chinese special administrative region of Macau, which has reinvented itself as the gambling capital of the South China Sea and attracts more than 4mn visitors a year.

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