Hotel Industry Prospects in Gurgaon

The years 2007-08 and 2008-09 were boom for the hotel industry in national capital region of Delhi. The sector began the year 2008 on a strong note. Rising tourist inflow, higher occupancy and room rates continued to benefit the hotel players. In the first four months of the year, the tourist arrivals were higher by 11. 7% YoY. Existing hotel companies, new foreign players and real estate players continued with their expansion plans. Prospects were looking good, until the sector faced terror attack in Mumbai and recession hit.

The worst financial crisis in many decades, high oil prices and a slew of militant attacks hit the hotel industry. Often described as a “fragile” industry, the demand for travel is highly susceptible to events like economic slowdown, wars, disease outbreaks and terrorism. When the Indian tourism and hotel industry had just started gaining recognition worldwide, it was laid low by a double whammy. The first being the global credit crisis and the second, the recent terror attacks on the iconic hospitality landmarks; the ‘Taj Mahal Palace and Oberoi Hotel’ and the ‘Oberoi Trident’.

Nearly 40% of the annual revenues are expected to be lost on account of the recent crisis. During 1HFY09, lower corporate spending, fluctuating dollar and opening of credit crisis did impact occupancy rates in some cities like Bangalore, Pune, Hyderabad and Chennai. The room rates however, remained high. While the actual number of tourist arrivals has increased, the YoY growth is on the lower side. While during 2007, a 16% YoY growth was seen in tourist arrivals during the first 8 months, the same stood at 10% YoY this year, indicating slowdown.

According to the Ministry of Tourism, October 2008 saw an increase of just 1. 8% in the number of foreign tourist arrivals compared to the same time in 2007. With the latest terror strike (26/11) during the onset of the peak season, things got murkier. This prompted the Indian government to ask hotels to slash their prices in the hope of keeping demand stable. Though the room rates have officially increased, hotels are selling corporate travel packages at huge discounts to maintain occupancy levels. Tour operators believe that the real discounts and tariff cuts are as high as 30% to 50%.

With hotel rates touching unreasonably high levels last year, a correction was nevertheless due. Going forward 2008 was definitely a year to forget for the hotel industry and the government is taking plenty of initiatives to revive it. 2009 is to be observed as the ‘Visit India Year’. The concept is that those who visit India in 2009 would thereafter experience India’s rural tourism, eco tourism, adventure tourism, wellness tourism in specially worked out packages in 2010 and 2011. Further, the rate cuts would also make India a cheap tourist destination to visit.

Further, cost pressures, liquidity crisis and regulations concerning the real estate sector have made funding for hotel projects difficult. This coupled with unrealistically high land prices and government red tapism could result in hotel projects taking longer to fructify. Real estate players (DLF, Unitech, Parsvnath) are being hit adversely by the market slowdown. The phenomenon is expected to have an effect on hospitality development in India. This may lead to a stop or delay in the completion of projects as well as a revision of the project expenditure.

As per KPMG, only 60% of hotel projects announced in key metros are operational as per schedule. Developers have also diverted their plans in favour of commercial or residential buildings due to liquidity crunch and higher land prices leading to a longer breakeven period. Considering all these factors, industry estimates that just over half of the planned 0. 1 m new rooms will finally be built. Hence, considering the demand supply mismatch, the new room additions will not create overhang. Thus, we believe that the existing players would benefit from the continued demand-supply mismatch once the economy revives.

While leisure travel would continue to be low, business travel, domestic travel, medical tourism and mid market segment would be the target areas. As per estimates, domestic tourism has risen from 366 m in 2004 to 462 m in 2006, emerging as a major driver for the industry. Just to give an idea about how big this opportunity is, we can say that the domestic tourists’ number is more than the entire population of the US. This slump in the industry will also provide opportunities to existing hotel companies with high cash in their kitty to acquire distress assets at cheaper valuations.

While the summer would be cold for the hotel industry, with India’s fundamental prospects being attractive over the long term, the momentum would get better. Over the last decade and half the mad rush to India for business opportunities has intensified and elevated room rates and occupancy levels in India. Even budget hotels are charging USD 250 per day. The successful growth story of ‘Hotel Industry in India’ seconds only to China in Asia Pacific. ‘Hotels in India’ have supply of 110,000 rooms. According to the tourism ministry, 4. million tourists visited India last year and at current trend, demand will soar to 10 million in 2010 – to accommodate 350 million domestic travelers. ‘Hotels in India’ has a shortage of 150,000 rooms fueling hotel room rates across India. With tremendous pull of opportunity, India is a destination for hotel chains looking for growth. The World Travel and Tourism Council, India, data says, India ranks 18th in business travel and will be among the top 5 in this decade. Sources estimate, demand is going to exceed supply by at least 100% over the next 2 years.

Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, ‘Hotel India’ room rates are most likely to rise 25% annually and occupancy to rise by 80%, over the next two years. ‘Hotel Industry in India’ is eroding its competitiveness as a cost effective destination. However, the rating on the ‘Indian Hotels’ is bullish. ‘India Hotel Industry’ is adding about 60,000 quality rooms, currently in different stages of planning and development and should be ready by 2012.

MNC Hotel Industry giants are flocking India and forging Joint Ventures to earn their share of pie in the race. Government has approved 300 hotel projects, nearly half of which are in the luxury range. Sources said, the manpower requirements of the hotel industry will increase from 7 million in 2002 to 15 million by 2010. Delhi, the capital city of India is one of the most attractive tourist destinations. Along with Agra and Jaipur, it forms the famous Golden Triangle, which draws maximum tourists in India. Many of the renowned hotels are located in Delhi. There are numerous luxury, budget and government approved hotels in Delhi.

Most of them offer world-class facilities and service and can compete with the best hotels anywhere else in the world. Most of the five star hotels in Delhi are located in the city center or important business districts. Some others are on the outskirt or the airport. Enjoy a stay in any of the excellent hotels in New Delhi India when you visit New Delhi, the capital of India. 7 Objectives and scope Understanding of structure of a Hotel: Hotel Industry follows Departmental accounting systems in order to know profitability analysis of their various revenue generating departments.

Broadly in term of cost ; revenue various departments are distinguished as Revenue centers and cost centers. The Revenue centers are categorized as under: 1. Rooms Department 2. Food ; Beverage Department 3. Telephone /Internet department 4. Minor operating departments 5. Other Incomes The cost centers are categorized as under: 1. Administration and general department 2. Sales and marketing 3. Heat, light and power 4. Repair and maintenance 5. Property expenses 6. Training, and 7. Security Rooms departments: Rooms department generate revenue from renting of the rooms. Further rooms epartment is divided into Front office and housekeeping sub-departments. Rooms division is headed by Rooms Division Manager. Brief functions of front office are as under: 1. Reservations 2. Guest Relations 3. Baggage handlings 4. Concierge services 5. Cashier functions Brief functions of Housekeeping are as under: 1. Guest rooms maintenance 2. Hotel cleanliness 3. Facilitating in house guest requirements 4. Butlers services 5. Ensuring guest comforts Food ; Beverage Department Food and beverage department earns revenue from sale of Food, beverage and tobacco in hotels.

This department is divided as per Food and Beverage outlets in a Hotel. Generally city hotels have 4-5 outlets depending upon the numbers of room available. In general a super deluxe five star hotel have following outlets: 1. All day dining restaurant, to cater round the clock guest requirements 2. Indian restaurant or specialty restaurants 3. Bar 4. Banquets and 5. Rooms service These outlets are further divided into Food and beverage service department and Food ; beverage production (Kitchen) department. The rooms and Food ; Beverage department are major revenue earning epartments in a hotel which accounts for 95% of total hotel revenue. Telephone /Internet department This is a facility available to guest for making calls and use of internet facility in their rooms or at business center in Hotel. This department is headed by a System/Telephone Manager. This department also accounts for 2% of total Hotel revenue. Minor operating departments These are small revenue generating departments that provides services to guests. These departments are: 1. SPA and health club 2. Saloons 3. Business center 4. Laundry 5. Shops 6. Car services

These departments are very important from the guest prospective that all the essential services are available for the guests inside the hotels like laundry, spa etc. Administration and general department Administration and general department comprises of following departments: 1. Human Resources 2. Accounts and finance 3. Purchase and stores 4. General Managers office These departments are called bran and back bone of a hotel as these includes controlling authority and as well as facility department such as purchase and stores, whose function is to provide equipments to operation/revenue centers for smooth functions. Sales and marketing

This department does marketing of the hotel and does sales calls. These peoples do selling of hotels at the door steps of companies by understanding their requirements Heat, light, power and repair/maintenance department These cost centers run by engineering departments and this cost is major and accounts for 10% of hotel revenue. This includes electricity, water bills and expenses incurred for upkeep of the hotel in excellent conditions. Property expenses These expenses include municipal taxes and insurance charges of a hotel. Training The hotels require trained staff in reference to cater guests services thus approximately 0. % to 1% of hotel revenue is spend on training of Executives and staffs. Security After 26/11 tragedy security has become major cost center and this accounts for 1% of total Hotel revenue

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