Tripti Hotel Sector

7/29/2019 Tripti Hotel Sector

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Hotel Industry

Executive Summary

With foreign traffic in the country crossing the 4-million-mark

in 2005-06, the hotel industry has reached new heights. Therevenue per available room (RevPAR) increased by a

phenomenal 33 per cent in 2005-06 to Rs 4,859 as

compared with the previous year. With disposable incomes

having gone up, the leisure destinations have benefited and

with heightened industrial activity, business destinations

have witnessed a healthy surge in business traffic.

In 2005-06, although both leisure travel and domestic

business travel were on the upswing, it was the foreign

business travel that grew the fastest. This trend is expected

to be sustained over the next 5 years, the number of

incoming travellers is expected to grow at a CAGR of 10 per

cent, and a big chunk of those are likely to be foreign

business travellers.

With the macro-economic variables expected to remain

positive and the performance of the Indian economy

expected to be impressive over the next 5 years, the room

demand is expected to grow at a CAGR of 10 per cent over

the next 5 years. In the coming years demand is expected to

outpace the supply.

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Hotel Industry

Due to the growing demand the various players in India are

undertaking huge capital expenditure to support the

increasing demand. But they have to face a number of

problems in India like bad infrastructure, high taxes, non

affordable rooms, improper maintenance, etc. For

overcoming the above problems the government is

undertaking measures like tourism promotion, development

of hotel management institutes, etc.

Industry Structure

Introduction

Tourism is a major contributor to the economy

According to World Travel and Tourism Council (WTTC), the

world travel and tourism industry is expected to contribute

3.6 per cent to Gross Domestic Product (GDP) in 2006 (US

$1,754.5 billion), rising in nominal value terms to US

$2,969.4 billion (3.6 per cent of total) by 2016. The world

travel and tourism economy employment is estimated at

23.4 million jobs in 2006, 8.7 per cent of total employment

or 1 in every 11.5 jobs and by 2016 this should total 27.9

million jobs, 9 per cent of total employment or 1 in every

11.1 jobs. The 7.6 million travel and tourism industry jobs

account for 2.8 per cent of total employment in 2006 and are

forecast to total 8.9 million jobs or 2.9 per cent of the total

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Hotel Industry

by 2016.

A study by the World Tourism Organization shows that

domestic tourism inflows, which are largely focused on rural

destinations, are at least 10 times greater than international

tourist inflows. According to WTTC, the Indian travel and

tourism economy is ranked 22nd in absolute size worldwide,

156th in relative contribution to national economies and 3rd in

long term (10 year) growth that has been estimated (174

countries are estimated by WTTC).

The tourism sector is one of India's largest net foreign

exchange earners and employers of manpower. According to

the Department of Tourism (DoT), at present, the sector

employs 42 million people (18 million directly and 24 million

indirectly). In addition, for every Rs 1 million invested in the

hotels and restaurants sector, 89 new jobs are created as

compared with 13 jobs in the manufacturing sector and 45

jobs in the agriculture sector. Forecasts by WTTC reveal

that in 2006, India's travel and tourism industry is

expected to generate $53.5 billion of economic activity,

and contribute 5.3 per cent to the total GDP and 5.4 per cent

to the country's total employment.

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Hotel Industry

Travel & Tourism as a % of total GDP & Employment(2006)

14.6 14.313.7

9.68.7

5.3

12.6

10.710.2

7.97.2

5.4

0

2

4

6

8

10

12

14

16

Malayisa Thailand China Sri Lanka Indonesia India

GDP

Employment

Foreign tourist arrivals on an upward trend

In 2005, India attracted 3.85 million international

tourists, who stayed for an average three days. The

total represented a 14 per cent jump over the previous year,

highlighting the fact that arrivals per annum have increased

significantly.

Industry Characteristics

Seasonality

The hotel industry's premium segment is largely dependent

on foreign tourist inflows. Tourist inflows, especially

international leisure tourist inflows, are seasonal in nature.

Due to summer and monsoon seasons, tourist arrivals from

April-September are lower than from October-March (60 per

cent of the annual arrivals). However, business travel tends

to be less seasonal.

Business traveller: The business offered by this

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5 - D

74%

22%

4%

5 - Sta

61%

36%

3%

Bus iness Travellers Leisure Travellers Airline Crew

Hotel Industry

segment is less seasonal, and travellers usually stay in

premium segment hotels. This segment is highly dependent

on the country's economic scenario.

Leisure traveller: The business offered by this segment

is highly seasonal and tends to increase during the October

to March period.

Airline crew: This segment provides an assured

occupancy for hotels that have contracts with airlines. Hotels

offer this segment a discount of nearly 40-50 per cent.

Hence in cities where the demand for rooms is increasing,leading to the ARRs moving up, one will find a reduction in

the airline crew.

A survey conducted by the Federation of Hotel and

Restaurant Association of India (FHRAI), in 5-D and 5-star

segments, states that of the total reservation in 2004-05, the

maximum reservations came from business travellers, while

the least came from airline crew.

Capital-intensive

The high cost of land and development make the hotel

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Hotel Industry

industry capital-intensive. The cost of setting up a hotel

varies, depending on the location, size and star category.

Land costs vary by location and also within the location.

The average cost of constructing a hotel (excluding the land

cost) is Rs 6-7 million per room in the premium segment and

Rs 3-4 million per room in the budget segment. The

gestation period for the construction of a hotel is 3-4 years.

Manpower/labour-intensive

The hotel and restaurant sector is also labour-intensive. On

an average, the employee-to-room ratio is around 1.8:1 inIndia as compared with 1.5:1 globally.

Value Chain

Owner

In the hospitality industry, the owner owns the underlying

asset. In return, the owner earns gross revenues or rental

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Players in Hospitality

Sector

OwnerManager

FranchisorDistribution

Channels


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Hotel Industry

fees. An owner earns gross revenues if he manages and

franchises his property and lease rental fees if he leases the

underlying asset.

Manager

A manager manages the hotel operations. In return, he earns

management and operation fees, which are also known as

incentive fees.

Franchiser

A franchiser is a hotel company, which 'brands' or 'flags' itsproperty. In return, the franchiser receives franchise fees.

Most hotel franchise agreements are valid for 10-25 years.

A 'franchise' is an agreement between a hotel company and

a hotel owner, whereby the hotel company provides:

Brand name

Expertise

Reservation system

Technical assistance

Design assistance

Pre-opening training

In return, a developer or investor provides:

Fees (initial fees, royalty fees, advertising andmarketing fees, reservation fees)

Property and construction, and

Operation according to standards

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Hotel Industry

Options for operating a hotel in India

In India, the options available to operate a hotel property are

as follows:

Owner cum manager cum franchiser

Owner cum manager, and franchiser

Owner and manager cum franchiser

Owner cum franchiser, and manager

Owner and lessee

Owner and licensee

Of these various options, the option of managing and

franchising a hotel ensures high returns on investment with

a minimum risk. Hence an increasing number of hotel

companies are venturing into managing and franchising

hotels in order to increase their profitability.

Management contracts

A management contract is an agreement between a

management company (operator) and a property owner

(investor), whereby the operator assumes complete

responsibility for managing the hotel. For this service, the

operator is paid a fee. The owner has little or no say in

the operational policies, procedures and day-to-daymanagement, but the owner is financially responsible

for the property and must replenish operating capital if

necessary. A management contract differs from a lease in

that under a management contract the residual income (or

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Hotel Industry

loss) after payment of rent goes to the operator.

Reservation and distribution channels

Globally, electronic bookings (GDS plus Internet) account for

a major share of hotel reservation. However, the usage of

the same is very low in India. For instance, according to a

TravelCLICK survey, involving 33 major hotels chains and

brands, in 2004, electronic bookings accounted for 58

per cent of the total global hotel reservations. In

contrast, the share of electronic bookings in India was less

than 25 per cent.

Over the medium to long term, the share of electronic

bookings in India is expected to rise, as more players

increase their focus on IT initiatives.

Global Distribution System (GDS)

A Global Distribution System (GDS) is a network of electronic

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Distribution

Channels

GDSMarketingAlliances

CRS Booker

Travel Agent Internet


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Hotel Industry

reservation systems used by buyers (travel agents and the

public) and sellers (hotels, airlines, car rental companies,

etc) to exchange travel-related services. These systems

have become supermarkets, linking buyers and sellers and

allowing reservations to be made quickly and easily.

According to sources, internationally, GDS accounts for over

55 per cent of the bookings made for city- based hotels.

The primary advantage of GDS for travel agents is that it

offers single-point access for reservations on all airlines, and

other travel-related products, in a format known asneutral display. (In neutral display, screens display

availability across several carriers. However, neutral displays

can vary across GDS.)

The airline industry created the first GDS in the 1960s as a

way to keep track of flight schedules, availability and prices.

Currently, although most of the major international airlines

have an equity stake in companies providing GDS, most

airlines also sell their products through other GDS.

Marketing agreements and the availability of sophisticated

communication links enable the sale of products through

multiple GDS. These communication links operate at a high

speed and use electronic data interface (EDI) messaging

techniques. Hence products can be sold on a real-time basis.

(Advanced systems even offer last seat availability on

airlines.)

Currently, there are four major GDS systems: Amadeus,

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Galileo, Sabre, and Worldspan. There are several smaller or

regional GDS, including SITA's Sahara, Infini (Japan), Axess

(Japan), Tapas (Korea), Fantasia (South Pacific), and Abacus

(Asia-Pacific) that serve interests or specific regions or

countries.

Centralized reservation system (CRS)

Many hotel companies, especially hotel chains, have

installed a reservation system, connecting all properties.

Booker

The travel manager, executive assistants or secretaries, whoare the link between the traveller and the hotel/airline,

generally make corporate bookings.

Tour agent/Travel agent (booking via a GDS/CRS)

In the US in the mid-1990s, profits of travel agencies were

adversely affected, as airlines and hotels sold their products

directly to consumers through the Internet and direct

negotiations with consumers. In addition, commissions

were reduced, and a ceiling on commissions was introduced.

Hence, travel agents, such as American Express and

Carlson Wagonlit, altered their fee structure and have

been charging a fixed fee for the services rendered.

Such fee-based travel agents differ from commission-

based travel agents and are known as travel

management companies.

Major players in the US travel industry include American

Express, Carlson Wagonlit and WorldTravel.

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Hotel Industry

Marketing alliances

Hotel properties/chains are often associated with marketing

alliances. These alliances provide the hotel direct access to

reservation network, promotion and Internet coverage.

Major marketing alliances include Leading Hotels of the

World, Leading Small Hotels of the World and airline tie-ups.

Other alliances include small luxury hotels of the world, and

Relais and Chateaux. Hotels also have promotional tie-ups

with airlines. For instance, hotels could provide free

accommodation for points accumulated under the 'frequentflyer schemes' of airlines.

Internet

The use of the Internet in making hotel reservations has

increased due to increased Internet penetration and cost-

effective access. Travel and tourism reportedly forms the

second largest category of products sold through the

Internet.

The primary elements for the extensive usage of the Internet

in travel bookings are as follows:

the absence of geographical limitations to the market

(direct connection between buyers and sellers) huge

reductions in transaction and processing costs

24x7x365 availability

a reduction in fixed sales outlets

a reduction in clerical errors and administration costs

the variety of products that can be delivered over the

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network, and

the support provided to customer relationships

Industry Costs

Operating costs

The expenditure incurred by hotels can be divided into two

broad categories: fixed and variable costs.

The variable component is linked to the occupancy and the

facility usage (use of food and beverage and other leisure

facilities) that produced the known level of revenue or

expense.

Fixed costs include:

Administrative and general expenses (a small portion is

variable)

Property taxes, and

Insurance.

Variable costs include:

Room expenses

Direct expenses for food and beverage (F&B), and

Management fees

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Hotel Industry

There are some items that are classified as semi-fixed

expenses since they include both fixed variable portions.

They include:

Energy costs

Payroll

Operation and maintenance expenses

The key expenses incurred in operating a hotel include

employee costs, F&B costs, and fuel, light and power (FLP)

costs. Of the total costs (excluding indirect costs), employee

costs account for 30 per cent; F&B, 14 per cent; and FLP, 12

per cent.

Employee costs

Employee costs, which form the largest cost component in

the hotel industry, are the key costs monitored in this sector.Reducing manpower will reduce employee costs. For

instance, in the past, EIH Ltd and IHCL (Indian Hotels

Company Limited) implemented voluntary retirement

schemes, which led to a decrease in the employee cost. In

India, the manpower-to-room ratio of 1.8 per room is higher

than the international norm of 1.5 per room.

India's higher manpower ratio is attributed to the

availability of low-cost manpower and the reluctance of

domestic manpower to undertake multi-skilled, low value-

added tasks.

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Hotel Industry

F&B costs

It consists of costs incurred for the operation of a hotel's

food, beverage and banquet facilities. In addition to

employee costs incurred in F&B operations, F&B costs also

include the cost of F&B supplies, kitchen stewarding

expenses (such as cleaning supplies), and service

department costs (laundering napkins and tablecloths,

printing menu cards, and entertainment expenses).

Capital costs

A hotel project is capital-intensive with a gestation period of

3-3.5 years. The project's capital intensity varies according

to the category of the hotel, the type of the property

(business/leisure) and the location. On an average, the

capital cost for setting up a premium segment hotel

(excluding land cost) is around Rs 6-7 million, whereas the

cost of a budget hotel (excluding land cost) is around Rs 3-4

million.

For instance, for EIH, The Rajvilas property without land

costed around Rs 12.5 million per room; for Hotel Leela

venture, The Leela Palace Bangalore costed around Rs 12.5

million per room, excluding the cost of land, whereas a

Trident hotel would cost Rs 60 to 70 lakh per room. The cost

for building the structure of the hotels would be constant

across cities; however, the overall capital cost would

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accordingly increase depending on the cost of land in a

particular city. The major capital costs for a new hotel

include civil works, plant and machinery, and interiors (which

accounts for the major costs). If the land cost is included,

these three costs account for nearly 70 per cent of the total

costs.

Particulars % of Cost ExcludingLand

Civil Works 40

Plant and Machinery 20Interiors 40

The gestation period for the construction of a new premium

segment hotel is 27-30 months. However, in most hotel

projects, the schedule is prolonged to 36-42 months for a

variety of reasons such as lack of funds and change in

planning.

Particulars No. of MonthsFoundation Work 6 8Super Structure 12Interiors 8 9

Segment Wise Contribution Margin

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Hotel Industry

Room contribution

Room contribution primarily depends on average room rates

since costs such as manpower and energy, which are

associated with rooms, are not significant. An increase in

the average room rate (ARR) results in the direct

increase in room contribution. Room contribution is the

highest, and it accounts for over 80 per cent of the total

revenue.

F&B contributionF&B contribution depends on F&B revenue and cost. F&B

revenue includes income from room service, restaurant and

banqueting activity. Banqueting accounts for a significant

portion of the total F&B revenue. The revenue from room

service is directly dependent on the room occupancy in the

property. An indicative level of F&B margins (excluding

banqueting facilities) is 45-50 per cent. F&B margins are

very low as compared to room margins, thereby reducing

overall margins in case of hotels focusing on F&B.

However, hotels having a higher share of revenues from

banqueting services, earn higher F&B margins due to lower

F&B costs. For instance, in Mumbai, F&B revenues and

margins of Taj Land's End is expected to be higher due to

the higher share of banqueting revenues.

As regards budget hotels, it has been observed that they

face intense competition from standalone restaurants as

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Hotel Industry

compared to premium segment hotels that are in a better

position to compete with standalone restaurants. This is to

do with the type of clientele visiting premium segment

hotels who prefer to have their dinner at the hotel itself

rather than visiting a restaurant outside. Also, premium

segment hotels are able to attract a large amount of

customers from outside.

Also, it is found that in cities where the demand for rooms is

driven by the IT/ITES sectors, the hotels' F&B segment tend

to face immense competition from standalone restaurants,as the clientele tends to be youngsters who prefer to visit

these standalone restaurants rather than visiting the hotel

restaurants.

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Hotel Industry

Segmentation of Hotels

Classification of hotels

Hotels can be classified based on the size of the rooms and

the types of amenities offered. The Department of Tourism

(DoT) has classified hotels into seven categories: heritage

hotels, 5-star deluxe (5-D), 5-star, 4-star, 3-star, 2-star and

1-star. Heritage hotels include old palaces and havelis, which

have been converted into hotels.

The DoT also reclassifies hotels every 3 years and is

responsible for the classification of 5-D, 5-star and 4-star

hotels, while the state governments are responsible for the

classification of 1-star, 2-star and 3-star hotels. The

classification ensures the suitability of hotels for tourists.

Classified hotels are also entitled to benefits such as interest

subsidies, income tax benefits, imports, and easy availability

of telephone and LPG connections. In order to classify

hotels, the DoT, along with representatives from the

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Hotel Industry

Central government, the travel and tourism industry, the

hotel industry and various catering institutes, has set up a

Hotels and Restaurants Approvals and Classifications

Committee (HRACC).

Due to the lengthy process involved in classification, a

significant percentage of rooms remain unclassified. In

addition, some owners have shown lack of interest and

unwillingness to seek classification. However, over the years,

the number of unclassified rooms is declining.

Segment

Location Category

Target Rates

Premium

Around 50% ofthese hotelsareconcentratedin the fourmetros

5 D ,5 Star

ForeignBusiness &Leisuretravellers,SeniorBusinessExecutives &topgovernmentofficials

HighestARRs dueto highestlevel of servicesquality

Budget Located inmajor cities aswell as smallcities andtouristdestinations

3 Star, 4 Star

Middle-levelbusinessexecutivesandleisuretravellers

Offer fewfacilitiesandchargelower thanthe

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Hotel Industry

premiumSegment

Econom

y

Located in

major cities aswell as smallcities andtouristdestinations

1

Star, 2 Star

Largely

targeted atdomestictourists

Minimum

facilities.Chargesare lowerthan thatof thebudgetsegment

Heritage

Heritagehotelscomprise oldpalaces,havelis,castles, forts& residences,constructedprior to 1950,converted intohotels largelylocated in

leisure touristdestinationslike Jaipur.

HeritageGrand,heritageClassic

Foreignleisuretravellers

ARRs arelower thanthat ofhotels inthepremiumsegment

The location of a hotel is important as it influences the

business mix of the hotel in terms of business and tourist

traffic. In addition, it also influences the revenue mix of the

hotel in terms of foreign exchange and rupee earnings.

Types of hotel companies

Hotel companies can be classified on the basis of:

the number of properties operated

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the type of property (premium/budget), and

the type of player (foreign/domestic)

Classification Characteristics ExamplesHotel Chains These companies

operate hotels acrosssegments and havebrands associatedwitheach segment

Domestic hotelchains: IndianHotels, EIH & ITCWelcomgroupForeign hotelchains: CarlsonHospitality, Hyattand Marriott

Single / DualHotels

These companiesoperate single/dualproperties in India.Revenue flow fromsuch properties islimited as comparedto hotel chains whererevenues arecontributed by

various propertiesacross segments.

Asian Hotels andHotel Leelaventuretill last year wereoperating assingle/dual chains.However, withtheir expansionthey are currentlyoperating three

properties each.

Given that all the major players in the industry have

expanded and will continue to expand operations in diverse

locations across the country, the structure of the industry is

expected to shift entirely towards hotel chains.

Classification based on the type of property

Hotel companies can be categorized as premium and budget

on the basis of the classification of their properties. Most

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Hotel Industry

hotel chains have a presence across segments, with the aim

of catering to a wider market.

Premium segment

Some hotel companies have brands catering only to the

premium segment. The main domestic players catering to

the premium segment include Asian Hotels, Bharat Hotels

and Hotel Leelaventure. The main foreign players in India

who cater to the premium segment include Hyatt and Le

Meridien.In the case of other domestic players such as EIH, Indian

Hotels, ITC Welcomgroup, and The Park Hotel, over 65 per

cent of the total rooms were in the premium segment.

In the case of other foreign players such as Bass, Carlson

Hospitality Worldwide and Marriott, over 75 per cent of the

total rooms were in the premium segment.

Budget segment

Most budget hotels in India are independently owned

and not branded. According to industry sources,

internationally, 80-85 per cent of hotels in the budget

segment are branded, while in India, only 15 per cent of

budget hotels are branded.

Most major hotel companies in India have brands that cater

only to the budget segment. (Foreign players such as Best

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Western, Days Inn, Choice Hotels International and Accor

cater only to the budget segment).

In the medium to long term, the number of hotels and rooms

in the budget segment is expected to increase due to the

need for low-priced accommodation (as a result of a

reduction in corporate travel budgets). On an average,

hotels in the budget segment charge Rs 1,200-3,000 per

room, per day. The average cost for setting up a budget

hotel (80-100 rooms) ranges from Rs 3 to Rs 5 million per

room as against Rs 7-8 million per room for a hotel in thepremium segment.

Classification based on the type of player

In the past few years, the presence of foreign players has

increased significantly. Most foreign players, who have a

presence in India, operate hotels through the franchisee and

management contracts route. For instance, the share of

foreign brands in Mumbai has increased from 23 per cent in

2000 to 60 per cent in 2004.

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Hotel Concepts

Ecotel

An ecotel is an exclusive group of inns, hotels, or resorts that

define the concept of environmental responsibility within the

hospitality industry. All certified hotels have to pass a multi-

level inspection by Hospitality Valuation Services (HVS)

International, the international ecotel-accreditation agency.

A hotel receives a five-globe certification only after it meets

the five criteria and fulfils the norms specified by the

agency. The five criteria are environmental commitment,

solid waste management, energy efficiency, water

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conservation, and employee environmental education and

community involvement. Since its establishment in 1994,

over 1,100 hotels from over 30 countries have applied for

the ecotel certification. However, to date, less than 5 per

cent have been certified. In Asia, The Orchid Hotel,

Mumbai, was the first to receive the ecotel award.

Resorts

Resorts cater to the leisure needs of a tourist. Usually

located at hill stations or seashores, resorts can be furtherclassified into hill resorts, health resorts, beach resorts,

summer resorts and winter resorts.

Most resorts located at hill stations have well-defined off and

peak season periods. Hence their revenue inflows keep

fluctuating.

Among business destinations, resorts are usually

characterized by higher occupancy rates during

weekends as compared with weekdays.

Motels

In general, motels are located along highways connecting

important cities. The significant features distinguishing

motel from a hotel are:

adequate parking facilities

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cottage style accommodation (provided by most

motels)

short duration of stay

KTDC's Motel Aaram Kuttippuram, Motel Aaram

Kayamkulam, Motel Aaram Kannur, Motel Aaram

Athirappally, Motel Aaram Erimayur Palakkad and Motel

Aaram Palaruvi are some of the motels in India.

Floatels

A floatel is a floating hotel or a boat operating as a hotel. For

example: The Oberoi Motor Vessel Vrinda.

Boutique Hotels

The typical boutique hotel has less than 100 guest rooms,

limited service, one or no boardroom, and food and

beverage is generally outsourced. The emphasis in boutique

hotels is on selling guest rooms (where the profit margins

are significantly higher than in banquets and meetings) by

enticing a guest with its high design and lower rates. In

general, boutique hotels are characterized by a high

percentage of repeat clientele.

Reportedly, there are around 500 boutique hotels worldwide.Some of the international boutique hotels include Melia-

Comfort Boutique Hotels, Hotel Punta Islita, W Hotels, Zoo

Hotels, Ian Schrager Hotels, Scotsman Hotels, Bvlgari

Hotels, Myhotel, The Kimpton Group, Joie de Vivre

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Hotel Industry

Hospitality, Orient-Express, Park Hyatt, Sofitel Demeure

Hotels and Amanresorts. In India, all the properties of The

Park Hotel (Delhi, Kolkata, Visakhapatnam and Bangalore)

are boutique hotels.

Timesharing Industry

The timeshare concept as an innovative way for

increasing holiday choice took root in Europe in the

1970s. Instead of booking a week or two at a resort

every year, or purchasing a holiday property outright,timeshare offers buyers the ability to buy rights of

occupancy in a property, typically in multiples of one week,

for a set period. Once consumers have purchased their

holiday time, they can use it, pass it to friends or relatives,

or rent it out.

The timeshare industry offers various purchase options

to meet consumers' demand for vacation variety and

flexibility. The availability of these purchase options varies

by resorts. Some of the purchase options include:

Fixed week: Timeshare units sold for use during a

specific week of the year.

Floating week: This could be any week reserved for the

timeshare owner during a certain season of the year.

Fractional: Ownership is sold in multiple week

packages, usually 4 or 5 weeks each year or as a

quarter share (13 weeks). This type of purchase option

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is largely offered in destinations such as ski, beach and

island resorts.

Vacation clubs: Instead of purchasing a timeshare in a

certain size of unit at a particular resort, vacation club

members purchase the opportunity to use a variety of

timeshare accommodation at various resort locations,

usually within one developer's chain of resorts. Some of

the clubs operate on a points system.

Points system: These offer timeshare owners the

flexibility to purchase points, which can be used ascurrency, to reserve timeshare accommodation of

various sizes, during different seasons and for varying

periods. These points are also used for other travel

products such as airfare, hotel stays and car rentals.

Deeded agreements: These allow the timeshare owner

to use his/her vacation interval forever like buying a

house. Under this agreement, the owner could

rent, sell, exchange or will to successors his/her

vacation interval. These agreements could be for fixed

or floating weeks.

Right to use agreements: These specify that ownership

of the resort remain with the developer. The developer

gives the purchaser the right to use the specified resort

accommodation for a certain number of years, usually

ranging from 10 to 50 years, after which all rights

return to the developer. These agreements can be for

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either fixed or floating weeks and are also part of the

vacation club or point-based memberships.

Biennial ownership or alternate year ownership:

These agreements allow the use of a resort

ownership product every other year and costs less than

annual ownership at comparable resorts.

Timeshare owners have the option to holiday in different

resorts (in addition to those affiliated with the timeshare

company) if their membership is affiliated to an exchangecompany. Among the existing exchange companies, Resort

Condominiums International (RCI) and Interval International

are the major players. RCI, a wholly-owned subsidiary of

Cendant Corporation, is the world leader in the timeshare

market, controlling over 85 per cent of the market.

Service Apartments

This is a concept that is slowly gaining ground in the

industry. Service apartments mainly target expatriates and

long-duration visitors, both business and leisure. Service

apartments offer all the luxuries of a five-star hotel, but at

far more competitive rates, and in addition, give the "at

home" feel.

As more and more quality-conscious expatriates come to

India and stay for longer durations, they find that 5-star

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service apartments offer them just what they require in

terms of price, lifestyle and convenience.

These apartments are ideal for people who do not have to

stay long enough to set up a home, but also stay long

enough to want to live a more normal lifestyle, even while

experiencing the creature comforts that a 5-star hotel

affords. This is an ideal accommodation even for foreigners

who prefer the "home away from home" experience at

service apartments instead of "cramped" hotel rooms.

The world over, service apartments are preferred to hotels

for the following reasons:

Business executives who come with their families

find them safe, convenient, affordable and well

maintained.

They are larger than hotel rooms

No rental deposit is required in this case, unlike

ordinary residential leases, which typically bind people

for a year or more and require an 11-month rental

deposit.

They are beneficial for companies, who can rent a

service apartment and can accommodate several of

their employees there at one time. Some small and

medium enterprises retain service apartments in key

cities for their roving representatives (sales and

marketing personnel, for instance).

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Residents do not have to pay electricity, water,

government taxes, management fees or any other

service bills, and there are no hidden costs for

housekeeping services (the apartments are fully

furnished and housekeeping service is available round

the clock).

They are a valid proposition for medium- to long-term

travellers.

Premium service apartments are becoming popular amongsenior executives of corporate, who are unable to find well-

furnished flats for the period of their stay. IT and ITES

sectors are the main demand drivers, and service

apartments are found to be extremely popular among such

firms since many of them are cost-savvy.

Other categories of visitors who are attracted by such

accommodation are people working on short-term projects,

or visiting a city for purposes of higher education or medical

treatment.

Although this concept is fast catching up in business

destinations, but it does not seem to be becoming a threat

to the existing premium segment hotels, because the

average hotel stay period is still 2-3 days, for which the

hotels are still the best bet. Over the medium term, we see

more and more demand for such apartments.

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Service apartments can enjoy a good degree of success in

cities such as the four metros, Bangalore and Hyderabad,

which thrive on business travellers.

Player Profile

ASIAN HOTELS LIMITED

Background

Asian Hotels Ltd (AHL) was promoted by three non-resident

Indians, Sushil Gupta, Shiv Jatia and Arun K Saraf, in 1980.

AHL commenced operations with the Hyatt Regency

Hotel in New Delhi in 1983 with 385 rooms.

Subsequently, the room base was expanded and is now 518

rooms. In 1981, AHL entered into a technical services and

sales and marketing agreement with Hyatt of Hong

Kong Ltd. (Since then it has been renamed Hyatt

International Asia-Pacific Ltd.) The agreement expired in

1993, but AHL renewed it for 15 years with effect from

January 1, 1994. The agreement with Hyatt also covers the

company's new properties in Kolkata and Mumbai. The

Kolkata property commenced full-fledged operations from

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the last quarter of 2002-03, while the Mumbai property

started full-fledged operations from the start of 2003-04.

City-wise properties of Asian hotels

Location Property No. of roomsDelhi Hyatt Regency 518Kolkata Hyatt Regency 235Mumbai Hyatt Regency 397

Total 1,150Asian Hotels: Key financial indicators

Mar-02 Mar-03 Mar-04 Mar-05Operating incomes (Rsmillion)

927 1067 2039 2581

Operating margin (Percent)

25.5 20.9 30.0 35.5

Net margin (Per cent) 14.0 9.0 2.5 9.9RoCE (Per cent) 3.8 3.1 6.9 11.7Gearing (Times) 0.87 1.13 1.14 0.93Interest coverage(Times)

106.2 6.2 2.0 3.8

Amongst the smaller players in the industryAHL has a presence only in the premium segment. It is a

relatively small player in the hotel industry with

properties in the metros, namely, Delhi, Kolkata and

Mumbai. This is further indicated by the company's

relatively marginal overall market share. However, it is a

dominant player in Delhi. Moreover, it has plans to set up

properties in Bangalore, Chennai and Pune, which if

implemented will result in an improvement in its overall

market share.

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Strong Hyatt brand results in high share of foreign

guests

AHL has signed an agreement with Hyatt International for 15

years, with effect from January 1, 1994, for sales, marketing

and management services. It operates under the strong

international brand 'Hyatt', which has earned it a large share

of foreign travellers (business and leisure). The high

proportion of foreign business travellers has resulted in

relatively higher ARRs for the company, as foreign business

travellers are dollar denominated, which are higher thanrupee-based tariffs.

Strong presence in the metros: a positive

AHL has all of its properties located in the metros. The

company had just one property in Delhi until 2001-02, but it

has commissioned properties in Mumbai and Kolkata from

2002-03. Hotels in the metros primarily serve the business

segment and thereby their occupancy rates are much

higher than hotels in leisure segments. Higher

occupancy rates result in relatively lower incidence of fixed

overheads and in the scenario of improving ARRs, result in

increased profitability. In addition, due to its presence in the

metros, the company is in a relatively better position to

increase its income from the F&B segment. The higher share

of revenues from the F&B segment helps in diversifying the

business risk.

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RoCE highest in the industry, margins to improve

significantly

AHL's operating and net margins are higher than that of its

peers and are next to leader Leelaventure Limited.

Operating margins have gone up over the years, primarily

due to an increase in ARRs and occupancy rates and are

expected to improve further in the medium term, with the

expected increase in ARRs and occupancy rates. Net

margins have grown and are also expected to growappreciably going forward, in line with increase in operating

profits and a reduction in interest costs. Its return on

capital employed (RoCE) is highest in the industry,

improving to 11.7 per cent in 2004-05 from 6.9 per cent in

2003-04. With no further capex in 2004-05, unlike other

players in the industry, AHL's RoCE improved significantly

due to no further infusion of funds. Also, over the medium

term, the company will not need to raise any debts as

funds would be required only for minor renovations

across its properties for which internal accruals would

suffice, thereby leading to better gearing.

Besides, with no additional debts to be raised, interest

costs are expected to fall. With operating profits also

expected to improve, AHL's interest coverage ratio would

also improve significantly.

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BHARAT HOTELS

Background

Bharat Hotels owns and operates seven properties in

country's metro and leisure destinations, offering more than

1,500 rooms under the "The Grand" brand names. Moreover,

the company has a management and franchise tie-up with

Hotel Inter-Continental of the Bass Group of Hotels. The

company operates four properties under the "Inter-

Continental" brand and the remaining three properties under

the "The Grand "brand.City-Wise properties of Bharat Hotel Ltd

Location Property No. of rooms

New Delhi Inter-Continental TheGrand

444

Mumbai Inter-Continental TheGrand

403

Bangalore The Grand Ashok 183Srinagar Inter-Continental TheGrand Palace

131

Goa Inter-Continental TheGrand

255

Udaipur The Grand Vilas Palace 55Khajuraho The Grand Temple View 48

Total 1519

Bharat Hotels: Operating Performance

2003 04 2004 05 2005 06Occupancy Rate(%)

48 53 64

ARR (Rs. / day) 3279 4719 5814RevPAR (Rs. / 1565 2490 3717

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day)

Bharat Hotels: Key financial indicators


546 736 1056 1857


28.3 13.61 16.69 24.12

Net margin (Per cent) -1.5 0.1 0.0 1.7RoCE (Per cent) 0.13 0.49 0.48 2.32Gearing (Times) 1.01 1.27 0.59 0.53Interest coverage(Times)

6.0 4.2 5.2 8.1

Presence in the metros to increase profitability

The company already has a presence in Delhi and Mumbai,

and it has recently entered Kolkata by acquiring the

Great Eastern Hotel, which is expected to commission

operations in 2007. Hotels in the metros primarily serve

the business segment and thereby their occupancy rates

are much higher than hotels in the leisure segments. Higheroccupancy rates result in relatively lower incidence of fixed

overheads and in the scenario of improving ARRs, result in

increased profitability. In addition, due to its presence in

metros, the company is in a relatively better position to

increase its income from the F&B segment. The higher share

of revenues from F&B segment helps in diversifying the

business risk.

Net margins the lowest in the industry

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The operating margins of the company are relatively lower

as compared to peers like Asian Hotels and Hotel

Leelaventure, primarily due to relatively lower RevPARs

(revenues per available room). In spite of average

operating margins, the net margins of the company were

very low in 2004-05 on account of an increase in interest

costs. The interest costs were high due to increase in debt to

fund the new properties in Mumbai and Goa. With huge

capex undertaken, the RoCE of the company has been the

lowest in the industry.

Expanding its presence across cities in India

By 2007: To have hotels in Kolkata (acquired Great

Eastern Hotel), Bekal in Kerala and Ahmedabad

(currently under construction)

By 2009: To expand to Chennai, Jaipur, Hyderabad, Amritsar,

Chandigarh and Noida.

EIH LIMITED

Background

Founded by Rai Bahadur M S Oberoi as The East India Hotels

Limited in 1949, EIH is the largest company in the Oberoi

Group. It operates hotels under the 'Oberoi' and 'Trident'

brands. The 'Oberoi' hotels are luxury hotels in the premium

segment, serving foreign and domestic business, and leisure

travellers. The 'Trident' hotels are high- quality, medium-

priced hotels, and have been accorded a 4 or 5-star rating.

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Currently, the company operates 2,828 rooms in the

country, spread across 19 domestic properties.

EIH Hotels: Operating Performance

2003 04 2004 05 2005 06Occupancy Rate(%)

58 67 66

ARR (Rs. / day) 4940 5845 7472RevPAR (Rs. /day)

2848 3889 4901

EIH Hotels: Key financial indicatorsMar-02 Mar-03 Mar-04 Mar-05

Operating incomes (Rsmillion)

4128 4218 4907 6110


20.6 17.3 21.2 26.4

Net margin (Per cent) 6.1 3.6 4.5 5.4RoCE (Per cent) 4.3 3.6 4.7 8.3Gearing (Times) 0.83 1.1 1.3 1.3

Interest coverage(Times)

3.28 2.63 2.51 2.2

Amongst the larger players in the industry

EIH is the third largest hotel chain in India, after the Taj

Group of Hotels and ITC Welcomgroup. Indian Hotels

Corporation Ltd (IHCL), which owns the Taj brand, is the

biggest player. EIH's favorable business position in the

luxury hotel industry emanates from its strong brand

equity, relatively large scale of operations and the

favorable geographic mix of its properties. The Oberoi and

Trident brands continue to be associated with luxury and

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high levels of comfort and service quality, which are the

differentiating factors in the 5-star hotel segment. The

largest share of its revenues comes from its Mumbai

properties, followed by its Delhi and Bangalore

properties.

Lack of asset diversification to weaken market

position (in value terms) in the medium term

EIH's high dependence on its Mumbai properties shows weak

asset diversification. The company's properties in Mumbai(The Oberoi and The Hilton Towers) accounted for around 47

per cent of the room revenues in 2003-04.

EIH's Bangalore and Delhi properties will register a higher

growth in RevPARs than its Mumbai and Kolkata properties,

due to intense competition from Indian Hotels (Taj Group),

ITC Hotels, JW Marriot and Hyatt Regency (Asian Group). The

increasing competition in Mumbai will continue to exert

pressure on the company's market position.

EIH to adopt management contract route for growth

EIH has decided to pursue an active growth strategy by

acquiring management contracts in India and abroad. It is

currently looking at purely managed Trident hotels in cities

such as Hyderabad, New Delhi, Kolkata, Pune and

Ahmedabad. Building a new hotel is a capital-intensive

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venture. By entering into management contracts, EIH can

increase its revenue directly without affecting its cash flows.

EIH's plans to expand in Thailand, Cambodia and

Dubai to provide greater brand visibility

EIH is now negotiating for suitable Greenfield hotel projects

(through the management contract route) in Thailand,

Cambodia and Dubai three places where the group

does not have a presence. A presence in international

markets will give EIH greater brand visibility and helpenhance its distribution strengths.

Net margins and RoCE lowest in the industry

Although EIH has moderate operating margins of 26.4 per

cent, its net margins are the lowest in the industry at 5.4 per

cent. In spite of having moderate operating margins, its net

margins were low due to an increase in the interest costs.

The interest costs increased following the deferment of the

Trident project, due to which interest costs were not

capitalized. While the company's RoCE has improved

significantly from 4.7 per cent in 2003-04 to 8.3 per cent in

2004-05, its RoCE is the lowest in the industry. The primary

reason for this is the substantial capital blocked in the

Trident project at Bandra-Kurla complex (EIH has already

spent around Rs 3,100 million).

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Financial flexibility to remain constrained

The company's expansion plans over the next 2 years are

outlined below:

Setting up a 5-star deluxe hotel in Bangalore, with an

inventory of 200 rooms and a service apartment, with

an inventory of 100 rooms. The project is expected to

cost around Rs 2,500 million

Commencing work on 'The Trident' at Bandra-Kurla

complex, with an inventory of 440 rooms. The project

will cost around Rs 6,500 million (EIH has already spentaround Rs 3,100 million on this project).

HOTEL LEELAVENTURE LIMITED

Background

Leela Scottish Lace is the key promoter of Hotel

Leelaventure Ltd (HLVL). After the equity issue in March

2005, its stake has reduced from 68.5 per cent to below 50per cent. HLVL has a presence only in the premium segment,

with properties in Mumbai, Goa, Bangalore and Kerala. All

the properties are owned and operated by the company.

However, for its Mumbai and Bangalore properties, it has a

management and franchisee agreement with Kempinski, and

it has a collaboration agreement with GHM (Mauritius) for its

Goa property. Besides, HLVL has signed a management

agreement with Ambience Hotels and Resorts Limited to

manage a 5-star deluxe hotel, with 319 guestrooms and

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suites and 90 serviced residences, which is under

construction at Gurgaon.

Hotel Leelaventure: Operating Performance

2003 04 2004 05 2005 06Occupancy Rate(%)

67 76 77


3879 5714 7543

Hotel Leelaventure: Key financial indicators


871 1352 1976 2662


24.8 23.7 42.2 48.6

Net margin (Per cent) -3.0 11.7 4.0 17.2RoCE (Per cent) 1.6 6.1 6 9.1Gearing (Times) 3.15 3.08 2.76 1.59Interest coverage(Times)

1.6 1.5 1.6 2.3

A relatively small player in the industry

HLVL is a relatively small player in the hotel industry, with a

presence in the premium segment (5-D and 5-star) in

Mumbai, Bangalore, Goa and Kerala. The Bangalore

property accounts for a large part of the company's

revenues. HLVL's property in Bangalore has been performing

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extremely well, and it tops the market there in terms of

RevPARs.

Strong presence in Bangalore

The Leela is the strongest player in the Bangalore market.

The Leela was the first to hike room rates in the

Bangalore market, and the other players slowly followed

suit. In terms of RevPARs, The Leela and Taj West End will be

in the same band in comparison with ITC Windsor Manor, Le

Meridien and Taj Residency, which are in the lower band.The Leela Palace Kempinski, Bangalore, is the leader in the

Bangalore market. The company has plans to add another

120 rooms to its Bangalore property, which is expected to be

operational in the second half of 2006-07. This will further

improve HLVL's competitive position in the market and will

continue to be a major revenue generator for the company.

HLVL to continue to have the highest operating

margins in the industry; net margins to improve

marginally

HLVL's operating margins have been traditionally the highest

in the industry. HLVL's operating margins rose to 48.6 per

cent in 2004-05 from 42.2 per cent in 2003-04. The relative

high RevPARs earned by the Bangalore property has resulted

in higher margins for the company, followed by its Mumbai

and Goa properties. Over the medium term, HLVL's

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phenomenal operating margins will be maintained with the

expected increase in ARRs and occupancy rates. In line with

HLVL's operating margins, its net margins are expected to

improve slightly.

Financial flexibility to be 'average' over the medium

term

The company's expansion plans are outlined below:

Adding 120 rooms to its Bangalore property, thereby

increasing its inventory from the current 254 rooms to374 rooms

Setting up a hotel in Chennai, with an inventory of 260-

280 rooms

Setting up a hotel in Hyderabad, with an inventory of

around 300 rooms

Setting up a hotel in Pune, with an inventory of around260 rooms

Completion of construction of the hotel in Udaipur,

which has been under construction for a couple of years

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INDIAN HOTELS COMPANY LIMITED

Background

Indian Hotels Company Ltd (IHCL), incorporated in 1902 by

Jamshedji Tata, became a public limited company in 1958.

IHCL operates its hotels under the "Taj Hotels and Palaces"

brand. Currently, IHCL is the largest hotel company in India

in terms of both revenues and number of rooms.

Through its subsidiaries, associates and management

contracts, IHCL operates 71 properties with 8,680 rooms in

India and abroad and more than 200 food and beverageoutlets.

IHCL: Operating Performance

2003 04 2004 05 2005 06Occupancy Rate(%)

71 76 77


3233 4273 5600

IHCL: Key financial indicators


5852 5763 6668 8580

Operating margin (Per

cent)

18.2 17.7 15.6 23.4

Net margin (Per cent) -4.4 5.8 6.5 11.5RoCE (Per cent) 3.5 6.4 5.5 8.4Gearing (Times) 0.83 0.81 1.59 0.91Interest coverage(Times)

1.62 2.43 3.34 4.26

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A leader in the industry

IHCL is the market leader in the hotel industry, while its Taj

Group of Hotels enjoys a strong brand presence. The group

operates around 71 properties with 8,680 rooms. IHCL's

strong brand position and extensive reach within the country

and overseas gives it a competitive edge. The company has

been upgrading and renovating its existing properties and

expanding its presence through management contracts and

investment in associates and affiliates.IHCL is expected to maintain its dominance over the medium

term and be in the forefront in major cities. Entering into

management contracts would boost IHCL's overall

performance.

Continues to be in the forefront in major cities

Nearly 65 per cent of IHCL's revenues come from five cities:

Bangalore, Mumbai, Delhi, Chennai and Kolkata. Across all

the cities, IHCL continues to be in the forefront in most cities

due to its strong brand image (except in Bangalore, where it

is next only to market leader, The Leela Palace, and Delhi,

where it is behind the market leader, Hotel Imperial).

Clear leader in South Mumbai in terms of RevPARs

The Taj group and the Oberoi group have targeted

different clienteles and positioned their two properties

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differently. Thus, Taj Mahal Palace and The Oberoi aim to

maximize RevPARs by having high ARRs, while Taj Mahal

Towers and Hilton Towers maximize occupancies to drive

RevPARs. However, the Taj Mahal Palace is ahead of The

Oberoi and The Taj Mahal Tower, too, is ahead of the

Hilton Towers in terms of RevPARs, indicating that IHCL's

properties are in the forefront as compared to the properties

of its competitor, EIH.

Expanding presence across segmentsIHCL launched its 'GINGER' (earlier 'indiOne' and now

renamed 'GINGER') brand of hotel in June 2004 in Bangalore

and later in Haridwar in March 2006. Encouraged by its

success, IHCL plans to launch more such hotels in

Bhubaneswar, Pune, Mysore, Durgapur, Thiruvananthapuram

and Goa by the end of 2006 and in the cities of Agartala,

Tirupur, Pondicherry and Nashik over the medium term.

However, these hotels are being launched via its 100 per

cent subsidiary, Roots Corporation Ltd. Hence this will not

affect IHCL's (standalone) revenues, but will definitely

strengthen its market position.

Revenues highest in the industry, but operating

margins the lowest

Although IHCL has the highest revenues in the industry, its

operating margins are the lowest at 23.4 per cent. The

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primary reason is IHCL's pan-India presence. Although its

operating margins have improved, its net margins worsened

due to the phenomenal increase in interest costs (Rs 1,079.3

million in 2004-05 from Rs 560.3 million in 2003-04),

following the commissioning of Taj Wellington Mews (service

apartment) in September 2004.

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ITC LTD.

Background

Established in 1910, ITC today is one of India's largest

cigarette manufacturing company with a dominating

market share of nearly 80 per cent. Over the years, ITC has

diversified into multi-business portfolio, covering

Agri-business, hotels, paperboards and specialty papers,

packaging, packaged foods and confectionery, branded

apparel, greetings cards and other FMCG products. ITC

entered the hotel business in 1975. Today, it has over 66hotels across India, which includes super deluxe and 5-star

hotels. ITC has a marketing and franchise agreement with

Sheraton Hotels and Resorts worldwide. With effect from

April 1, 2004, ITC Ltd merged its subsidiaries, ITC Hotels and

Ansal Hotels, with itself. The main objectives for merging its

hotel subsidiaries with itself was to minimize tax outgo on

consultancy services rendered between these units,

synergize operations under an 'umbrella brand' and also

take advantage of the tax benefits arising out of the

accumulated losses of Ansal Hotels.

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Revenue Break up (2004

74.

9.17. 4.3 4.2 Cigarettes

Agri - Busine

Paper

Hotel

O thers

ITC Ltd: Operating Performance

2003 04 2004 05 2005 06Occupancy Rate(%)

65 70 71


2656 3488 4708

ITC Ltd: Key financial indicators

Mar-03 Mar-04 Mar-05Operating incomes (Rsmillion)

1921 2575 5730


5.3 12.6 24.6

RoCE (Per cent) 1.1 3.3 10.1

Relatively strong player with presence across

different segments

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The ITC Welcomgroup is the second largest hotel chain in

India, next only to Indian Hotels. The group has over 60

properties spread across the country. The ITC

Welcomgroup has a presence in the premium, budget

and heritage segments, either directly or through

subsidiaries and joint ventures. The hotels are branded

under four main categories: ITC prefixed hotels in the

super deluxe category, the WelcomHotel brand for 5-

star hotels, Fortune Hotels for the mid-market segment, and

WelcomHeritage for palaces, forts, havelis and resorts atleisure tourist destinations.

Increasing presence in business, mid-market and

heritage segment

ITC Ltd has a major presence in the leisure segment. It has

strengthened its presence in the business segment as well in

the last 3-4 years, with the addition of the ITC Grand

Maratha (Mumbai) and ITC Sonar Bangla (Kolkata). ITC's

second hotel in Mumbai, the ITC Grand Central,

commenced operations in 2004-05. This has further

strengthened the company's position in Mumbai.

Significant improvement of revenues and operating

margins

ITC Ltd's revenues from the hotel business have improved

significantly with the increase in occupancy rates and

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average room rates (ARRs) across all its properties. The

operating margins have improved with the increase in the

ARRs. With increase in profitability, the RoCE of the company

has increased over the years.

India and the World Market

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Tourism industry witnesses rapid growth worldwide

Over the past few years, the travel and tourism

industry has had to contend with a series of

unprecedented challenges. International events such as

terrorism and SARS, and economic turbulence have led

to significant changes in travel and tourism demand.

According to the World Travel and Tourism Council (WTTC),

in 2006, the world travel and tourism demand is expected to

the tune of US $6,477.2 billion, a growth of 4.6 per cent over2005. In 2006, the travel and tourism industry should

contribute 3.6 per cent to worldwide GDP.

Travel and Tourism Demand 2006 (US $)

US $ mn % of totaldemand

European Union 2,149,369

33.18

North America 1,982,178

30.6

Northeast Asia 1,078,269

16.65

Central & EasternEurope

244,631 3.78

Southeast Asia 235,611 3.64

Latin America 163,362 2.52Middle East 147,565 2.28

Sub Saharan Africa 75,346 1.16

South Asia 72,297 1.12

Others 328,591 5.07

Entire World 6,477,21 100

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9

Out of the total demand of US $6,477.2 billion, the

travel and tourism demand in South Asia is expected toamount to US $72.3 billion, only a 1.12 per cent of the total

world demand.

The demand for India's travel and tourism is expected to

amount to US $53.54 billion in 2006, thereby accounting foronly 0.8 per cent of the world travel and tourism demand.

However, India's market share of South Asia's total demand

and of the world travel and tourism demand has been on an

uptrend.

Reasons for India's negligible market share of the

world's travel and tourism demand

High taxes render Indian market uncompetitive

for overseas travellers: In India, the cost of travel

and hotel facilities is high due to the high taxes levied

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South Asia's market share of the worldtotal demand 2006 (%)

1%

99%

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on ATF (aviation turbine fuel), rooms, and F&B. These

taxes account for a significant portion of the total travel

cost and compare unfavorably with the lower taxes

levied in competing destinations, discouraging tourists,

especially leisure travellers.

Poor infrastructure: Accommodation infrastructure

has witnessed the slowest growth. The availability of

hotel rooms is still only a half of the number required to

host even a modest target of 5 million visitors.

Non-affordable hotel rooms: Currently, a 6 nights/7days package to India costs around 30 per cent more as

compared to other countries in South and South-East

Asia, while a premium segment hotel room is 25-30 per

cent dearer.

Air connectivity though better than in the past

not comparable to other countries: International

airfare to India is higher than to Malaysia or Thailand

since there are more scheduled carriers to these two

countries, and they also have a large movement of

charter operations, which keeps competition levels high

and air fares low. In addition, high landing charges, fuel

taxes and high operational costs have resulted in high

airfares in India.

Improper maintenance of monuments and other

places of tourist interest: Increasing evidence shows

that an integrated approach to tourism planning and

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management is now required to achieve the type of

responsible tourism, which sustains the wellbeing of the

land, culture, environment and biodiversity of the place

being visited.

Lack of awareness and information on India's

tourism potential: Although the government is laying

emphasis on promoting India as a tourist destination, it

still needs to go a long way to compete with other

countries.

Besides, high price of land, complex building by-lawsand absence of single window clearance have been the

major disincentives in this sector.

However, the industry is being benefited by some

positive measures

Focus on the development of tourist destinations and

circuits

In Union Budget 2006-07, the government has focused

on developing 15 tourist destinations and circuits,

development of 50 villages with core competency in

handicrafts, handlooms and culture.

Development of hotel management institutions

In Union Budget 2006-07, the government has focused

on the development of four new institutes of hotel

management. This is expected to improve the

availability of skilled manpower.

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Increasing focus on tourism promotion

CONCLUSION:

Though belated, India, is attempting to focus on tourism

promotion and enhancing the visibility of its destinations by:

Vigorously marketing India as a safe destination

Entering into bilateral co-operation agreements with

tourism ministries of various other countries

Bibliography

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The following are the secondary source of information

referred to for the purpose of data collection

Search Engines:

www.google.com

www.altavista.com

Websites:

www.ibef.org

www.dreamgains.comwww.fhrai.com

Magazines & Newspaper:

Newspaper The Economic Times

The FHRAI magazine

Tripti Hotel Sector

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