PANORAMA

Issue 5

PANORAMA

Indian Hotels
Sector
December 2012

Indian Hotels Sector

BY [ANKUR GOYAL & SAHIL PATWA]

Indian hospitality sector falls within the

spectrum of travel and tourism which is
estimated to contribute between 8-9%
towards Indias GDP.
According to the estimates of World Travel &
Tourism Council (WTTC), the direct and
indirect contribution of travel and tourism to
GDP is expected to grow consistently in the
next decade.
Past indicators in Foreign Tourist Arrivals
(FTAs) as well as domestic travel in 2010
suggest that the number of travellers have
almost doubled since 2005. However with
around 6 million FTAs, India accounted for
only about 0.6% of the global tourist arrivals
indicating a huge area of untapped
opportunities in travel.
India presently has an estimated 114,000
hotel rooms spread across various hotel
categories. This is around 150,000 rooms
short from what is required. Obviously, the
opportunities are immense
India was ranked fifth in the world for hotels
with the best business outlook according to
a survey carried out by online travel site,
TripAdvisor. The Indian hotel industry has
been the direct beneficiary of the growth in

the economy and the tourism industry as a

whole. This has been further enhanced by the
liberalization in the regulatory framework in
India. Moreover, increased visibility of India in
recent times due to business and sporting
events has translated into a growing hotels
industry in the country.
The Indian Hotel Industry is grouped into four
distinct business segments

Luxury/Premium, Upscale, Midscale, and

Economy/budget categories based on income
and lifestyle preferences.
As is the case with industries that depend on
discretionary spending, the performance of
the hotels industry is intrinsically knit with the
economic growth.

PANORAMA

| Issue5

GROWTH DRIVERS
The improving demographics
Indias growing middle class, working
population and relatively young population
are generating huge domestic demand for
leisure and entertainment.
Rising affluence
The hotel industry has been the major
beneficiary of the rapid increase in disposable
incomes over the last decade. People moving
up the economic ladder have resulted into
higher demands and better occupancy factors
in the premium hotels of the country.
Current under penetration
The cropping up of new businesses in tier 2
and tier 3 cities will present a significant
opportunity to major global brands
India centric growth strategy
With 740 million domestic travellers (in 2011)
and over 6.3 million FTAs, India, after China, is
considered one of the most lucrative hotel
markets in the world and has the second
largest construction pipeline in Asia. Growing
affluence and the increasing role India is
expected to play in the global economy are
likely to drive both leisure and business travel
in the coming years.
Medical Tourism
India to become a major hub for medical
tourism, with revenues from the industry
estimated to grow significantly in coming
years.

MAJOR CHALLENGES
One of the key challenges faced by the
industry is the cyclical nature of demand,
caused due to seasonal factors, leading to
alternating high and low capacity utilization
periods, hurting profitability.
With uncertainty continuing to cloud the near
term, wavering business/consumer
confidence and a sluggish economy, there is
no significant trigger for the industry during
the next two-three quarters.
However, we have in the past witnessed
periods of decoupling between the hotels
industry and GDP growth; particularly during
periods of recession and the early phases of
recovery. During the economic down cycle,
the faster pace of deceleration in the hotels
industry, as witnessed during 2009, can take
the industry to deep troughs. While the climb
during the initial phases of recovery is faster
than the economic revival, a strong
underlying economy is a pre-requisite for a
sustained recovery.
Tier I cities, primarily Mumbai and Delhi,
continue to be the most preferred locations
for expansion. However, more than one-third
of the respondents did indicate a willingness
to invest in Tier II towns to capitalize on the
growth of domestic travel.
Although most players are not looking for
international locations actively, some
(especially the larger Indian chains) are open
to expanding internationally, provided there
is opportunity available.

The key points to remember for existing as

well as upcoming hospitality ventures would
be:
1.
2.
3.

4.

Achieve Operational Synergies

Cost cutting (utilization efficiency
and overheads)
Building efficiencies preventing
energy leaks, reducing operational
costs, and WC cycle
Hiring and grooming the right talent

EMERGING TRENDS

Huge spurt in International Brands

The emerging market Budget &
Business Hotels
Better infrastructure and air
connectivity
More international brands and large
domestic players entering the fray
Shift of focus away from the metros
into Tier I and Tier II cities

PANORAMA

| Issue5

Advantage India
The WTO (World Travel Organization) predicts
that India will receive 25 million tourists by year
2015.
Stable and consistent growth projected
India currently has over 200,000 hotel rooms
spread across hotel categories and guesthouses and is still facing a shortfall of over
100,000 rooms (Source: FHRAI)
India will add almost 114,000 hotel guest
rooms to its inventory over the next five years.
(Source: HVS)

Contribution of travel and tourism to GDP

expected to rise from USD 120 bn in year 2010
to USD 350 bn by year 2020
Export earnings from international visitors to
grow to USD 36 bn by 2010
Investment estimated to touch USD 120 bn by
year 2020.
India has a world ranking of 12th in terms of
actual market size and is 4th in terms of growth
forecast

Average growth of 8.5% over the next 10 years

in this sector

Major Hotels in India

Groups
Taj Group
of Hotels
EIH
(Oberoi)
ITC Hotels
Leela
Ventures
Ltd.

Number of
Hotels

Segments

90

Premium
Premium and
Upscale

Vivanta, Gateway,
Ginger
Oberoi, Trident,
Maidens
Fortune, Welcom,
Maurya, Sheraton

Premium

The Leela

12
24

Across all
segments

Major Brands

PANORAMA

| Issue5

References:
1.

ICRA report on Indian Hotels Industry, March 2012

2.

Hotels in India: Trends and Opportunities, HVS global hospitality services, 2011

3.

Australian Trade Commission report on Indian Hospitality Industry

4. Hospitality insights from the Indian CEOs desk a PWC study

PANORAMA
CONSULT CLUB, IIM, Ahmedabad
consultclub@iimahd.ernet.in