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India’s economic slowdown spills to hotels
January 22 2013

The country’s GDP slowdown is taking its toll on the hotel industry, where executives at the Hotel Investment Forum India said they are seeing hits to rate and profitability.

  • Sarovar Hotels has seen a double-digit decline in profitability.
  • “There’s been a lot of pressure on rates,” said Hotel Leelaventure’s Rajiv Kaul.
  • Out of every challenge exists opportunity.

GURGAON, Haryana—The impact of India’s economic slowdown has not been lost on hoteliers, who reported a range of operational and investment challenges during last week’s Hotel Investment Forum India.

Chief among their concerns is a hit to profitability, panelists said.

At Sarovar Hotels & Resorts, for example, Managing Director Anil Madhok said the company has seen double-digit drops recently.

Meanwhile, Rajiv Kaul, president of Hotel Leelaventure Limited, pointed to his company’s inability to maintain rates.

“There’s been a lot of pressure on rates,” he told conference attendees, adding that the situation has only gotten worse as the hotel industry switched from U.S. dollars to Indian rupees, which have depreciated significantly in recent years. “Now we are finding we are struggling.”

He added that average daily rates at the group’s eight owned and operated Leela Palaces Hotels and Resorts have fallen back to 2005 levels as costs have “soared.”

Selim El Zyr, president and CEO of Rotana Hotel Management, tried to downplay concerns of a long-term drought by pointing to the cyclicality of the industry.

“We’ve learned that what is happening in the Indian market has happened everywhere in the world,” he said. “We know this is cyclical.”

But still, the near-term pains will continue for at least another year, Kaul said.

“We’re going to see operating stress for the coming 12 months,” he said.

New opportunities
Out of any challenge comes opportunity, especially as it pertains to India’s rapidly changing hotel landscape, executives agreed.

Those able to start construction of a project today will reap the benefits of a more buoyant market when the new hotel is up and running, for example, said Raymond Bickson, managing director and CEO of The Indian Hotels Company Limited, which is a collective known as Taj Hotels Resorts and Palaces.

“It’s not for the faint-hearted,” he said of development, “but there are upsides to it.”

Future demand will eventually support more than one million rooms in India, which now has closer to 80,000, Bickson said with confidence. “There is opportunity here. If we don’t do it, somebody else will.”

Despite the economic slowdown, India still boasts an expanding middle class seeking new outlets for travel. That bodes well for the Indian Hotel Company’s Ginger and Gateway brands, which serve the economy and upper mid-tier markets, respectively—although Bickson said the company is also expanding a true midscale offering between the two.

And beyond new builds, El Zyr also pointed to potential opportunities for management takeovers of existing properties under duress.

“The opportunity in India is huge. We’re not even scratching the surface,” Madhok offered in summary.

Domestic versus international
As the home market stagnates, executives said they are looking overseas to supplement demand with inbound international travel.

“We have to maintain our domestic dominance while at the same time look at the 41 brands that are entering our market …” Bickson said. “They’re forcing us in order to keep our market share to go beyond the boundaries of our core market in order for us to have a more balanced portfolio.”

Likewise, the Indian Hotel Company is trying to expand its footprint outside of India to capture outbound demand as well.

The numbers certainly make for a compelling argument, he added. During 2003, the country saw only 4.5 million outbound travelers. During 2012, there were 15 million, Bickson said.

“The luxury spend from this market going outbound is tremendous,” he said. “You need to be able to take advantage of that disposable income that traveler has by offering them places they’re familiar with.”

When asked about the country’s notoriously rigid visa process, the panelists expressed optimism.

“We have to be a little patient in these matters. … Things will happen. It’s just here it tends to take a little longer,” Kaul said.

Madhok said the “government’s attitude is changing. … Governments are now realizing hotels are very much part of the growth. I am hopeful.”

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