TOURISM IN INDIA

Tourism and Hospitality

The Indian tourism and hospitality industry is on a roll, driven by the huge surge in both business and

leisure travel by domestic and foreign tourists. The country's travel and tourism industry is expected to

generate approximately US$ 100 billion in 2008, rising to Rs 15 US$ 275.5 billion by 2018 over the

next ten years, as per the latest Tourism Satellite Accounting (TSA) research released by the World

Travel and Tourism Council (WTTC) and its strategic partner Accenture.

The growth of tourist inflow into India was well above world average, leading to a rise of India's share

in World arrivals from 0.37 per cent in 2001 to 0.53 per cent in 2006. Also, as noted by UN World

Tourism Organisation (UNWTO), the growth of Indian tourism industry was instrumental in the

'emergence' of South-Asia as a tourist destination.

Further, tourism is an important industry in Indian economy contributing around 6.8 per cent of the

Gross Domestic Product and providing employment to over 41 million persons. According to a research

University of New South Wales (UNSW), Australian School of Business (ASB), India and China will be

the new global players competing for a huge chunk of tourists, transforming the geopolitical landscape.
Inbound Tourists

The flow of foreign tourist arrivals has been recording phenomenal growth rates. The number of arrivals

has increased from 3.9 million in 2005 to 4.4 million in 2006 and 4.95 million in 2007, recording a

growth rate of 13.5 per cent in 2006 (over 2005) and 11.9 per cent in 2007 (over 2006). Alongside, there

has been a concomitant rise in the foreign exchange earnings. Total earnings from foreign tourists has

shown an annual growth rate of 19.2 per in 2006 and 33.8 per cent in 2007 to garner US$ 7.49 billion in

2005, US$ 8.93 in 2006 and US$ 11.96 billion in 2007. Continuing the foreign tourists' interest in the

country, the first four months of 2008 recorded a growth rate of 11.9 per cent (in tourist arrivals) over

the corresponding period in 2007, receiving 2.02 million in foreign tourist arrivals. Simultaneously,

foreign exchange earnings grew by a much faster rate at 28.9 per cent in 2008, against 20 per cent

during corresponding period in 2007. Total foreign exchange earnings totalled US$ 4.84 billion, against

US$ 3.76 billion in 2007.

Significantly, while India's share in world arrivals was about 0.5 per cent, its share in revenue generated

from tourism worldwide was over 1 per cent.

Tourism and Hospitality

India, with its diverse landscape, offers huge scope for various theme-based travel like Medical Tourism,

Adventure tourism, Heritage tourism, Wellness tourism, Pilgrimage tourism, Golf tourism, Eco-tourism,

Wildlife tourism among others. India's growing reputation as a major medical tourism destination is

attracting more and more foreign visitors. In fact, Indian hospitals are fast becoming the first choice for

foreign patients owing to easy access to visa facilities coupled with the best emerging medical
infrastructure which will help India earn to an extent of US$ 1.86 billion in foreign exchange by 2012.

Currently India‘s earnings through medical tourism annually is an estimated US$ 821.40 million. In fact,

according to the World Travel and Trade Council, Indian tourism demand will continue to grow at a

rapid pace. It estimates the demand to grow at an average of 8.8 per cent between 2004 and 2013,

making India the world's third fastest growing tourist market. The boom in the Indian tourism industry

has cascaded to the rural areas as well. India continues to attract tourists owing to its splendid historical

architecture and rich culture along with beautiful beaches, rural tourism or what now is called

'responsible tourism' is also fast gaining popularity with travelers flocking to discover the best in rural

arts and heritage.

Outbound Tourists

With the economy growing consistently at over 9 per cent, increasing disposable incomes, a change in

the spending habits, liberalization of exchange controls, increasing affordability due to numerous

holiday packages and cheaper air fares, outbound tourist traffic has been growing at a rapid pace.

Outbound tourist market has been growing at an annual average growth of around 25 per cent. In 2007,

an estimated 8 million Indian tourists ventured abroad. Moving ahead, the United Nations World

Tourism Organisation (UNWTO) estimates the figure to reach about 50 million by 2020.
Along with the rise in the number of Indians traveling abroad, both the total and per capita expenditure

spent abroad has been increasing. For example, according to the European Travel Commission, average

spend per trip of Indian outbound tourists has increased from US$ 611 in 2000 to US$ 822 in 2006.

Similarly, Euromonitor International estimates the outgoing tourism expenditure from India to grow to

US$ 21 million by 2011, representing a growth rate of over 25.7 per cent between 2006 and 2011.

HospitalityThe booming tourism industry has had a cascading effect on the hospitality sector with an

increase in the occupancy ratios and average room rates. While occupancy ratio is around 75-80

percent,the average increase in room rates has been hovering around 22-25 per cent.

And with the continuing surge in tourist inflow, this sector is likely to offer tremendous opportunity for

investors. For example, while the estimated number of required hotel rooms is around 240,000, the

current availability is just 90,000 rooms - leaving a shortfall of 150,000 rooms to be provided.

With such a huge potential available in this segment, several global hotel chains like the Hilton, Accor,

Marriott International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn (PTI), InterContinental

Hotels group and Hampshire among others have all announced major investment plans for the country.

The Government's move to declare hotel and tourism industry as a high priority sector with a provision

for 100 per cent foreign direct investment (FDI) has also provided a further impetus in attracting

investments in to this industry.

It is estimated that the hospitality sector is likely to see US$ 11.41 billion in the next two years, with

around 40 international hotel brands making their presence in the country by 2011. Simultaneously,

international hotel asset management companies are also likely to enter India. Already, US-based HVS

International has firmed up plans to enter India, and industry players believe others like Ashford

Hospitality Trust and IFA Hotels & Resorts among others are likely to follow suit.

A look at a travel brochure these days, shows a tendency by travel writers to speak in superlatives.

“Grand colonial architecture”, “sparkling beaches”, “amazing monuments” and so on; and yet, for a

country like India, all these adjectives and more, are totally appropriate. However, for a country bursting

with tourism opportunities, we have been slightly slow on the uptake, as far as promoting these

destinations goes. A point highlighted by the First Planning Commission way back in 1955, which

ranked tourism 269th on their priority list of industries – lower than even the development of light-

houses! At that time, the average number of tourists who came knocking at our door, was around 15,000.

A Historical Perspective

Post-Independence, while critical issues like agriculture, infrastructure and power supply hogged the

limelight, travel and tourism received stepdaughterly treatment, as it was deemed a ‘luxury’ – affordable

by only a few. Not much has changed over the last four decades, and it seemed every time the industry

gained some form of momentum despite the closed and protected economy, there was something lurking

in the shadows to clip its wings. The introduction of FERA put a serious crimp in foreign investment in

the country and the Emergency was yet another deterrent to the tourism movement. A look at the Five
Year Plans shows that in the Third Plan (1961-1966) tourism got approx 4.001 crores, which was 0.11%

of the total Plan outlay. In the Eighth Plan, (1992-1997) it was Rs 272 crores – still 0.11% of the total

plan outlay. At this time, policy makers, industry representatives and opinion makers equated tourism

with foreign visitors. To their way of thinking, it was the foreign visitor who occupied hotel

accommodation, filled airline seats, frequented bars and restaurants and used recreation facilities. Plus,

given the foreign exchange (forex) shortage, the foreign tourist was looked upon as Daddy Big-Bucks –

with an almost endless supply of crisp foreign currency. And while key aspects of Indian tourism came

to be tailored to the foreign visitor, the price mechanism too, came to be tied to overseas costs. Hotel

rates, food and beverages in hotels, handicrafts, etc, were priced at a level much higher than the

economic standards prevalent in the country at the time. No way could our rupee-toting lads compete.

Thus, for our fellow countrymen, travel was restricted to places of pilgrimage or going to one’s native

town to visit the family once a year. However, other South East Asian countries were on the ball soon

enough when they realised the potential of tourism. Hong Kong, Singapore and Thailand dug in the

infrastructure, developed detailed tourism plans and marketed them in glorious technicolour across the

world. Ironically, today, Indian outbound tourism provides a sizeable chunk of tourist inflow into these

countries.

Something In The Air...

From the mid-80s to the early 90s, the Indian corporate world underwent a transformation. The Old

Guard - Tatas, Birlas and Godrej – saw the emergence of the newer dynasties on the As new factories

opened and the corporate kingdoms spread across the country, so did the need for roving executives,

with suitably generous travel and entertainment allowances. And thus was born the corporate traveller.

Airlines and hotels didn’t take long to work out that the man with the tie and briefcase was the man with

the corporate expense account! Airlines introduced business or club class and the hospitality sector set
up executive floors - complete with butlers - geared to cater to this booming segment. The outbound

segment (as we know it today) was still in its nascent stage. The “have- suitcase-will-travel” high lasted

only for so long, as the reality of getting sponsor letters from friends and family overseas set in, and the

forex restrictions of USD$ 500 as one’s basic travel quota (BTQ) once every two years, made travelling

abroad more than a little difficult. Naturally, this being the land of opportunity, the grey market for forex

boomed – practically every large general store in well to- do neighbourhoods had an extra drawer for

their greenbacks. Low customs allowances meant that bringing items into the country from your travels

– assuming you went to some place where US$500 would get you anything – meant the little man in a

white uniform welcomed you on your return to the Homeland, and rubbed his hands in glee. “Red

channel please” was the helpful direction he gave you as you wearily pushed your trolley towards a long

and tortuous queue!

The Yuppies Of The 90s

The tourism industry began to swing in the mid-90s, with the liberalisation of the economy, and with

India ratifying the agreement to set up the WTO unit in India. Foreign investment in industry, foreign

investment in airlines and foreign media got the country excited about the world “out there” and the

guy with 50 channels at his disposal, found bikini-clad motivation on his 21 inch screen, to get out of his

armchair and check out new destinations. The alphabets ‘MBA’ next to a young person’s name opened

up the road to five-figure salaries, six-figure bonuses and stock options. Young people were raring to go

where they parents hadn’t been and they had the means to do it! And, more surprisingly, the Indian

traveller began to get excited about touring around his own country and the trend for domestic tourism

was firmly set. The last decade of the last century alone, saw an increase by more than 100 million

travellers in the domestic tourism segment – from 63.8 million visitors in 1990, to 176 million in 1999.
The Number Crunch

On a broader scale though, finding accurate figures and statistics is something of a problem even today,

and in the absence of a centrally appointed and vigilant monitoring body, one can only

make estimates. Immigration figures based on disembarkation cards are unreliable as they make little

distinction between visitors coming only to India or backtracking from Nepal or other neighbouring

countries. Also, a large number of arrivals stay with family or friends and do not contribute much to the

forex kitty. Forex earnings have been accepted by the tourism industry, as being the surer criterion of the

quality and number of tourists a country is attracting. A study by FICCI, in 1994, showed that

the overall forex earnings from tourism had been static around US$ 1.2 – 1.4bn. In 1989, our earnings in

forex were Rs ,2103 crores, which rose to Rs 3,990 crores in 1993. But if one were to take into account

the devaluation that the rupee had been facing against the dollar at the time, then the net

dollar earnings had virtually remained stagnant. Tracking tourism in the domestic sector is even more

difficult as this is still an unorganised sector, with individuals making their own arrangements or

availing of the services of small outfits.

POST SEPTEMBER ELEVEN

Post-September 11, the tourism industry in India has shown resilience with Indian travellers opting to

look inwards to domestic tourism or to explore other destinations such as Australia and New Zealand.

The Kargil conflict, the current Iraq war and the new flu on the loose in South East Asia, have also dealt

serious blows to the global tourism industry. Despite this litany of international crises, today, it is an

accepted fact that tourism is the fastest growing industry in the world; a creator of wealth and business

opportunities, an income multiplier, a catalyst for employment and preserver of the environment. An

investment of Rs 10 lakhs in tourism, creates 89 jobs, as against 45 in agriculture, and 13 imanufacturing

for the same investment. The current budget has finally granted the tourism industry “infrastructure”

status, and an increase in plan outlay to Rs 225 crore. The international airports in the four metros are to

be upgraded to world-class standards and six comprehensive tourism circuits will be developed to help

promote tourism. The lack of a centralised government apex body to give it the tourism industry focus

and direction, is still a cause for serious concern. At present, the central ministry of tourism’s functions

are limited to marketing India overseas and providing meager financial support to state governments for

the creation of tourism facilities. Most of the important issues relating to tourism are deciding elsewhere.

The Ministry of Civil Aviation controls aviation policy as well as the administration of airports. The

Ministry of Home Affairs/External Affairs decides the visa regime, and the Ministry of Finance

supervises the fiscal policy for investment in the tourism sector and of course the all important tax

structure. It is left to the private sector to run between the ministries to bring about any radical reforms.

The classic Indian bureaucratic runaround – the death-knell to an industry on the move!

International Recognition

India's booming tourism sector has not only witnessed international investments but also achieved

international accolades with its increasing appeal as the leading global tourist destination. The government

has been instrumental in making tourism a priority sector. Its efforts have borne fruits with a series of

international recognition and awards.

• India has been elected to head the UN World Tourism Organisation (UNWTO), the highest policy

making world tourism body represented by 150 countries.

• The world's leading travel and tourism journal, Conde Nast Traveller, has ranked India as the

'numero uno' travel destination in the world.

• India was adjudged Asia's leading destination at the regional World Travel Awards (WTA).

• India's Taj Mahal continues to figure in the Seven Wonders of the World.

• Bangalore-based Leela Palace Kempinski was voted the favourite business hotel in the world in a

Readers' Choice Awards by Conde Nast Traveller in 2007.

• India bagged the World's leading Destination Marketing Award for the Incredible India campaign.

Future-wise

The more significant findings of the many reports done for the international travel and tourism industry

show that the focus of the industry is gradually shifting from Europe and N America to east/South Asia

and the Pacific. A research forecast by the World Travel and Tourism Council pegs tourism industry

growth at 4.5% over the next ten years. Turkey is expected to be the fastest growing travel and tourism

economy over the next 10 years at a rate of 10.2%, while India will have a growth of 9.7%. This buoyant

outlook also reflects a possibility of the creation of nearly 7 million jobs over the next 10 years.

The effect of tourism on hotel industry

The boom in India's tourism industry and the surge in tourist inflow to the country have percolated to other

associated sectors like hospitality. The revenues for the Indian hotel and restaurant industry in the year

2006-07 exceeded US$ 118.85 million, an increase of nearly 22 per cent over the previous year. The
industry is poised for rapid growth and is projected to be well worth over US$ 158.49 million by the year

2010.

And with the continuing surge in tourist inflow, this sector is likely to offer tremendous opportunity for

investors. For example, while the estimated number of required hotel rooms is around 240,000, the current

availability is just 90,000 rooms - leaving a shortfall of 150,000 rooms to be provided.

India's hospitality sector is expected to see an estimated US$ 11.41 billion in the next two years, and

around 40 international hotel brands by 2011, according to a report by Ma Foi Management Consultants.

Moreover, the sector is expected to provide over 400,000 jobs.

Along with these large-scale expansion plans, international hotel asset management companies are also

likely to enter India. Several global hotel chains see immense investment opportunities in the sector with

global chains like Hilton, Marriott International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn

(PTI), InterContinental Hotels group and Hampshire amongst others have announced major investment

plans in India with others likely to follow suit.

INTRODUCTION TO THE HOTEL INDUSTRY

 According to the British laws a hotel is a place where a “bonafied” traveler can receive food and

shelter provided he is in a position to for it and is in a fit condition to receive.

Hotels have a very long history, but not as we know today, way back in the 6 th century BC when

the first inn in and around the city of London began to develop. The first catered to travelers and

provided them with a mere roof to stay under. This condition of the inns prevailed for a long time, until

the industrial revolution in England, which brought about new ideas and progress in the business at inn

keeping.

The invention of the steam engine made traveling even more prominent. Which had to more and

more people traveling not only for business but also for leisure reasons. This lead to the actual

development of the hotel industry as we know it today.

Hotel today not only cater to the basic needs of the guest like food and shelter provide much

more than that, like personalized services etc.

Hotels today are a “Home away from home”.

CLASSIFICATION OF HOTEL

Hotel can be classified into different categories or classes, based on their operational criteria. For

example the type of accommodation they provide, location of the property, type of services provided,

facilities given and the clientele they cater to can help categories hotels today.

Hotels today are basically classified into the following categories:

1 Market segment:

• Economy / limited services hotel

• Mid market hotel

 • All suite hotels

• Time-share hotels

• Condotel / Condiminium

• Executive hotels

• Luxury / Deluxe hotels

Property type:

• Traditional hotel

• Motels

• Bread and break fast inns

• Commercial hotel

• Chain hotel

• Casino hotel

• Boutique hotels

• Resorts

o Spa’s

o Conference resorts

2 According to size:

• Small hotels [150 rooms]

• Medium hotels [up to 299rooms]

• Large hotels [up to 600rooms]

Other classification can be based on:

a) Market segment

b) Property type

c) Size

d) Level of services

e) Owner ship and application

f) Plans

g) Type of patronage

h) Length of guest stay

i) Location etc …

MARKET SEGMENT

Economy hotel:

It provides efficient sanity private rooms with bath. The furnishing and decor are acceptable to

majority of travelers. Food and beverage service may or may not be available.

Mid market hotels:

They offer comfortable accommodation with private on premises bath. Food and beverage services and

uniformed bell staff. They offer above average luxury.

All Suite hotels:

It offers separate sleeping and living areas along with a kitchenette and a stocked bar, and offer class

service.

First class hotels:

They are luxury hotels with exceptional decor better than average food and beverage service, uniformed

bell services. They often have 2 or 3 dining rooms, swimming pool, spas etc.

Deluxe hotels:

They are better and offer more specialized services than first class hotels. They also provide

limousine services.

PROPERTY TYPE

Traditional hotels:

They have the basic concept of rooms with break fast, bell desk services and the other usual

services.

Motels:

They are located on highways. Guest is given parking right outside their rooms. The usually have

a gas station / workshop attached to them.

Resorts:
 They are usually situated in tourist locations like on rivers, mountains, jungles, or the sea. They

give more privilege to sports activities leisure and re-creation activities like manages, sightseeing,

adventure sports, etc.

Resident hotels:

Where guest stay for longer duration, stay like weeks, months even years.

Casino hotels:

They are hotels usually in tourist spots and mainly cater to people who are on holidays. Casino

hotels like the name suggest offer gambling facilities along with accommodations.

SIZE

Small hotel – up to 150 rooms

Medium hotels –150 to 299 rooms

Large hotels – 299 to 600 rooms

Extra large hotels – above 600 rooms

LEVEL OF SERVICES:

World-class services:

They target top business executives and provide service s that cater to needs of such people like

lap tops in the rooms, business center, sectarian services.

Mid range services:

 They appeal to the larger segment of traveling public [tourist]. The services provided by the hotel

are moderate and sufficient to budgeted travelers.

Economy / Limited services hotel:

They provide comfortable and inexpensive rooms and meet the basic requirement of the guest.

These hotels may be large of small in size depending on the kind of business they get. The key factor

behind the survival of these hotels is that they are priced very low and are in the budget of most of the

travelers.

OWNERSHIP AND AFFILIATION:

Independent hotels:

They have no application with other properties. They have their own management and are single

properties with one owner.

Chain hotels:

They impose certain minimum standards, levels of service, policies and procedures to be

followed by their entire establishment. Chain hotels usually have corporate offices that monitor all their

properties and one management runs these properties. That is all the hotels under the chain are

completely owned and run by the chain itself.

The franchisee grants the entities, the right to conduct business provided they follow the

established pattern of the franchisee, maintains their standards, levels of service, practice their policies

and procedures.
The hotel industry at present in india

The travel and hospitality industry continues to be the sector, which has largely profited from the fast

growing economy of India. This has largely been due to the 5.2 m tourist arrivals in FY08 (11% growth)

over the previous period. In the last five years, growth stood at 17% per annum. The hotel industry went

through a rough patch between FY00 to FY04 owing to factors like the Asian financial crisis, Afghan war,

Middle East unrest, September 11 attacks, SARS and domestic riots.

• India occupies forty-sixth position among the sixty tourist destinations in the world. A flourishing

economy helped boost demand for the industry. To encourage the tourism sector, the government is

planning to propose a conditional 10-year tax holiday for all tourism projects in the country. Companies

will enjoy full tax exemption up to 50% of profits, but will qualify for tax benefits for the remaining

amount only if they re-invest it in tourism projects. The Centre and States are also working out a PPP

(Public-Private-Partnership) model to increase hotel capacity. Efforts to diversify tourist attractions by

offering new products such as wellness tourism, medical tourism and golf tourism are expected to have a

positive effect on both foreign tourist arrivals and domestic tourism.

The hotel industry at present in india

Supply

Supply is catching pace. Metros will witness an oversupply situation after four to five years.

Demand

Largely depends on business travelers but tourist traffic is also on the rise. Demand normally spurts in the

peak season between November and March.

Barriers to entry

High capital costs, poor infrastructure facilities and scarcity of land especially in the metros.
Bargaining power of suppliers

Limited due to higher competition, especially in the metros.

Bargaining power of customers

Higher in metro cities due to increasing room supply.

Competition

Intense in metro cities, slowly picking up in secondary cities. Competition has picked up due to the

entry of foreign hotel chains.

The performance in the current year

• India continued to witness cheering trends in the tourism sector in 2007 with 5.2 m tourists visiting

the country, registering a growth of 11% YoY. The Indian hospitality sector continued to be the forerunner

of India's economic growth with support from the government. In the Budget 2007, five-year tax holidays

for new star-category hotels and convention halls coming up in the National Capital Region by 2010 were

announced. The Ministry has sanctioned 225 projects and utilised Rs.4.6 bn for upgradation of

infrastructure facilities at important tourist destinations. Even public-private partnership is being planned

to develop infrastructure projects. As a result of the high room rates in branded hotels, unregulated,

unorganised hotels and guesthouse segments have emerged. Even the existing hotel players entered new

segments like budget hotel and service apartments.

• However, in the beginning of the year, the global crisis, slowdown in corporate earnings and rising

air fares affected the hotel sector to a certain extent. Occupancy levels at hotels catering to business

travellers have dropped 5% to 10% since the end of January. With the dip in occupancy levels and new

supply coming in certain destinations, the room rates witnessed a marginal increase, which was much
slower than what was witnessed last year. Further, with hotel rooms in India being relatively more

expensive (last year was unusual when tariffs rose by 25%), a slowdown was inevitable. Average room

rates (ARRs) in the branded hotel category in India have increased 280% in the past three years, as per

HVS International. Bangalore saw a decline in room rates, while Mumbai and Delhi witnessed a 15% to

18% increase as compared to more than 30% hikes witnessed in FY07. Going forward, the prices will

soften by the end of the year as the supplies would start coming in from FY09, which would bring tariffs

to a more realistic level.

• The Planning Commission's High Level Group on services sector has pegged the room shortage in

the country at 150,000 rooms by 2010, out of which more than 100,000 will be in the budget category. Not

only the Indian hotel majors, but even international players have lined up huge capex plans. Investments of

US$ 11 bn over the next 2 years are expected to be earmarked for the hotel industry in India. Further, new

segments like budget hotels, service apartments and management contracts are witnessing increasing

interest.

Prospects

According to the 2002 estimates of the World Tourism Organisation (WTO), international tourist inflow in

India by 2020 would be 10 m, which means the tourist influx has to grow at a CAGR of 6.5% for the next

14 years. This makes the country one of the fastest growing tourist destinations in the world second only to

China. As of FY08, the increase in the tourist arrivals is well inline with the WTO estimates.

• India accounts for 0.5% of world tourism. Strong GDP growth, improving infrastructure,

confidence in the country's economic prospects, open sky policy and the 'Incredible India' campaign has

improved the outlook for India. This positive outlook would increase the tourist arrival in the country and

the hotel industry is expected to be the major beneficiary. Even domestic tourism is gaining momentum.
Rising disposable incomes, cheaper airfares and better connectivity would continue to increase the demand

for rooms.

• Many international hotel chains either have or are on the look out for setting up shop in the

country. Companies like the Hilton and Hyatt group have already tied up with local giants East India

Hotels and Asian Hotels. Others like Four Seasons, are on the lookout for a partner or would be setting up

their own hotels, government permitting. This clearly shows that India is on the international tourism

radar.

• Although prospects are promising, as mentioned earlier, any change in the global geo-political

situations can and have adversely affected the performance of this sector. Also, the heightened demand for

land, especially from real estate players has led to a steep escalation in the prices. Also, shortage of

manpower is going to be a huge challenge going forward. Hotel players with a diversified portfolio across

different segments are likely to be the key beneficiaries. This should be one of the determining factors

while investing in this sector.

Every business with the global prospects in the multi dimensional, volatile atmosphere has to introspect its

strategies taking into consideration the strengths, weaknesses, opportunities and threats. The hotel industry

also tags along the line and has to undertake smart and innovative moves to woo its clientele who expect

best possible service at competitive rates. It is estimated that approximately a lull of 2%-10% of the

previous year business in all categories of hotels. Some hotels have to face modernization at huge costs

often especially in cyber city like Bangalore where technology up-gradation is swift and the inflows of

customers require multi dimensional facilities ranging from full-fledged business center to high grade

video conferencing.
The hotel should concentrate and keep up the good work even if the business is already strong. Each

relevant factor needs to be rated according to its importance- high, medium, or low for the business as a

whole 1. The Indian Hotel Industry utilizes the latest marketing principles and information technology

updates to get a respectable position in the world market. In the face the worldwide economic recession,

the guests have become more sensitive to price which calls for effective formulation of the pricing

strategy.

Though the sales & market conditions are changing rapidly, the marketing principles are not changing.

Hotel owners and managements tend to be more inclined towards marketing and sales rather than cost

control, constantly seeking to maximize room sales - double- bed occupancies. All this may fail and such a

scenario may result in profit problem on cyclic basis, which may sometimes lead the hotel into liquidation

or forced sale.

Hotels seeking a balance between achieving high occupancies and high average room rates may have

higher long term profit. The peculiar nature of the hotel business may compel the management to think

short term about day-to-day problems or the next-meal periods, as the ROOM DAY is a PERISHABLE

ITEM. The room occupancy perishes on the expiry of the day.

The increased competition has lead to Up market self-catering, time sharing, home entertainment,

competition from producers of other services and commodities and other trends like rising operating costs,

high interest and too many hotel in many area

Customers who brand switch

easily 'more values-less price'

New entrants focussing regionally, Suppliers who demand higher
SIX METRIC
nationally and internationally
ANALYSIS OFprices for out sourced inputs
Competitors, who manipulate the
Global tourism Opportunities &
INDIAN HOTEL
demand supply position to suit their
INDUSTRY
competencies governmental financial assistance

t.

AWARDING OF CLASS:

Awarding of class is done by the HRACC in India. These are a few things listed down that are

taken into consideration while awarding star category to any hotels.

• Number and types of rooms the hotel has

• Elegant and comfortable surroundings

• Rooms efficiency

• Cleanness and sanitation

• Staff size and specialization

• Range and level of services

• Number of Restaurants

• Bars and Beverage services

• Concierge services

• Accessibility to entertainment
 • Availability of transportation

• Spa and swimming pool facility

• Reservation and referral services.

Star category of hotels [India]

One star [*]

Two star [**]

Three star [***]

Four star [****]

Five star [*****]

Five star deluxe [***** deluxe]

THREE STAR CATEGORIES:

For a hotel to be recognized as a three star property the architectural features and general features

of the building should be very good there should be adequate parking facilities. At least 50% of the

rooms must be air-conditioned. Also the ambience and decor of the place must be ecstatic.

They should provide reservation and information facility apart from reception, information, bell

service at least two gourmet dining facility should be available. The establishment may or may not have

banqueting facility.

They should provide high levels of personalized services. The staff must be well-trained and

proper standards for hygiene and sanitation must be followed. Also all properties have to keep in mind

that proper waste management is done.

FIVE STAR CATEGORIES:

Five star category is only allotted to properties, which have all the qualities of a three star

property and a few additional. Like the entire property must be centrally air-conditioned. The building of

the property must be an attractive one. All the rooms must be spacious. The property must have proper

banqueting facility, business center. Proper and well-maintained pool and health club a spa is optional.

The property must have 24 hour coffee shop, round the clock room service, a bar, and a

minimum of 1 gourmet restaurant. The staff must be highly trained and a degree of specialization must

be shown. State of art

Equipments must be used and the facility provided in the rooms must be sophisticated.

FIVE STAR DELUXE CATEGORIES:

They are more or less like five star properties with the only difference is that they are on a larger

scale. Five star deluxe properties maintain a very high staff to guest ratio and very high levels of service

is maintained. They in addition to five star properties have 5 to 7 dining rooms, a bar, 24-hour coffee

shop, banqueting facility. Spas, fitness centers, business centers etc

With a view of improving standards and creating awareness, the Govt. of India,

DepartmentofTourism has decided to include some measures to encourage eco-friendly

practices and facilities for the physically challenged persons as a necessary requirement for all

approved projects and classified hotels. These have been included in the revised guidelines, which

would come into effect shortly. The details of these are as follow

I. Eco-Friendly Practices

• Energy Conservation: It is necessary that all star category hotels should have energy

conservation lamps.

The use of solar energy, timers etc. is desirable.

• Water Conservation: Water saving taps and showers are necessary for 5-star and 5-star

deluxe hotels and desirable for 1-star to 4-star category and Heritage hotels.

• Waste Management: Solid waste management and recycling of garbage should be

undertaken. Garbage should be segregated into wet and dry separating that which can be re-

cycled or re-used. It is necessary that the wet garbage areas should be airconditioned for 3 to

5 Star deluxe categories and desirable for 1 and 2 star hotels.The aim should be to achieve a

"zero garbage policy" by utilizing all the organic waste.

Other Desiarable Measures:

• The use of plastic should be discouraged.

• Efforts for water conservation should be made byincorporating dual system flushing options

for liquid and solid wastes, etc.

• Efforts to harvest rainwater should be made.

• Pollution control methods for air, water, sound & light should be incorporated. Sewerage

Treatment Plants (STP)'s should be installed.

 • Non CFC refrigeration and Air-conditioning.

• Efforts should be made for greening of the hotel's surroundings.

• Installing timers in areas where lights tend to be left on.

• Guest key linked light and A/C activation

• Thermostat regulators in rooms

• General awareness about Eco-friendly practices should

be made by training the staff.

II. Facilities for physically challenged persons

• Atleast one room should be equipped for physically challenged persons. This is necessary for

all 4, 5 and 5 -Deluxe category hotels and desirable for 1 to 4 star category hotels.

• Atleast one telephone in the lounge or seating area in the lobby should be placed at no higher

than 24" from the floor. This is necessary for 5-Star and 5-Star deluxe hotels, it would be

desirable for all classified hotels to have this facility.

• The public rest rooms for ladies and gents should have facilities for physically challenged

person's i.e. low height urinals as per international specifications. This is a necessary

requirement for all classified hotels.

• Ramps with anti-slip floors and handrails are a necessary requirement for 4, 5 and 5 star

deluxe hotels and desirable for all others.

• Wheelchair access with suitable table at least one multicuisine restaurant.

• The entrance doors should have a minimum width of 32" to allow free access for

wheelchairs.
 • Fire and emergency alarms should be visible and audible signals.

• Exclusively earmarked, clearly sign-posted and accessible parking space may be allocated

nearest to the entrance.

• Suitably equipped elevators i.e. minimum 32" width, handrails, audio-announcement of

floors and accessible buttons for the physically challenged persons.

Major players

Public Sector Players:

• ITDC hotels

• Hotel Corporation of India

Private Sector Players:

• ITC Hotels

• Indian Hotels Company Ltd.(The Taj Hotels Resorts & Palaces)

• Oberoi Hotels(East India Hotels)

• Hotel Leela Venture

• Asian Hotels Ltd.

• Radisson hotels & Resorts

Latest Trends

Hotels are no longer satisfied with the plain-vanilla room concept but are now getting ready for alternate

hospitality formats such as residential hotels, destination resorts, condo hotels, vacation ownership and

private residents' club.

• Four Seasons is developing a destination resort in Puthenkayal, Kerala, which will have 75 villas

and also 20 branded, luxury private residences. The resort will be operational by 2012.

• Nearly 11 per cent of the hotel demand in the country is from long stay guests. The Leela Group is

looking at tapping this market. Its property in Gurgaon will have 90 apartments called 'The Residence'

aimed at the long stay guests.

• India's largest real estate player, DLF, is building India's first residential hotel in Goa with the

Hilton Group. DLF plans to invest US$ 2 billion to have six hotels on a similar format in the next five

years.

Expansion Plans

With India being on the global tourist map and more and more people coming to India for tourists or

business, hotels are looking at expansion in a major way.

• The Taj Hotels Resorts and Palaces — in a joint venture with CC Africa, a leading safari operator

and ecotourism company from Africa is opening two safari lodges in Madhya Pradesh at Panna and Kanha

National Parks. It already has a safari lodge each at Bandhavgarh and Pench National Parks.
• Marriott, which manages six hotels in India at present, is looking at a steady growth in the number

in the next four years. It expects to have 25 hotels by 2011 with room strength of 8,000–10,000.

• EIH, which owns the Oberoi and Trident group of hotels, is looking at opening 10 hotels in India

and abroad in the next three years. These include a luxury Oberoi Hotel in Gurgaon to be opened in 2009,

a 320-room Trident hotel at the Bangalore International Airport to be opened in 2010, and two hotels to be

opened in Hyderabad in 2010.

• Hotels in Hyderabad are on an expansion spree and a whooping 4,000 rooms will be added in the

next couple of years. Around 20 major properties including that of Park Hyatt, Trident, Marriott, Leela and

Taj among others will effectively double the current capacity of 4,000 rooms across all types of hotels.

International Recognition

India's booming tourism sector has not only witnessed international investments but also achieved

international accolades with its increasing appeal as the leading global tourist destination. The government

has been instrumental in making tourism a priority sector. Its efforts have borne fruits with a series of

international recognition and awards.

• India has been elected to head the UN World Tourism Organisation (UNWTO), the highest policy

making world tourism body represented by 150 countries.

• The world's leading travel and tourism journal, Conde Nast Traveller, has ranked India as the

'numero uno' travel destination in the world.

• India was adjudged Asia's leading destination at the regional World Travel Awards (WTA).
• India's Taj Mahal continues to figure in the Seven Wonders of the World.

• Bangalore-based Leela Palace Kempinski was voted the favourite business hotel in the world in a

Readers' Choice Awards by Conde Nast Traveller in 2007.

• India bagged the World's leading Destination Marketing Award for the Incredible India campaign.

Government Initiatives

To unlock the huge potential in this sector, the government has taken various initiatives for the

development of this sector.

• Launch of Incredible India campaign to promote tourism both in domestic and international

markets.

• Recognition of spare rooms available with various house owners by classifying these facilities as

"Incredible India Bed and Breakfast Establishments"', under 'Gold' or 'Silver' category.

• A new category of visa, "Medical Visa" ('M'-Visa), has been introduced which can be given to

foreign tourists coming into India for medical tourism.

• Ministry of Tourism has tied up with United Nations Development Programme (UNDP) to

promote rural tourism.

Another factor that is directly reflected in the room earnings is the percentage of forex earnings to the total

income. With the depreciation of the rupee, hotels benefit.

A high capital expenditure and gestation period of about eight years make for high entry barriers to the

industry. Land accounts for as high as 40-50% of the total cost. Around 20-30% of the total cost goes into

construction, with the remainder going into furnishing and interiors. Apart from being owned, hotels can

also be leased and acquired on a management contract.

Typically, maintenance, F&B, fuel/power, and employee costs account for over 60% of the revenue that

hotels earn from sales. With high fixed costs, high occupancy rates are critical for the industry. A small

change in occupancy rates directly affects the bottomline of the hotel. About 22% of the costs goes directly

to meet wages.

The hotel business is very regional in nature and is based very heavily on demand and supply, thereby

making this a very cyclical business. When the occupancy rates start touching percentage levels of 60,

hotels go in for a tariff increase. However, most tariff increases come in the second half of the financial

year, when the demand-supply favours hotels.

Increases in tariffs are very region-specific, and, in a place like Bangalore, where the demand-supply

situation favours hotels, tariff increases are more frequent. On the other hand, a city like Delhi does not

favour increases in hotel tariffs. North Mumbai, which has seen a massive increase in hotel rooms, does

not seem to favour tariff hikes, either.

GUESTS PROFILE

In India, approximately one third of tourists are business travelers, who are not tariff-sensitive. Leisure

travel is, seasonal, and is sensitive to political and social upheavals. Most hotels are dependent on the

leisure traveler for their revenues, so they tend to be more vulnerable to environmental factors. Since the

business traveler is less susceptible to seasonality and is also less tariff-sensitive, hotels in metros and other
commercial centers enjoy higher occupancy rates throughout the year. Further, the yields per room at

business hotels are higher due to the greater use of communication, conferencing and other value-added

services. Besides, the business traveler spends more on F&B than the leisure traveler.

TRENDS IN THE HOTEL INDUSTRY

With changes taking place in IT and branding the industry will consolidate much on a global scale. Hotel

chains are increasingly getting on to the Global Distribution System (GDS), thereby increasing their reach

to a large number of travel agents across the world, who use various computer terminals to make bookings

for their customers. Apart from this, companies are also IT-enabling their operations so as to increase

efficiency.

Leading hotel chains like IHCL and EIH are trying to increase their presence in the global source markets.

IHCL is looking at acquiring high-end luxury properties either through franchise and management

contracts or through an equity stake. EIH, is on the other hand, is looking to tie up with international hotel

chains to further this end.

Operating hotels for a management fee is another way for hotels to expand their geographical reach. This

enables hotels to leverage on their brand name and earn management fees, without having to actually

invest in hotels.

Hotel companies are developing new brands in order to distinguish between premium and budget hotels.

EIH, for instance, has developed the Trident brand as its budget hotel brand.
Most cities in India are also witnessing a lot of new hotel developmental activity. According to HSV

International developmental activity has been high in cities like Mumbai, Delhi, Bangalore, Chennai,

Calcutta, Cochin and Goa.

Public Sector Players:

• ITDC hotels

• Hotel Corporation of India

Private Sector Players:

• ITC Hotels

• Indian Hotels Company Ltd.(The Taj Hotels Resorts & Palaces)

• Oberoi Hotels(East India Hotels)

• Hotel Leela Venture

• Asian Hotels Ltd.

Radisson hotels & Resorts

Foreign tie-up and forthcoming projects

India is experiencing a flood of the world's leading hotel brands. Many international hotel chains either

have or on the look out for setting up shop in the country. This clearly shows that India is on the
international tourism radar, what the industry needs is the other hand for a handshake, this can be provided

by the ruling government.

New brands such as Amanda, Satinwoods, Banana Tree, Hampn Inns, Scandium By Hilt and Mandarin

Oriental are planning to enter the Indian hospitality industry in joint venture with various domestic hotel

majors.

Hotel developers like ITC, EIH, Bharat Hotels, Viceroy, DLF, Unitech and Royal Palms are currently in

negotiations with various hotel brands. ITC wants to extend its existing tie-up with the US-based Starwood

Hotels beyond the latter's Sheraton brand and may bring other Starwood brands like W Hotels, Westin,

Four Points and Aloft to India in ITC's new project.

• Dubai based Kingdom Hotel Investments is looking at an investment $1 billion and is currently in

talks with leading hotel companies in India and is looking out for land and hotel projects in the

country.

• InterGlobe Hotels has tied up with European player Accor to set up 12 hotels under the Ibis brand.

UK-based hospitality chain Thistle and Guoman Hotels has tied up with Nijhawan Group as its

sales and marketing representative in the country.

• IHHR Hospitality Private Limited will open five business hotels in India over the next three years,

and has embarked on a US$ 108 million investment plan to expand its footprint. The company

would set up hotels - under the brand name Ista - in Hyderabad, Pune, Amritsar and Ahmedabad,

besides one in Bangalore, its chairman Gautam Khanna said in Bangalore.

• Unitech which is setting up two hotels in Delhi, has already formed a joint venture with Marriot

International to run its three new hotels in India, which are expected to start operations by '08.
 • DLF sources said that Hilton International will be a minority stake holder in its hotel development

company. The properties under DLF-Hilton joint venture would be managed and marketed by

Hilton International.

• Mumbai-based Royal Palms is in talks with Anando, Starwoods, and Singapore based Banyan Tree

for its three new hotel projects coming up in various parts of India. The firm has already tied-up

with the US-based Carlson Hospitality and brought the Park Plaza brand to India recently.

• The UK-based hospitality chain Thistle and Guoman Hotels is keen to enter the Indian market.

"We hope to make an announcement on investment in India by the end of the year. We plan to have

a Guoman hotel in India, which is the upmarket luxury brand. We are open to examine all options

including building a hotel ourselves," said the Area General Manager, Sanjay Nijhawan.

• Courtyard Marriot plans five-star hotels in Hyderabad and Bangalore. It already opened a hotel in

Chennai three months ago. The Hyderabad property is likely to be opened in July and the one in

Bangalore by the first quarter of 2008, said John Toomey, Director of Marketing-India.

• TUI, a global travel major which entered India last year, strengthened its presence by picking up

Select Vacations, an outbound travel firm, earlier this year. Deal makers for private equity and VC

funds are also taking a keen interest in the Indian travel space, especially in the online domain.

• Thomas Cook India managing director Madhavan Menon said the company is scouting for

acquisition opportunities in the foreign exchange and travel-related services space.

• Australia's Flight Centre entered the Indian travel space after acquiring Friends Globe.

Most hotel chains in India are looking at expanding within the country as well as overseas. But they

require huge investments for this. With real estate prices going through the roof and an all-time high

investment cost, a management contract is the easiest way out.

A number of Indian players are looking at management contracts as a way to grow. These include groups

like ITC, Taj and Oberoi to name a few.

Indian Hotels Company (IHCL), which runs the Taj chain of hotels, has entered into a 10-year

management contract with Dubai-based property developer ETA Star for a luxury hotel and residential

apartment complex in Dubai.

Indian Hotels will increase its presence in South Africa by developing one luxury hotel each in

Johannesburg, Durban and Cape Town. The total cost of the projects, which will add 550 rooms to the

hotel chain in the African continent, is estimated at $180 million. IHCL has formed a 50:50 joint venture

with Tata Africa, Taj International (SA) Pty. The joint venture will invest in individual hotel projects with

local developers.

Anil Dhirubhai Ambani Enterprise (ADAE), HSBC Asia and Kotak Mahindra UK together have acquired

around 30 per cent stake in the Hyderabad-based hotel chain, Viceroy Hotels (VHL), for a consideration of

US$ 25 million.

EIH Ltd, the flagship company of Oberoi Group said it plans to establish a presence in China's hospitality

industry. The firm, which is in the process of establishing a $100-million hotel in Dubai, is also examining

opportunities in London and New York as part of attempts to expand its global footprint and ride the boom

in travel

STRENGTHS
1. Natural and cultural diversity : India has a rich cultural heritage. The "unity in diversity" tag attracts

most tourists. The coastlines, sunny beaches, backwaters of Kerala, snow capped Himalayas and the

quiescent lakes are incredible.

2. Demand-supply gap : Indian hotel industry is facing a mismatch between the demand and supply of

rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth

Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the

sector.

3. Government support: The government has realized the importance of tourism and has proposed a budget

of Rs. 540 crore for the development of the industry. The priority is being given to the development of the

infrastructure and of new tourist destinations and circuits. The Department of Tourism (DOT) has already

started the "Incredible India" campaign for the promotion of tourism in India.

4. Increase in the market share: India's share in international tourism and hospitality market is expected to

increase over the long-term. New budget and star hotels are being established. Moreover, foreign

hospitality players are heading towards Indian markets.

Other strengths

Second largest foreign exchange earner

Global economical turn-up

Inclusion in EPCG* scheme

New business opportunities

WEAKNESSES

1.Poor support infrastructure: Though the government is taking necessary steps, many more things need to

be done to improve the infrastructure.

2.Slow implementation: The lack of adequate recognition for the tourism industry has been hampering its

growth prospects. Whatever steps are being taken by the government are implemented at a slower pace.

3.Susceptible to political events: The internal security scenario and social unrest also hamper the foreign

tourist arrival rates.

Other weaknesses

Capital intensive

Lack of adequate Man power

Non-availability of land

Regional imbalance of hotels

Long gestation period

Huge labor turnover

Less corporate ownership

OPPORTUNITIES

1.Rising income: Owing to the rise in income levels, Indians have more spare money to spend, which is

expected to enhance leisure tourism.

2.Open sky benefits: With the open sky policy, the travel and tourism industry has seen an increase in

business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has

benefited both international and domestic travels.

Other opportunities

Boom in tourism

Privatization of airlines

Tie ups with international hotel chains

Increase in disposable incomes

Boost in tax concessions

THREATS

1. Fluctuations in international tourist arrivals: The total dependency on foreign tourists can be risky, as

there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance

and measures should be taken to promote it.

2.Increasing competition: Several international majors like the Four Seasons, Shangri-La and Aman

Resorts are entering the Indian markets. Two other groups - the Carlson Group and the Marriott chain - are

also looking forward to join this race. This will increase the competition for the existing Indian hotel

majors.

Other threats

Sensitive to disturbances in the country

Competition from other Asian countries whose official currencies have fallen drastically
High service & luxury taxes may render India as an unviable destination.

Lack of trained entrepreneurs

*EPCG - Export Promotion Capital Goods.

Current pricing strategies

The impact on the convention market
 Corporate transient demand
 Pricing strategies
o Preference for corporate transient
 Rate yield
  Drives less flexibility
o Internet drives transparent pricing
o Connectivity less allocation
 Real time availability and pricing

Growth by segment

 Balance growth globally

o Luxury/upscale to midscale to budget
 Number of hotels
o Indexes to limited service
 Number of rooms
o Indexes to upscale (larger room inventory)
 Urban growth
o Suburban growth outpaces CBD development

Future pricing strategies

The impact on the convention market
 Dynamic pricing (flex rates)
 Value to the customer
o % discount rather than fixed discount rate
o % discount from BAR (best available rate or market rate)
o Supply and demand pricing
o Customer protection BAR must be competitive in the market
 Confluence of negotiated corporate transient rate programs with volume meeting rate
Trends & Developments in Tourism

The tourism industry in India contributed only 6.8% of the GDP in 2007/08, noticeable improvement 
from 5.9% in2006/07. According to estimates of the world travel and Tourism Council(WTTC), Indian 
tourism demand will grow at 7.9% from 2008 to 2017 in real terms.Foreign tourist arrivals to India have 
been showing an increasing trend estimated at 4.98 million in 2007 in comparison to 4.43 million in 
2006 and 3.92 million in 2005. Over the last ten years, foreign tourist arrivals into India have recorded a 
growth of 109.65% from 2.37 million in 1997 to 4.98 million in 2007. However, even at this visitation 
level, India accounts for less than 1% of the global tourism market. Domestic travel, both business and 
leisure, has also benefited from a strong performance of the corporate sector in India, and the overall 
sense of optimism with regard to the economy. Increase in charter flights into India and new airlines
providing additional seats for travel within the country are expected to have a significant impact on 
increase in affordable air travel within the country. Table 3 depicts the international and domestic 
visitation trends in India during 2003­07. The strong performance in tourist arrivals in 2007 is 
attributable to a strong sense of business and investment confidence in India. This was inspired by 
India's strong GDP performance, strengthening of ties with the developed world and the opening of 
several sectors of the economy to private sector/foreign investment. Significantly, the bulk of 
international arrivals into India in 2007 have been business travelers. However, it should be noted that 
the base for tourism in India is still very low. The sudden surge in demand for hotel accommodation over 
the last three years has inflated hotel room rates in the country, which currently rank amongst the
highest in the world. However, a number of international brands across all hotel segments are planning to 
or have recently entered the Indian market. Domestic hotel chains, too, are embarking on strong
expansion and development plans across all hotel segments. As the gap between supply and deman  for 
hotel  accommodation narrows over the next few years, we expect room rates to rationalise,
which would encourage leisure travel.

Air Transport Overview
According to the Directorate General of Civil Aviation, 43.2 million passengers traveled by air in 2007 
registering a 32.51% growth over 2006. This was accompanied by a growth in low­fare air carriers, with 
a resultant decline in the market shares of the more established ones like Jet Airways, JetLite, Indian and 
Deccan. With the surge in the tourism industry, more foreign carriers are seeking to start up or increase 
their existing operations into India which will in turn facilitate tourism. However, there is a shortage of
available parking bays for the various new airlines, and other facilities at the airport including check­in 
counters, baggage handling and security. In order to meet the increased demand, the current government 
has brought in private sector assistance to invest in and develop airports. Furthermore, owing to spiraling 
fuel prices, the aviation sector is anticipated to record heavy losses in 2008/09. Some amount of 
consolidation and restructuring is anticipated in the civil aviation sector for the Indian carriers to
reduce losses and stay afloat. The HVS Survey has been computed by dividing the respondent branded 
hotels into their respective classifications according to star grading. As before, we have examined the 
performance of 11 major cities across India, wherever a reasonable sample allowed. While most of
the data provided to us is in Indian rupees, we have presented survey results in US
dollars as well.

 Markets in India for the financial year ended March 2008 witnessed occupancy erosion with marginal 
rate improvements in more mature Tier I commercial markets. For some of the emerging Tier II 
commercial markets and tourist destinations the growth in average rate has been significant, 
accompanied by marginal occupancy improvements. This year, except for three cities, all others
showed a decline in occupancy. Average rates, which typically had been increasing in strong double 
digits, have also shown a slowdown with one city actually showing a decline and many others showing a 
rise in line with only inflation. There were, however, seven cities that continued to
grow at 10­30% in terms of average rates. While, the perceived slowdown in growth can primarily be 
attributed to the macroeconomic outlook, HVS would also like to highlight that over the last three
years some industry players have been guilty of exploiting the delicate price­value propositions. One can 
understand when some of the hotels, which compete in the top end of the luxury market with 
international product offerings and service delivery standards charge high rates.However, when all hotels 
start to chargerates that are 50% to 75% higher of whattheir global average brand rates are, thereis a 
cause for concern. If the trendscontinue, India is at a risk of out­pricing itself and losing its competitive 
advantageand the industry will have only itself toblame. During the next two years it should be very 
interesting to see how the new supplyentering the markets affects the supply­demand gap. Our view at 
HVS is thatoperators will once again have to shore uptheir occupancies and perhaps then look 
atstabilising rates. Obviously this will ensurethat the hotels that have the product tomatch up to the rate 
will successfullymanage to sail through, but hotels that were just inflating their rates due to 
supplyconstraints will no longer be able to do so.This would particularly be more importantfor the three 
and four­star categories as for the first time we will have many new international players entering 
thissegment. Also keenly watched would be the performance of the unregulated and unorganised 
hotel/guesthouse market in the key cities of Bangalore, Delhi­NCR and Pune. These cities have seen a 
parallelsupply of hotel rooms and this had affectedoccupancies for the branded segment.Now with the 
correction beginning to take place in the branded segment, we need tosee if the customer indeed moves 
back tothe hotels or not.
Overall, the industry has seen a 12­month growth of 11.9% in average rates (in2007/08), as opposed to a 
growth of 30.0%the previous year. Occupancy growth also
declined by 2.7%: the highest decline inpure percentage terms since 2001.
Interestingly, the sharpest decline of 4.2%was seen in the three­star sector. This couldbe attributed to the 
new supply enteringthis segment and also out pricing of theexisting one.
Average rates in 2007/08 witnessed anotherincrease across all market segments;however, the overall 
growth was lowerthan that in the previous few years. The highest annual growth in average rate, in 
Indian rupee terms, was witnessed in thefive­star (17.0%) and five­star deluxe(13.8%) categories 
followed by the three­star category (13.1%). The average rate for four­star properties also showed 
anincrease (10.9%). These growths were comparatively much lower than thegrowth witnessed 12 months 
earlier. It mayalso be noted that over a ten­year period,the compounded average rate growth inrupee 
terms has been the strongest in thefour­star (10.6%) and three­star (9.9%)categories, followed by the five 
star and then the five­star deluxe ones.The continued increase in average rates,however, has taken a toll 
on the marketsand this has adversely impacted theoccupancies, which declined across the board. To a 
large extent the decline inoccupancy for hotels across India was dueto the sharp correction in the 
occupancylevels in the three big IT cities of Pune,Hyderabad and Bangalore. In fact, for each of the 
mentioned cities, their peakoccupancy was witnessed two to threeyears ago. Due to lack of new supply, 
theyhave been able to sustain growth throughaverage rate increases, but we believe thateven this is now 
questionable as guests arelooking for alternate options. The growingeconomy and especially the growth 
of theIT/ITES sector created new feeder marketsand extended stay demand whichcontributes any where 
from 10% to 20% ofa city's room nights demand. This demandhas been extremely advantageous, as 
itenabled hotels to indulge in proactive yieldmanagement, rate contracting and microsegment planning. 
However, with hotelsout­pricing themselves many of theIT/ITES companies have started makinghotel 
accommodations within their owncampuses affecting negatively the growthfor hotel rooms in these 
cities. HVSbelieves that at least 3,000 to 3,500 suchrooms have come into effect in the past two years 
alone in these three cities and a few others.
In terms of RevPAR, all star categories experienced growth in 2007/08. The five­star hotels experienced 
the maximumgrowth in rupee terms (13.0%) followed byfive­star deluxe hotels (11.9%). The three­
star and four­star hotels each saw anincrease as well at 8.4% and 8.3%respectively. In US dollar terms, 
the five­star segment showed the highest increase(16.5%), followed by the five­star deluxe(15.4%) and 
Three­star (11.7%) segments.Table 7 presents RevPAR performance inIndian rupees for the period 
1998/99­2007/08 and Table 8 presents the same in USdollars.In 2007/08, Mumbai and Kolkata at 74.9%
were the overall market occupancyleaders. The weak performance of atraditionally strong market and the 
strong  performance of a historically weak onealways make a fascinating study. In2007/08, only two 
markets – Ahmedabad(8.1%) and Agra (3.1%) – managed toimprove their occupancies in the last 12
months, while Jaipur remained stable withno change in occupancy levels. Anoccupancy decline was 
seen in all the othercities – Pune (­14.9%), Hyderabad (­8.5%),Bangalore (­7.9%), Delhi­NCR (­4.2%),
Mumbai (­3.9%), Goa (­1.8%), Kolkata ( ­ 0 . 8 % ) , a n d C h e n n a i ( ­ 0 . 5 % ) .
Interestingly, each of these cities has onlyseen a fraction of the new supply enteringits markets and we 
can expect a bit moreinstability before growth begins anew when the demand­supply gap narrows.

In terms of RevPAR growth, the trendsseem to have completed a full cycle. In thepast, cities like 
Bangalore and Hyderabadwere the leaders; however, in 2007/08 bothof them saw RevPARs decline by 
12.1% and 2.3% respectively. Mumbai and Kolkatawhich had done exceptionally well last year, 
continued to show strong RevPARgrowths of 19.3% and 22.4%. The surpriseleader in RevPAR terms 
was Ahmedabadat 39.8%. HVS anticipates that RevPargrowth over the next 12 months is likely to
remain positive, but perhaps in singledigits for most markets.
Pune had a growth in room supply by 73%because of its extremely small base ofexisting rooms. As this 
base grows the percentage of new supply entering the market is going to decline. However, the
dynamic base helped Pune performremarkably well considering the newsupply as occupancies remained 
strong at 71% and the rates too went up by over21.8%. Still with 612% (8,243 rooms)growth and 66% 
probability factor of allthese rooms actually opening, we believethat Pune will see a correction in the
market in terms of both occupancy andaverage rates over the short to mediumterm. At this stage HVS is 
tracking close to50 projects in this market,despitefewwhichdroppedoffearlier.Despite these 
developments, HVS believes there woul be opportunities in certain micro markets provided the product 
positioning isappropriate for the site.

Ahmedabad had new supply grow by 30%during the previous 12­month period.This growth is high 
clearly due to itsexisting low base of quality rooms in the city. Gujarat, under its current political
leadership, appears to be doing well withits pro­business approach, which is generating a lot of interest 
on theinvestment front including hotels. In thepast 12 months many new projects havebeen announced 
and this has resulted inan expected 543% (3,664 rooms) growth with a 47% probability factor of all 
these rooms actually opening. Considering thatAhmedabad was the market RevPARleader last year and 
has a stable government in place, which is encouraging industries and businesses, we feel that the city 
will absorb this new supply.

Chandigarh (including Mohali) continues to have only one recognised brand and, therefore, has an 
extremely low base of room supply. There has also been no new addition to the city's supply. The city 
offers excellent opportunities for food and beverages (F&B), banquets etc. Therefore,we believe that first 
class, mid market andbudget hotels will particularly do well. We believe that the current base of rooms is 
going to grow by 533% (1,813 rooms) with a 54% probability of actually being developed. While many 
real estate companies have land banked, there is not much activity going on in terms of real
development. Also we are worried about the very slow pace of IT/ITES development, as IT/ITES is 
consideredimportant for the growth of the hotel sector.

Bangalore has been amongst the top performing markets in India for the past four to five years. 
Developers were initially slow in gauging the market and new hotel developments took a while before 
they started opening during the last 18 months.The city saw hotel room supply increase by 43% during 
the past 12 months. This is in addition to guest rooms that have mushroomed in the past 24­36 months 
and b e c o m e s u b s t i t u t e s f o r h o t e l accommodation in the city. Over the past few years we 
have maintained that Bangalore would see a rate and occupancy correction, which was expected in 
2009/10.However, this correction started earlier than anticipated and is partially due to the sudden 
change of fortune in the global economy, which impacts Bangalore potentially more than other cities 
because of its dependence on IT/ITES. Future growth of room supply in the city is expected to be 450% 
(15,542 rooms) and 60% of these have probability of development. We believe the city is currently 
flirting with the danger of an over supply in the luxury and first class space. Therefore, hotels being built 
in the mid market and budget space would be safer bets in the long term. Despite these developments 
Bangalore is a great city for hotel developments, provided an investor's financial models take into 
account the realistic pricing of room rates and not the overpriced rooms as happened during the past few 
years.For the past few years and again this year

Kolkata has been amongst the top performers. The city, however, has a small base and therefore we can 
expect a 427% (5,965 rooms) growth in new rooms supply with a probability factor of 49% development 
taking place over the next few years. In recent months the state government has taken a serious image 
beating due to the controversy surrounding the manufacture of the Tata'sNano car. However, if 
investments continue into the state and Kolkata in particular, then we can expect the hospitality sector to 
continue to boom. Wedo, however, believe that currently there is too much focus on the luxury end of 
themarket and not enough on the budget front.

The Hyderabad market, until recently, did very well for a few years but is again showing signs of 
reversing all its gains. While the city continues to enjoy the highest compounded RevPAR growth of
16.7% over a ten­year period, it has seen sharp occupancy corrections in the past two years and average 
rates grew only in line with inflation. Part of the occupancy correction could also be attributed to the
healthy increase in rooms supply by 36.7%. However, unlike its IT counterpart –Bangalore – this city 
remained extremely price sensitive and hotels have never been able to push occupancies higher without
the consequences of lower rates. We expectnew supply to remain high at 323% (8,250rooms) growth 
with a probability development factor of 64%. As we can see in Table 15, the probability factors for
projects that are expected to be completed in Hyderabad alone have grown at 17%. Further, our worry is 
that the highest growth is expected in the luxury segment, where the average rates are below US$150
on an average and would thus suit the hotels that are built to mid market specifications.

Chennai remains a stable and steady market. We anticipate that this city will see an increase of 253% 
(7,147 rooms) growth with a high probability factor of 71%.Chennai is extremely diversified with
various demand generators, which include the IT/ITES industry, a strong automobilemanufacturing base 
and Southern India's regional headquarters for many banking companies. Therefore, this provides a lot of 
comfort to new developers. Although in the past 12 months new supply grew by over 15% we have not 
seen any real decline in occupancy and in fact average rates continue to rise

.Perhaps no other region in recent times has received more focus from the media on new hotel supply 
than the Delhi­National Capital Region (NCR). HVS is literally tracking a 100 different hospitality 
projects being planned or talked about in the NCR. This is a growth of 248% over its existing supply 
(9,019 rooms), which should be music to the government's ears who isactively trying to encourage hotels 
to open before the 2010 Commonwealth Games in October. However the bad news for the
government is that we expect only 51% of all these projects to be built over the next five years. This 
percentage further falls to 44% or 9,867 rooms, when we look at opening before the Games. We would 
like to clarify that our projections on supply take into account the hotel district developments at the 
international airport, but not the proposed hotels auctioned and then subsequently cancelled at Noida.
HVS associates have also physically verified the development stage of each of these projects. An 
encouraging factor has, however, been the increase in FSI norms for the area from 1.5 to 2.25. However, 
the bureaucracy of getting approval licenses to construct remains the biggest challenge facing the hotel 
sector today. Due to the multiplicity of authorities in the NCR this problem is even more critical here.

Jaipur  continues to do well both as a leisure destination and a business location. New supply is 
expected to grow by 189% (2,937 rooms), of which HVS believes 53% will actually get developed. 
Despite a slight increase in rooms supply during the past 12 months, occupancies remained stable and 
average rates grew with inflation. Like before, we believe that new supply will get successfully absorbed, 
provided the projects are built to quality to match the segments that they compete for. Moreover,
having their own individual USP would give the hotels a better chance of absorption. Fortunately, 80% 
of the new supply is expected in the budget to mid market category, which is excellent for the
overall tourism potential of the city.
 After a gap of six years Mumbai has once again captured the number one spot in terms of 
RevPAR in 2007/08. Bangalore, and for a few years the NCR too had overtaken India's commercial 
capital as the market leader. Mumbai managed to not only share the spot with Kolkata as the best
performer in terms of occupancy (74.9%) but also the country's average rate leader at Rs10,842. The city 
has amongst the lowest percentage supply growth pipeline of 126% (10,613 rooms). Of this, we expect
only 62% to actually get built. Mumbai continues to offer fantastic opportunities
for new hotel development as demand certainly continues to be strong. With all the various re­
development/rehabilitation schemes of mill lands and slums we expect there to be good opportunities for 
hotels to come up during the next decade or so. Till then, we can continue to see good rate growths and 
reasonably healthy occupancy levels.

Goa continues to be India's famous beach destination. The location has huge barriers to entry in terms of 
environmental clearances and other government obstacles and, therefore, development projects take 
extremely long to complete.The state is likely to see an increase of 121% (3,353 rooms) with a low 
probability factor of 42% for the next few years. Goa's market has also seen a huge increase in average
rates, which is making it an expensive destination for charter business; a slowing of this business is 
likely to impact hotels in turn. There has been limited progress made on the convention centre, and also
the upgradation of the existing airport or the proposed new one. The recent spate of unfortunate attacks 
on a few foreigners has not helped. Having said this, Goa remains an excellent investment opportunity 
for hotel development.

Agra was amongst the only two markets, which saw its occupancy grow last year. While the city has Taj 
Mahal to charm and attract tourists, the state administration has done little to maintain and clean the
infrastructure which is hurting further growth of this city. We believe the market will perhaps grow by 
50% (670 rooms) and approximately 55% of this might actually get developed. The silver lining is that
most of this new development is taking place in the mid market space. 
Future challenges on the room supply side are the exorbitant prices of land parcels and the high 
expectations of the landowners for the same. Many stand alone real estate owners land banked thinking 
that they would sell ahead and make an early exit. However, with a change in sentiments this is now an 
enormous challenge. While prices at a few locations have softened there may be a while before others 
follow. The most recent credit crisis at a global level has certainly added negatively to the market 
sentiments. With the government fighting inflation as its first priority and the cost of borrowing – if
at all available ­ at recent record highs, we can expect things to pick up in terms of transactions that 
make more sense. HVS firmly believes that the next 12­24 months will offer opportunities to those who 
have cash to buy. This will offer a great opportunity to investors who are likely to start looking for 
bargains.

Hotel Supply
. In 2005, the proposed new supply of branded and quality hotels for the ten markets covered by us was
22,400. This rose to 48,500 in 2006, 77,500 in 2007 and now to 80,501 rooms for the ten cities originally 
tracked. When we look at the entire Indian hotel market we believe that there are approximately 114,000 
rooms entering within the next five years. We will like to state that a lot of effort goes into collating this 
data and then verifying many of these projects across various cities
in terms of their development stage. Our tracking omits any flippant statements made to the media or 
announcements made by real estate developers to promote their brand and, therefore, get greater
visibility. Thus, like last year we have put together a list of developments under construction, or those 
announced in each market that have a confirmed tie up with an operator. Such developments have been
analysed rationally, through the prism of an unbiased third party, for the probability
factor of their development within the next five years. In Table 14, we present the existing and
proposed quality supply entering each of the 11 markets covered in this report. Chandigarh, like last year, 
has been added to this list. The table reflects the anticipated growth over the next five years and also 
shares a probability factor (active supply) to reflect those hotels, which are either under construction or 
hotels that HVS is confident will open before March 2013. We have further also provided in this table the 
potential segmentation for the new supply and classified it into luxury, first class, mid market, budget 
and extended stay hotels. In Table 15, we provide a comparative analysis of the situation last year, when 
we released this report on new supply, and this year for a better understanding of how
the hotel sector is evolving. Last year when we undertook this exercise of determining new hotel supply, 
the Pune market was expected to have maximum development (1,039% supply growth over
existing supply). This has been vindicated by the fact that supply has grown in Pune by 73.2% over the 
past 12 months. Currently we still believe that this market can be expected to grow by 612%. While
Table 14 needs to be read carefully and may come as an eye opener to many potential investors, it is the 
fourth column that needs careful consideration, if not more weight, since it reflects the actual active
development for the proposed supply. So while Pune may reflect that 8,243 rooms are under 
development, we at HVS believe that only 66% of this proposed supply will actually get developed by 
2012/13. Similarly in Table 15 we can see how the Pune market has changed on the supply front over the 
past 12 months. Later in this report we discuss the growth, demand and supply situation for each of the 
11 cities tracked. If one were to analyse the entire country, we expect that approximately 58% of the
total new supply of 114,466 rooms, or approximately 66,000 rooms, will actually get developed over the 
next five years. Our estimate is that there are approximately 120,000 rooms operating in India. This
number is based on the number of rooms, which are officially approved by the Government of India as 
well as the FHRAI (Federation of Hotels and Restaurants Association of India) members. We also
estimate that there would probably be another 60,000 to 80,000 guesthouses or corporate guesthouses 
taking the total supply of transient guest rooms to approximately 200,000 units/rooms. The reason we 
highlight this is because there are various guess/estimates doing the rounds. Research by HVS confirms 
an alarmingly low number of branded or quality rooms supply in the country, which stands at 
approximately 47,000 rooms. This overall number for India is actually lower than that for most major 
cities across the globe. Therefore, even with the addition of 66,000 quality/branded rooms across India
in the next five years, we believe that India offers huge potential to investors and operators across all 
segments. Moreover,  the fact that India has an annual traveling population of 500 million travelers, 
which is bigger than the entire population of the United States alone, is a case in point
Future Trends

The last few years have seen unprecedented increases in average rates across the country. While this has 
hurt occupancies and forced them downwards the overall effect has, however, been very positive on the 
RevPARs. As recently as six months ago the Indian hotel sector was expecting another good year, and a
correction was not foreseen till at least another 12­15 months in many of the markets. However, due to 
the global economic slowdown, some new hotel supply, high inflation including staggering increases in 
fuel prices that have forced the cost of air travel to increase, there has been a severe tightening of travel 
budgets, which has resulted in a fast drop in occupancy. Hotels that were caught off guard as these events 
unfolded and continued to push for higher rates found their policy to be counter productive as
occupancies have begun to sharply correct and in the medium term will force a rate correction also. 
However, in the short period between April and September this year we have seen hotels manage to
increase overall RevPARs. Compared to many other economies, the Indian economy is relatively much 
more stable due to the high domestic consumption. In hindsight, the government's limited progress on 
financial reforms in recent years also meant we had limited exposure to the American credit crisis. 
However, in order to fight high inflation the government has had to tighten the monetary policy and this 
has led to a credit­liquidity crisis and subsequently very high interest rates with the result that many 
projects have just come to a standstill. We anticipate that while this will slow down the pace of
supply in the short term, it would certainly help existing hotels and those that are about to open as 
absorption would be greater. Valuations of hotels, too, are expected to see a correction and this would 
actually be a good opportunity for serious investors to pick up half­built properties. While historical 
capitalisation rates or cap rates have never been available in India, we anticipate them to go upwards in 
the short to medium term and range possibly between 10.5% and 13.0%. However, while not 
generalising, we expect certain markets and particularly micro locations in major cities to be able to 
swim against this trend. Mumbai and Goa appear to be the two markets ready for further growth with
very limited new supply entering them. India has recently started observing the introduction of quality 
budget and mid market hotels. Local brands like Lemon Tree, Hometel, Fortune and International
brands like the Ibis by Accor, and Oakwood serviced apartments are going to transform the budget and 
mid market hotel sectors. Many of these new brands mentioned above are building very cost effective 
hotels and clearly not over spending like some of their full service counterparts in the same segment. 
HVS believes that owners who visit and see these projects will be convinced that they do not have to 
over build specifications of hotels in India. We hope to see a trend where owners will be able to stand up
against some of the brands, which are being built more than what is required of that segment, and would 
certainly not have done so had it been their own funds. With tightening availability of capital and debt, 
we hope and expect there to be a mid way point on this issue. Additionally, the cost of construction has 
also risen by 10­15% in the past year or so on account of basic raw materials like steel and cement.
Therefore, it would be prudent to be more cautious than injudicious in conceptualising hotels to 
specifications.Another trend, which has been recently noticed in the budget and mid market
space, is the advent of cheap furniture, fixtures and equipment (FF&E) from
China. While this looks extremely attractive on paper and helps in the overall initial project cost we do 
believe that its quality is relatively poor and would have to be replaced more frequently negating
any initial gains. HVS believes that owners, particularly the new ones, would have to be extra careful 
about their procurement and while they can shop in China they need to do so with some caution.
Another very critical trend to watch out for is the rising cost of manpower. HVS recently completed its 
first compensation survey for the hotel industry in India. There is a feeling  that the pressures of higher 
manpower cost will force hotels to be built more efficiently and with greater use of technology to assist 
in mitigating any short term increase in employee costs. Also with the BPO, aviation and retail sectors
hurting, we anticipate that many of the employees familiar with the hospitality sector will come back 
into the work force. Furthermore, with rising local payroll costs we can hopefully also witness a reversal 
of manpower movement from the Middle East back to India. Table 16 presents key operating statistics
for five­star deluxe and five­star hotels in key cities, for the period April to September 2 0 0 8 . C o m p a 
r i s o n s w i t h t h e corresponding period last year have also been presented to illustrate the extent of
change. Performance trends for the first five months of the year 2008/09 have not been as bad as that 
made out by the media. HVS will, however, like to clarify that the above­ mentioned year­to­date figures 
were collected even as the events of the financial markets around the globe were unfolding.
Most markets have seen a dip in occupancy levels but a high increase in rate growths during the same 
period. We anticipate that as we enter the crucial months of October through March, hotels this year will 
not be able to push up rates and instead will be best advised to build again on their occupancy levels. We 
anticipate that likely year­end projections would be possibly single digit gains in rates in many of the
cities and occupancy drops ranging from 5% to 10% in most markets.

OPPORTUNITIES
Amongst the cities tracked, our favorite destinations for investments remain Mumbai and Goa as they 
have very low existing supply pipelines. We expect demand to remain strong at both locations over the 
foreseeable future. We foresee the possibility of large format hotels, which have not yet been tested in 
India but can be extremely healthy for the bottomlines. There also remains a scarcity of units for
the extended stay segment. Other investment opportunities for hotels may be available in terms of 
secondary and tertiary cities like Ahmedabad, Lucknow and Bhubaneshwar. In fact, industrial and
manufacturing areas could also be good locations for budget hotels. Locations in Gujarat, Orissa and the 
Northeast also probably hold out good possibility for mid market and budget hotels. We also continue to 
believe that there are huge opportunities in the leisure space. As we have mentioned previously too, India 
is certainly ready for family destination resorts built to international standards. These could be done near 
both the eastern and western coastlines or within short distances to major cities. It is important
that these destinations be built to international standards and offer value for money to the families that 
they may target. These resorts coupled with good MICE business have the potential to create their own 
niche. While HVS has in the past suggested Condo hotels to their clients and these have being seriously 
looked into by developers, we would now like to caution developers against them as there has been
a spate of litigation in the US and Europe about their performance. Going forward, SEZs, industrial 
parks, locations near existing and new airports remain hot spots for hotel development and offer good 
opportunities. Some of these should be looked at from a mixed­used development format which will
ensure that price of land is shared with other components. The recent downturn in the retail mall format 
also offers good opportunities. Why not use a hotel as an anchor tenant for the project? However, this 
can only happen for hotels, which are budget in orientation or at best mid market; the developer will have 
to customise the mall to the hotel and not the other way around. We have already started
to see this happening in many of the locations and expect this trend to grow
significantly in the future. Despite the recent slowdown in the global economy and the weak sentiments 
of the Indian markets due to inflation, terrorism and other factors, the overall outlook for
the hospitality market in India is optimistic and will remain so, in our opinion.
We still remain amongst the strongest and fastest growing economies in the world. The supply­demand 
imbalance is a fact that is not going to disappear soon. This is particularly true for the budget segment.
In the short term, we can expect a price correction to take place, which is likely to impact the luxury and 
first class hotels more than those at the lower end. While the honeymoon may be over, there is certainly 
no reason why hotels cannot enjoy an extended period of marriage, growth and all round prosperity if 
built and managed properly. We anticipate that despite a few hiccups over the next few years, India will 
remain one of the world's fastest growing tourism markets and the economy will also be hard to ignore.
Availability of Choices

Hotel developments of late have not been restricted to the domain of hotel companies alone, but have 
been taken up keenly by real estate developers. With newer entrants creating budget hotels and
mixed­use developments to cater to the burgeoning middle class travelers the Indian market has over 600 
hotels and related projects in various stages of development. HVS estimates the developments to add 
around 115,000 hotel rooms. The rampant development of hotels in Tier I and II cities has also ensured 
that executives and hotel employees have sufficient employment opportunities. The phased and sustained 
development is expected to allow employees to get employment in their preferred cities as
well as in preferred hotels and brands. The development of Tier II cities as extensions of metropolitans 
across India such as Pune with Mumbai, and Faridabad and Ghaziabad along with Delhi would see an
outflow of manpower from the more expensive metros to the satellite towns, which have a relatively 
lower cost of living. All these aspects definitely shine a bright path ahead for hoteliers across the board
and hold the promise of a more satisfying and rewarding career ahead
“A Total Annual Employment Cost or Cost To Company would consist of the following

components:

1. Annual Salary: defined as the salary on the pay slip inclusive of basic salary, and

special and variable allowances.

2. Annual Benefits: defined as a bonus or performance award disbursed as per

evaluations of accomplishments based on annual appraisals.

3. Retirement Benefits: defined as social contributions derived as a percentage of the

base salary such as provident fund, gratuity and superannuation.

4. Other Entitlements: defined as benefits accorded to an employee viz. hospitalisation

and personal accident premiums.”

Compensation for all Human Resource Managers has been the single­most powerful tool to leverage and 
retain employees. This instrument, however, has not been utilised to its fullest potential till now. With 
reality staring hotel companies in the face, organisations are scrambling to revise salary structures across 
the board in a bid to retain high­potential employees, attract good talent and stem the growth of their 
competition. We believe that in order to retain baseline managers and develop them into future heads of 
department, it may be prudent to revise the existing salary structures. This may be done by adding the 
variable components into the base salary and distributing their vestment over the year rather than giving 
it to individuals as a bonus at the year end. Another effective long­term retention tool that might be 
considered is the Employee Stock Option Scheme, which would ensure a more vested interest in the peak 
performance of the company or unit.
The findings of the firstever pan­India survey of the Indian hospitality industry – HCE Hospitality  
Compensation Exchange India Survey 2008 – indicate that salaries have increased by over 40% in the 
past two to three years. HVS estimates that the trend will continue and the industry can expect to see a 
growth of around 25­30% in salaries over the next year. The survey has also brought to light some
surprising and some expected compensation trends. Our findings indicate that amongst the metropolitan
cities, Mumbai and New Delhi have the highest pay packages across the board for individual hotel 
properties with Kolkata and Hyderabad paying the least. Upon comparing the hierarchy of hotels within
these cities, it has been observed that the difference between some positions is as low as 25% and as 
high as 88%. Table B shows a comparison of the annual midrange salary figures for various positions 
across metropolitan cities in India. As is evident, the General Manager in Mumbai has the highest pay 
scale closely followed by the counterpart in Delhi­NCR. The position, however, is at its lowest pay scale 
in Bangalore with the differential being 58%.

Introduction
Global travel increased by 6% in 2007 compared with 2006, crossing tourism forecasts for the
fourth year in succession. Among the various regions, the Middle East registered the highest growth
in arrival of international tourists with 46 million tourists compared with 41 million in 2006, a
growth of 12.2%.The opening up of the aviation industry in India has resulted in exciting
opportunities for the hotel industry.
The report starts with the global hotel industry to give a perspective of the Indian hotel industry in
the global context. The report covers hotels industry structure, trends in growth of industry
turnover, major players, regulations, demand­supply scenario, growth drivers, issues and
challenges, critical success factors and foreign direct investment trends from Indian perspective. It
also gives a glimpse of proposed investments by domestic and foreign players in the hotel industry
of India. The report also covers various emerging concepts in India such as service apartments,
spas, medical tourism, wildlife resorts, cruise tourism, adventure tourism etc. An analysis of the
industry performance is made on critical business parameters like occupancy rates, revenue per
available room (RevPAR) and average room rates (ARR) and comparisons have been made with
global trends. The report also analyses the performance of the industry across major markets, and
profiles the major players in the industry.
The report will be useful for hotel & restaurant players, real estate companies interested in
venturing into hotel business, commercial and investment banks, business analysts, consultants,
investors and hotel management colleges and students.

Key Findings & Highlights

­ The share of Travel & Tourism industry to the global GDP was 6.48% in the year 2007 with value
of US$ 3,493.19 billion and industry demand contributed to 13.21% of global GDP in 2007.
­ Middle East was the fastest­growing region in terms of arrivals of international tourists during
2007.
­ According to the report by World Travel and Tourism Council, India currently ranks 18th in
business travel and will be among the top 5 nations by the end of 2010.
­ ASSOCHAM has projected that Medical Tourism is likely to become the leading foreign exchange
earner for India
­ India is now emerging as one of the hot destinations for medical
­ tourism after Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia