report on Hotel industries

8/14/2019 report on Hotel industries

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Service management report on hotel industries

S.P.B.PATEL ENGG. COLLEGE (MBA PROGRAM), MEHSANA Page 1

A

PROJECT REPORT

ON

Hotel Industries

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

IN SEMISTER IV IN THE SUBJECT OF SM

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO:

Mrs. GAYATRI VYAS

SUBMITTED BY:

CHAUDHARY SURESH (805)

DAYMA HIRAL (806)

DAVE RAVI (807)


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DESAI AJAY (809)

CONTENT

S.no Particulars p.no1. EXECUTIVE SUMMERY

2. BACK GROUND OF HOTEL INDUSTRIES

3. STRUCTURE OF INDUSTRIES

4. CURRENT SCENARIO OF HOTEL INDUSTRIES

5. FEATURES OF HOTEL INDUSTRIES6. CLASSIFICATION OF HOTELS

a. BASED ON LOCATION

b. BASED ON SIZE OF PROPERTIES

c. BASED ON LEVEL OF SERVICE

d. BASED ON THE LENGTH OF STAY

e. BASED ON THEME

f. BASED ON TARGET MARKET7. DEMAND DRIVERS

8. KEY SUCCESS FACTOR

9. ENVIRONMENTAL ISSUES

10. DOMESTIC PLAYERS

11. GOVERNMENT POLICIES

12. FISCAL REGULATION

13. INTERNATIONAL SCENARIO14. PORTERS FIVE FORCE MODEL

15. MARKET SHARES

16. SWOT ANALYSIS

17. CONCLUSION


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EXECUTIVE SUMMARY

Hotel operators and observers often employ industry-wide averages as key points of

comparison and analysis for room rates, occupancy, and revenues. The use of simple averages,

however, can be misleading if one does not take into account the possibility that a mean will be

pulled in one direction or another by extreme values. This analysis of three industry averages

shows that those averages are, indeed, subject to distortion, or skew. The analysis, which

examines figures for virtually all brand-name hotels in the United States, determined that the

means for average daily rate (ADR) and revenue per available room (RevPAR) are skewed in apositive direction by hotels with extremely high rates. On the other hand, occupancy is skewed in

a negative direction by a group of hotels with inordinately low occupancy levels.

Many of the extreme values are found in the top-25 markets, which have hotels with

inordinately high ADRs. Analysis of those markets shows that, once again, the overall statistics

are distorted by a relatively small set of hotels with exceptional ADRs and occupancies.

However, each of the top markets shows a distinctive rate and occupancy pattern.

The pattern of skewed operating statistics carries over into individual lodging segments.

The greatest distortions arise in the luxury and upscale segments, while economy and budget

hotels record more consistent (normally distributed) statistics.

Finally, the analysis shows that although the events of created much turmoil for the

industry, the hotel business had already cooled substantially from its record pace of a year

earlier. In conclusion, managers must be careful in applying overall industry statistics to their

own situation and should take into account the factors that distort operating statistics.


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Scope of the report

At the backdrop of such a conducive business atmosphere 'Pre-feasibility Report on Five-star

Hotel Industry' attempts to examine such critical factors which will provide vital inputs in

general to the potential investors and estimation of commercial viability of such an investment.

- It presents the market analysis of Indian hotel industry in terms of structure& segmentation,

market size, major hotels etc.

- It analyses the steps involved in setting up a hotel describing the technical aspects in terms of

locational details and land requirement.

- It assess the manpower planning and financial estimate involved in setting up a hotel.

- Brings an insight into the procedure for setting up a hotel, type of machinery

& floors space required, requirement of regulatory permissions & clearances.

-Analysis of porters five forces and SWOT of the industry.

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 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 fastest-growing region in terms of arrivals of international tourists during

2007.


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- 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

A touch of tenderness, a helping hand, a welcoming visage... the Indian hospitality sector is

certainly the most apt replication of the belief ATITHI DEVO BHAVA'.

Good quality products and services at affordable prices should be the USP of any successful

venture - and hotels in the country boast of exactly this!

According to the world travel and tourism council, the growth in the hospitality industry is

pegged at 15% every year, and with 2, 00,000 rooms (both luxury and budget) needed in the

country, the segment is poised for a stupendous growth.

Travel tales

While the high influx of foreign tourists has ensured huge footfalls for the sector over the years,

internal tourism too has, off late, begun offering great potential. With travelers taking new

interests in the country, players in the hospitality sector have had to offer the best of services, at

affordable prices. Also, with the USD 23 billion software services sector pushing the Indian

economy skywards, more and more IT professionals are flocking to Indian metro cities, thus

signaling a boom time for the hotel and hospitality segment. Several other factors such as

Commonwealth Games in Delhi are fueling the need further.

The best bet

The Indian hospitality industry is projected to grow at a rate of 8.8% between 2007-16, placing

India as the second-fastest growing tourism market in the world. Initiatives like massive

investment in hotel infrastructure and open sky policies made by the government are all aimed at

propelling growth in the hospitality sector.


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"Hotel and hospitality industries are among the biggest employment generators in the

country. Towards propelling its growth, while the government should confer infrastructure status

to the hotel industries, several taxation issues also need to be rationalized. Further permits and

licenses required for the hotel operations need to be rationalised by offering a "single window"

mechanism," says Sanjay Gupta, CMD, Neesa Leisure Ltd - the Group which boasts of providing

state-of-the-art facilities and services at its hotels.

Be it Cambay Sapphire - the elegant 3 star business hotel at Ahmedabad or The Cambay

Grand - the upcoming 5 star hotel in Ahmedabad that takes contemporary luxury to new heights

with opulent rooms and suites, exotic spa, virtual golf, and multi cuisine fine dinning, redefining

luxury is the perennial mantra in each of Cambay's hospitality projects.

Some of the Group's forthcoming ventures include The Cambay Spa & Resort at

Neemrana, Rajasthan - a proposed five star business hotel boasting of one of the largest

conference and convention facilities, another venture of Neesa Leisure Ltd in Dahej (SEZ) to

have 100 rooms including apartment and conference facilities and Cambay Sapphire, Jodhpur - a

business hotel. Exclusive and innovative initiatives like the Cambay projects certainly focus on

ensuring a bright future for the Indian hotel industry.

The government's decision to substantially upgrade 28 regional airports in smaller towns and

privatization & expansion of Delhi and Mumbai airport has improved the business prospects of

hotel industry in India. Also, the upgrading of national highways connecting various parts of

India has opened new avenues for the development of budget hotels in India. Couple this with

the availability of qualified human resources and the hospitality sector has already got great

growth prospects!


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BACKGROUND OF THE HOTEL INDUSTRY

The Hotel Industry comprises a major part of the Tourism industry. Historically viewed

as an industry providing a luxury service valuable to the economy only as a foreign exchange

earner, the industry today contributes directly to employment (directly employing around 0.15

million people), and indirectly facilitates tourism and commerce.

Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consisting

Primarily of relatively static, single-hotel companies.

However, the Asiad, held in New Delhi in 1982, and the subsequent partial liberalization

of the Indian economy generated tourism interest in India, with significant benefits accruing tothe hotel and tourism sector, in terms of improved demand patterns. Growth in demand for hotels

was particularly high during the early 1990s following the initiatives taken to liberalize the

Indian economy in FY1991, as per the recommendations of the International Monetary Fund

(IMF).

The euphoria of the early 1990s prompted major chains, new entrants and international

chains to chalk out ambitious capacity additions, especially in the metropolitan cities. However,

most of these efforts were directed towards the business travelers and foreign clientele. In recent

years, the hotels sector has grown at a faster rate than GDP. As a result, the share of hotels &

restaurants in GDP at current prices has increased from 1.2per cent in FY2000 to 1.5per cent in

FY2005.

In constant (1999-2000) prices, the GDP from hotels and restaurants has increased from

Rs. 222.65 billion in FY2000 to Rs. 335.49 billion in FY2005. As a result, the share of hotels and

restaurants in total GDP at constant prices has increased

from 1.24per cent in FY2000 to 1.40per cent in FY2005.


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STRUCTURE OF THE INDUSTRY

Hotels in India are broadly classified into 7 categories (five star deluxe, five-star, four star, three

star, two star, and one-star and heritage hotels) by the Ministry of Tourism, Government of India,

based on the general features and facilities offered. The ratings are reviewed every five years. Asof December 2005 (latest available figure) there are following number and category of hotels.

Star

Category

No.of

Hotels

No.of

Rooms

5-Star

Deluxe

82 18764

5-Star 92 11332

4-Star 132 9401

3-Star 704 31039

2-Star 587 19031

1-Star 212 695

Heritage 83 2216

To be

classified

50 5127

Total 1934 103973

Source: Ministry of Tourism, Government of India

The table excludes hotels in the unorganized sector that have a significant presence

across the country and cater primarily to economy tourists. Premium and Luxury Segment This

segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to the

business and up market foreign leisure travellers and offer a high quality and range of services.

The segment accounted for 29per cent of the total hotel rooms in the country in December 2005.


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Mid-Market Segment

This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic

leisure travellers. This segment also caters to the middle level business travellers since it offers

most of the essential services of luxury hotels without the high costs since the tax component ofthis segment is lower compared with the premium segment.

Budget Segment

These comprise 1 and 2 star hotels referred to as Budget Hotels. These categories do not

offer as many facilities as the other segments but provide inexpensive accommodation to the

highly price-conscious segment of the domestic and foreign leisure travellers.

Heritage Hotels

In the past four decades, certain architecturally distinctive properties such as palaces and

Forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has

Classified these hotels as heritage hotels.

Others

At any point in time, applications for classification are usually pending with the Ministry of

Tourism because of which such properties remain unclassified. The number of hotel rooms

pending classification has declined from historical 15-20per cent to 5per cent of the total rooms

available in the recent past.


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CURRENT SCENARIO OF HOTEL INDUSTRY

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, 4.4

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 increasefrom 7 million in 2002 to 15 million by 2010.

With the USD 23 billion software services sector pushing the Indian economy skywards,

more and more IT professionals are flocking to Indian metro cities. 'Hotel Industry in India' is set

to grow at 15% a year. This figure will skyrocket in 2010, when Delhi hosts the Commonwealth

Games. Already, more than 50 international budget hotel chains are moving into India to stake


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their turf. Therefore, with opportunities galore the future 'Scenario of Indian Hotel Industry'

looks rosy. It is expected that the budget and mid-market hotel segment will witness huge growth

and expansion while the luxury segment will continue to perform extremely well over the next

few years.

The roles of the multinational companies are significant with their increasing contribution

to the Economy. Basically Services are intangible deeds, processes and performances that cannot

be touched, seen or felt but can be experienced. The Service sector is characterized by its

diversity. Global opportunities are growing due to accelerated growth of the service economy.

In the hospitality industry, Average room rate (ARR) and occupancy are the two most

critical factors that determine the profitability, since most of the marginal revenue gets added to

the bottom-line. ARR in turn depends upon location, brand image, star rating, quality of

facilities, pricing of value added services, complementary services offered and the seasonal

factor. The hotels to manage and invest their fund in India adopt many business strategies to

establish their place of business and create innovative service packages to their custom. In a

long-term perspective, these measures bring significant financial returns.

The hotel industry in India has a latent potential for growth. This is because India is an

ideal destination for tourists as it is the only country with the most diverse topography andrelative political stability. At present India attracts approximately 2.5 Million tourists every year,

which is just 0.4% of the world tourist arrivals.

Normally the Multinational hotels operated In India can be owned, leased or acquired

under management contract basis. Hotel operators want the leverage on their management

expertise and brand equity without making enormous capital investment. In management

contract agreements a fee calculated as a percentage of revenue and/or operating profit is

charged. Typically, the management fee is to the tune of 3% of the total revenue and 7% of gross

operating profits.


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FEATURES OF HOTEL INDUSTRY

The hospitality industry consists of companies within the food services, accommodations,

recreation, and entertainment sectors.

The hospitality industry is a several billion dollar industry that mostly depends on the

availability of leisure time and disposable income. A hospitality unit such as a restaurant, hotel,

or even an amusement park consists of multiple groups such as facility maintenance, direct

operations (servers, housekeepers, porters, kitchen workers, bartenders, etc.), management,

marketing, and human resources.

Usage rate is an important variable for the hospitality industry. Just as a factory owner

would wish to have his or her productive asset in use as much as possible (as opposed to having

to pay fixed costs while the factory isn't producing), so do restaurants, hotels, and theme parks

seek to maximize the number of customers they "process".

In viewing various industries, " barriers to entry" by newcomers and competitive

advantages between current players are very important. Among other things, hospitality industry

players find advantage in old classics (location), initial and ongoing investment support

(reflected in the material upkeep of facilities and the luxuries located therein), and particularthemes adopted by the marketing arm of the organization in question (such as a restaurant called

the 51st fighter group that has a WW2 theme in music and other environmental aspects). Very

important is also the characteristics of the personnel working in direct contact with the

customers. The authenticity, professionalism, and actual concern for the happiness and well-

being of the customers that is communicated by successful organizations is a clear competitive

advantage

This significant growth of the tourism industry is the direct result of changes in

international consumer behaviors as well as economic prosperity and political stability within the

region. Historically, the supply of lodging facilities within the region has proved to be both

inadequate in terms of product quality as well as insufficient in quantity for meeting the

increasing levels of demand.
http://en.wikipedia.org/wiki/Housekeeperhttp://en.wikipedia.org/wiki/Bartenderhttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/Bartenderhttp://en.wikipedia.org/wiki/Housekeeper


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These elements of supply and demand have created a favorable investment climate for

development within the region, resulting in a real estate boom in both tourism and residential

development. The growth in residential real estate development has been primarily driven by

foreign demand for vacation and retirement homes in both urban and resort destinations within

the region. Investment and development has been further supported by the variety of financial

incentives for investment in tourism projects offered by national governments as well as the

availability of local capital for the financing of large projects.

The first goal is to find ways to operate the hotel according to the idea of a triple bottom

line, which embodies profitable operation combined with attention to the people who use and

work in the hotel and a focus on careful stewardship of resources. While that goal is important,

even more vital is to use the hotels position as an industry leader in the nations capital to

demonstrate to the hotel industry, customers, and vendors that sustainable operation is the best

strategy to ensure successful hotel operation. The sustainability initiative goes beyond such well-

known ideas as reusing guest linens, recycling waste materials, and changing to compact

fluorescent lamps.


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CLASSIFICATION OF HOTELS:

Classification is based on many criteria and classifying hotels into different types is not

an easy task. The hotel industry is so vast that many hotels do not fit into single well defined

category. Industry can be classified in various ways, based on location, size of property etc. The

main hotel chains of India are: The Taj Group of Hotels, the Oberoi Group and ITC Welcome

group.

Some of the international chains are Hyatt, Marriott, and Le Meridian etc. these

properties have also come up in India now.

1. Based on location

City center: Generally located in the heart of city within a short distance from business

center, shopping arcade. Rates are normally high due to their location advantages. They

have high traffic on weekdays and the occupancy is generally high.

Example: Taj Mahal, Mumbai

Motels: They are located primarily on highways, they provide lodging to highway

travelers and also provide ample parking space. The length of stay is usually overnight.

Suburban hotels: They are located in suburban areas, it generally have high traffic on

weekend. It is ideal for budget travelers. In this type of hotel rates are moderately low.

Airport hotels: These hotels are set up near by the airport. They have transit guest who

stay over between flights.

Resort hotels: They are also termed as health resort or beach hill resort and so dependingon their position and location. They cater a person who wants to relax, enjoy themselves

at hill station. Most resort work to full capacity during peak season. Sales and revenue

fluctuate from season to season.


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Floating hotels: As name implies these hotels are established on luxury liners or ship. It

is located on river, sea or big lakes. In cruise ships, rooms are generally small and all

furniture is fixed down. It has long stay guest.

Boatels: A house boat hotels is referred as boatels. The shikaras of Kashmir and

kettuvallam of kerala are houseboats in India which offers luxurious accommodation to

travelers.

Rotels: These novel variants are hotel on wheel. Our very own "palace on wheels" and

"Deccan Odessey" are trains providing a luxurious hotel atmosphere. Their interior is

done like hotel room. They are normally used by small group of travelers.

2. Based on Size of Property

The main yardstick for the categorization of hotel is by size the number of rooms

available in the hotel.

Small hotel: hotel with 100 rooms and less may be termed as small hotels.

Medium sized hotel: hotel which has 100-300 rooms is known as medium sized hotel.

Large hotels: hotel which have more than 300 rooms are termed as large hotels.

Mega hotels: are those hotels with more than 1000 rooms.

Chain hotels: these are the groups that have hotels in much number of locations in India

and international venues.


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3. Based on the Level of Service

Hotels may be classified into economy, and luxury hotels on the basis of the level of

service they offer.

Economy/ Budget hotels: These hotels meet the basic need of the guest by providing

comfortable and clean room for a comfortable stay.

Mid market hotels: It is suite hotel that offers small living room with appropriate

furniture and small bed room with king sized bed.

Luxury hotels: These offer world class service providing restaurant and lounges,

concierge service, meeting rooms, dinning facilities. Bath linen is provided to the guest

and is replaced accordingly. These guest rooms contains furnishing, artwork etc. prime

market for these hotels are celebrities, business executives and high ranking political

figures. Example: Hyatt Regency, New Delhi.

4. Based on the Length of Stay

Hotel can be classified into transient, residential and semi residential hotels depending

on the stay of a guest.

Transient Hotel: These are the hotel where guest stays for a day or even less, they are

usually five star hotels. The occupancy rate is usually very high. These hotels are situated

near airport.

Residential hotels: These are the hotel where guest can stay for a minimum period of

one month and up to a year. The rent can be paid on monthly or quarterly basis. They

provide sitting room, bed room and kitchenette.

Semi residential hotels: These hotels incorporate features of both transient and

residential hotel.


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5. Based on Theme

Depending on theme hotel may be classified into Heritage hotels, Ecotels, Boutique

hotels and Spas.

Heritage hotel: In this hotel a guest is graciously welcomed, offered room that have their

own history, serve traditional cuisine and are entertained by folk artist. These hotels put

their best efforts to give the glimpse of their region. Example: Jai Mahal palace in

Jaipur.

Ecotels: these are environment friendly hotels these hotel use eco friendly items in the

room. Example: Orchid Mumbai is Asia first and most popular five star Ecotels.

Boutique hotels: This hotel provides exceptional accommodation, furniture in a themed

and stylish manner and caters to corporate travelers. Example: In India the park

Bangalore is a boutique hotel.

Spas: is a resort which provide therapeutic bath and massage along with other features of

luxury hotels in India Ananda spa in Himalaya are the most popular Spa.

6. Based on Target Market

Commercial hotel: They are situated in the heart of the city in busy commercial areas so

as to get good and high business. They cater mostly businessmen.

Convention hotels: These hotels have large convention complex and cater to people

attending a convention, conference

Example: Le meridien, Cochin, is a hotel with largest convention center in

south India.

Resort hotels: These leisure hotels are mainly for vacationers who want to relax and

enjoy with their family. The occupancy varies as per season. The atmosphere is more

relaxed. These are spread out in vast areas so many resorts have solar powered carts for

the transport of guest.


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Suite hotels: These hotel offer rooms that may include compact kitchenette. They cater to

people who are relocating act as like lawyers, executives who are away from home for a

long business stay.

Casino hotels: Hotel with predominantly gambling facilities comes under this category,

they have guest room and food and operation too. These hotels tend to cater leisure and

vacation travelers. Gambling activities at some casino hotels operate 24 hours a day and

365 days

DEMAND DRIVERS

The hotel and restaurant industry of India was Rs. 658.89 billion during 2007-08. Travel

& Tourism Industry of India was valued at US$35.73 billion in 2007, contributing 3.56% to

Indias GDP. The number of foreign tourists arriving to India reached 5.08 million compared

with 4.45 million in the year 2006, showing growth of 14.16%. Indias share in international

tourist arrivals at global level gradually improved from 0.46% in 2004 to 0.49% in 2005 and

further to 0.52% in 2006 and 0.56% in 2007.

The number of domestic tourists in India was 526.57 million compared with 461.76 million in

2006, showing growth of 14.03%. There are 1,437 hotels approved and classified by the Ministry

of Tourism, Government of India, with a total capacity of 84,327 hotel rooms as on December

31, 2007. Indian hotel industry is currently adding about 60,000 quality rooms, which are

expected to be ready by 2012.

International Tourist TrafficThe foreign tourist arrivals in India increased at CAGR of 5.5per cent from 2.29 million

in 1996 to 3.92 million in 2005. Significantly, the bulk of international arrivals into India, both in

2004 and 2005, have been business travelers. Main reason for this increase has been following

fundamental factors:

Indias strong GDP growth.


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Opening of sectors of the economy to private sector/ foreign investment.

Strengthening of ties with the developed world.

Reforms in aviation sector which led to better connectivity with many countries (such as

ASEAN) and created additional capacity on existing routes (for e.g. USA, Middle East).

Also, introduction of low cost airlines also contributed to the demand. The increase in

international flights, seat capacity and frequency into the country and the decision to allow

private airlines like Jet Airways and Air Sahara to fly overseas has had a positive impact on

tourist and business arrivals into India, by way of providing additional seats to

Key destinations.

Development of infrastructure by the Government

Indias emergence as an outsourcing hub.

Success of Incredible India campaign and other tourism promotion measures.

Indias growing recognition as an exciting place to visit (The Readers Travel Awards 2006,

conducted by Cond Nast Travellers has recently placed India at number four among the worlds

must-see countries, up from number nine in 2003) has helped boost its image as a leisure

destination.

Foreign Tourist Arrivals

Foreign Tourist Arrival (Nos.) Percentage Change

Months 2005 2006* 2007* 2006/05 2007/06

January 385977 444260 514453 15.1 15.8

February 369844 407198 462578 10.1 13.6

March 352094 390824 443976 11.0 13.6

April 248416 309775 334558 24.7 8.0

May 225394 258527 271454 14.7 5.0

Total 1581725 1810584 2027019 14.5 12.0


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Foreign Exchange Earnings

Foreign Exchange Earnings (in Rs. billion) Percentage Change

MONTHS 2005 2006* 2007* 2006/05 2007/06

January 23.26 27.22 33.00 17.0 21.2

February 23.43 26.36 30.04 12.5 14.0

March 22.11 24.34 27.99 10.1 15.0

April 16.50 21.27 23.41 28.9 10.0

May 14.53 16.74 18.59 15.2 11.0

Total 99.83 15.94 133.03 16.1 14.7


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KEY SUCCESS FACTORS

The market for the hotel industry can be divided into the following key consumer segments

based on purpose of visit:

The Business Traveler

The Business Traveler is a businessman or a corporate executive travelling for business

purposes. This segment includes corporates, both domestic and foreign, who open offices in the

hotel premises during start-ups, corporate executives who make extended stay either for long

duration projects or while waiting for permanent accommodation (primarily expatriates) and

convention arrivals. While the senior executives usually stay in 5 star hotels, the middle level

executives, who are much larger in number, stay in the budget hotels. This segment offers better

realizations, as they demand relatively smaller discounts on room rents (about 10per cent-15per

cent), use more of facilities such as PCs, fax multi-media, conference halls. Also, the Food &

Beverage (F&B) revenues are better as they usually eat in the hotel itself due to their busy

schedules.

The Leisure Traveler

The Leisure Traveler could either be a foreigner or a domestic traveler whose primary purpose of visit is holiday or site seeing. Among non-business foreign tourists the primary

motivation for visiting India is largely cultural attraction followed by conferences and

conventions, tourist attractions like beaches, wild life, hill resorts etc. Usually, leisure travelers

are part of a package run by a tour operator. The margins offered by leisure travelers tend to be

lower because of two reasons. Firstly, they seek higher discounts and also provide less F&B

revenues as they usually eat out. The business offered by this segment is highly seasonal and

tends to peak in the September to March period.


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ENVIRONMENTAL ISSUES

International Society of Hospitality Consultants (ISHC) represents a significant part ofthe lodging industry's brain power; it was disheartening that rising energy costs and other

environment-related issues. Is it any wonder that the lodging industry has such a long way to go

to become sustainable? Keeping in mind that there are a lot of positive things happening in the

industry, and that there are a lot of industry leaders who do recognize the importance of

environmental protection, here is my own list for the New Year: The Environmental Issues

Facing the Hospitality Industry in 2009.

Staying ahead of rising energy costs. Yes, the industry did get a breather from

skyrocketing energy costs in the second half of 2008, but prices were still higher than the

previous year for the fifth straight year.

Climate change. As evidence continues to mount regarding the reality of global warming,

how will the lodging industry react? What companies will demonstrate the greatest

leadership?

Indoor air quality. Last year saw Marriott, Westin and others transition to 100 percent

nonsmoking environments. What chains will be next? Increasingly, voters and travelers

are clamoring for clean air.

At the association level, the lodging industry is hungry for leadership: individuals to take

the lead in pushing the industry toward sustainability. Who will step forward?

Meeting planners increasingly will require green practices as they select their meeting

destinations. What hotel companies and cities will be best positioned to take advantage of

this trend?


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There is a need for a greater environmental presence at the lodging industry's largest trade

shows. Will that happen in 2009? The National Restaurant Assn. show in Mumbai will

feature a Green Restaurant Products Pavilion for the second year. It will be 40 percent

larger than last year. Other major industry shows -- the International Hotel/Motel &

Restaurant Show and the many large hotel chain conferences -- should consider similar

setups.

Green lodging certification programs are popping up at the state level around the country.

National level programs also continue to grow in India. Will 2009 be the year when

stakeholders in these programs start to talk to one another with the goal of establishing

one green hotel rating system?

Greenhouse gas/carbon offsetting programs are becoming more common. In 2008, Vail

Resorts announced it will offset 100 percent of its energy use by purchasing nearly

152,000 megawatt-hours of wind energy. What other companies will join Vail Resorts

and others in doing this in 2009.

These are just some of the environment-related issues the lodging industry will face in the New

Year. As you meet with your management teams this month, be sure to set measurable, green

goals and make the environment a priority. If you do so, you can be sure that 2009 will be a

much more profitable year for everyone


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DOMESTIC PLAYERS

Major players in the Indian Hotel Industry:

Hotel Chains

They comprise major players including Indian Hotels Company Limited (the Taj Group)

and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited (the ITC

Welcome Group), Indian Tourism Development Corporation (ITDC) and Hotel Corporation of

India (HCI) (the latter two being under the Public Sector). Most of these chains had an

established presence in one or more metro cities prior to the tourism boom of the 1980s.

Subsequent to the tourism boom, these chains aggressively expanded their

presence in other locations. The private players among the hotel chains are industry leaders and

have well-established brand identities across the different industry segments.

Small Chains

They are companies that have come up after the tourism boom of the 1980s and 1990s.

Due to lack of prior experience in the hotel industry, these players have preferred to opt for

operating/management arrangements with international players of repute.

Some of the companies in this category are Hotel Leela Venture (with Kempinski), Asian

Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn and Hilton

and now with Intercontinental). As late entrants, most of these hotel companies have fewer

properties, compared with the big chains. However most of these players have initiated

expansion plans during the late 1990s.

Public Sector Chains

ITDC and HCI boast of some of the best locations in major cities but are relative

underperformers, as compared with their private sector counterparts International Hotel Chains

They are also looking at India as a major growth destination. These chains are establishingthemselves in the Indian market by entering into joint ventures with Indian partners or by

entering into management contracts or franchisee arrangements. Some of the players who have

already entered or plan to enter the Indian market include Marriott, Star wood, Berggren Hotels,

Emaar MGF. Most of these chains have ambitious expansion plans especially with a strong focus

on the budget segment and tier II cities.


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Localized Hotel Companies

They are mainly comprise early entrants who have an established localized presence and

who preferred not to expand during the tourism boom but focus on building and catering to a

loyal customer base.

PROFILES OF SOME OF THE MAJOR PLAYERS IN THE HOTEL INDUSTRY

The Indian Hotels Company

The Indian Hotels Company and its subsidiaries are collectively known as Taj Hotels

Resorts and Palaces, recognized as one of Asia's largest and finest hotel company. Incorporated

by the founder of the Tata Group, Jamsetji N Tata, the company opened its first property, The

Taj Mahal Palace Hotel, Bombay, in 1903. The Taj, a symbol of Indian hospitality, completed its

centenary year in 2003. Taj Hotels Resorts and Palaces comprises 59 hotels at 40 locations

across India with an additional 17 international hotels in the Maldives, Mauritius, Malaysia,

United Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East and

Australia.

The company has had a long-standing commitment to the continued development of the

Indian tourism and hospitality industry. From the 1970s through the 1990s, the Taj played an

important role in launching several of India's key tourist destinations. Working in tandem with

the Indian government, the Taj developed resorts and retreats while the government developed

roads and railways to India's hidden treasures.


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ITC/ Sheraton Corporation

ITC's Hotel division was launched on October 18, 1975, with the opening of its first hotel

-Chola Sheraton in Chennai. ITC Welcome group Hotels, Palaces and Resorts, is today one of

India's finest hotel chains, with its distinctive logo of hands folded in the traditional Namaste iswidely recognized as the ultimate in Indian hospitality.

Each of the chain's hotels pays architectural tribute to ancient dynasties, which ruled

India from time to time. The design concept and themes of these dynasties play an important part

in their respective style and decor. With more and more hotels being added at strategic

destinations, the group has joined hands with the Sheraton Corporation to strengthen its

international marketing base. A successful marketing franchise for almost 25 years now, there

are currently 10 ITC Welcome group Sheraton hotels, and more in the pipeline

The Leela Group

Founded in 1957 by Capt. C.P. Krishnan Nair, the Rs.4.5 billion Leela Group is engaged

in the business of ready-made garments and luxury hotels and resorts. The Leela Kempinski,

Mumbai and The Leela, Goa are two of the best hotels in India, and have also won Considerable

international acclaim. For this to have been achieved in 12 short years is Nothing short of

remarkable. Recently in 2001 Capt. Nair fulfilled his longstanding dream of constructing a

palace hotel in the garden city of Bangalore.

The Leela Palace Kempinski, Bangalore is built in art deco style recreating the grandeur

of The Mysore Maharajas Palace. It is set amidst 8 acres of landscaped garden and waterfalls. It

is a palace with the heart of a modern hotel. Its 254Kovalam is Keralas largest resort, built on a

rock face cradled between two wide sweeping Beaches with a stunning view of the famous

Kovalam coastline.


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The Bharat Hotels Group

The Bharat Hotels group is a major player in Indias tourism and hotel sector. It operates

its hotels under THE GRAND banner and its present portfolio of hotels incorporates 14 luxury

hotels in the five-star deluxe segment. These include Intercontinental The Grand hotels in NewDelhi, Mumbai, Goa & Srinagar and The Grand Ashok Bangalore, The Grand Laxmi Vilas

Palace Udaipur and The Grand Temple View Khajuraho. Additionally, soon to open hotels in

2008-09 are The Grand Great Eastern Kolkata, The Grand Jaipur, The Grand Resort Bekal,

The Grand Ahmedabad, The Grand Chandigarh, The Grand Noida and The Grand Fort Dubai.

By 2009, the company plans to open hotels in Hyderabad, Amritsar and other key locations.

The EIH Ltd (The Oberoi Group)

Asian elegance is the key to running hotels, if you ask EIH (better known as The Oberoi

Group). The company owns and operates about 20 luxury hotels, about 10 mid-range hotels, and

two inland cruises; The Oberoi Group operates primarily in India, but also in Australia, Egypt,

Indonesia, Mauritius, and Saudi Arabia. Most of the company's luxury properties bear the Oberoi

banner.

The company in 2004 joined forces with Hilton International to rebrand most of its mid-

range hotels as Trident Hiltons (the former Oberoi Towers is now known as the Hilton Towers

Mumbai). The Oberoi Group also operates luxury cruises of the Nile River and India's Kerala

region.

Jaypee Hotels Ltd.

Jaypee Hotels Limited primarily engages in the ownership and operation of hotels in

India. The company owns three Five Star Deluxe Hotels, namely Jaypee Palace Hotel at Agra,

and Jaypee Vasant Continental and Jaypee Siddhartha Hotel at New Delhi. It also manages the

operation of the hotels Jaypee Residency Manor at Mussoorie and Jaypee Green Resorts. Inaddition, Jaypee Hotels involves in construction operations. The company is headquartered in

New Delhi, India. Jaypee Hotels Limited is a subsidiary of Jaiprakash Associates Limited.


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GOVERNMENT POLICIES

Tourism being a concurrent subject under the Indian constitution, both the central and

state governments regulates the hotel industry. The regulations include statutory and regulatorysanctions (or approvals and licenses) from the Central and State departments or agencies. This

includes license to operate a restaurant, a hotel license (issued by municipal authorities), license

from police (issued by local police) and a bar license (issued by excise department).

Tourism Policy

In order to develop tourism in India in a systematic manner, position it as a major engine

of economic growth and to harness its direct and multiplier effects for employment and poverty

eradication in an environmentally sustainable manner, the National Tourism Policy was

formulated in the year 2002. Broadly, the Policy attempts to:

Position tourism as a major engine of economic growth

Harness the direct and multiplier effects of tourism for employment generation, economic

development and providing impetus to rural tourism

Focus on domestic tourism as a major driver of tourism growth

Position India as a global brand to take advantage of the burgeoning global travel trade

And the vast untapped potential of India as a destination

Acknowledges the critical role of private sector with government working as a pro-active

facilitator and catalyst

Create and develop integrated tourism circuits based on Indias unique civilization, heritage,

and culture in partnership with States, private sector and other agencies

Ensure that the tourist to India gets physically invigorated, mentally rejuvenated, culturally

enriched, spiritually elevated and feel India from within.


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The Governments major policy initiatives include:

Liberalization in aviation sector

Pricing policy for aviation turbine fuel which influences internal air fares Rationalization in tax rates in the hospitality sector

Tourist friendly visa regime

Immigration services

Procedural changes in making available land for construction of hotels

Allowing setting up of Guest Houses

The Indian Ministry of Tourism has identified 31 villages across the country to be developed as

tourism hubs. The states in which these villages have been identified include Himachal Pradesh,

Gujarat, Maharashtra, Bihar, Karnataka, Madhya Pradesh, Andhra Pradesh, Kerala, Tamil Nadu,

Orissa, Assam, Sikkim, Rajasthan and West Bengal.

Governments Open Skies Policy

The Governments Open Skies policy, permission for domestic airlines to commence

International flights, start-up of various low-cost carriers, and fleet expansion by domestic

players have created a huge incentive for domestic travelers to explore far-off destinations within

and outside India. The booming aviation business is bringing an ever-increasing number of

passengers to India, and pulling Indians out of their homes and into hotels. The numbers,

according to the Ministry of Tourism, speak for themselves:

The number of domestic and international passengers has increased fifteen-fold to 73.34

million in 2005/06 since 1970.

Domestic air passenger traffic grew by 16.8 per cent in 2005/06 compared to 2004/05.

International passenger traffic observed a growth of 16.9 per cent in the same period.

Private airlines accounted for 77.0 per cent of the total domestic traffic.


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Foreign Trade Policy

The Foreign Trade Policy announced in April, 2006, offered following incentives to the

hospitality industry:

Hotels and Restaurants are allowed to import duty free equipment and other items

including liquor, against their foreign exchange earnings under the Served from India Scheme.

As in previous years, this entitlement is 5per cent of previous years foreign exchange earnings

for hotels of one-star and above (including managed hotels and heritage hotels) approved by the

Department of Tourism and other service providers in the tourism sector registered with it.

The stand-alone restaurants will be entitled to duty credit equivalent to 10per cent of the

foreign exchange earned by them in the preceding financial year (instead of the earlier 20per

cent). Service exports in Indian Rupees, which are otherwise considered as having been paid for

in free foreign exchange by RBI, will now qualify for benefits under the Served from India

Scheme. Also, foreign exchange earned through International Credit Cards and other instruments

as permitted by RBI for rendering of service by the service providers shall be considered for the

purposes of computation of entitlement under the Scheme. Benefits of the Scheme earned by one

service provider of a Group company can now be utilized by other service providers of the sameGroup Company including managed hotels.

The measure aims at supporting the Group service companies not earning foreign

exchange in getting access to the international quality products at competitive price and

providing services of international standards. This new initiative allows transfer of both the script

and the imported input to the Group Service Company. The earlier provision allowed transfer of

imported material only.


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FDI in Hotel and Tourism Sector

100 per cent FDI is permissible in the sector on the automatic route. The term hotels

Include restaurants, beach resorts, and other tourist complexes providing accommodation and/or

catering and food facilities to tourists. Tourism related industry include travel agencies, tour

operating agencies and tourist transport operating agencies, units providing facilities for cultural,

adventure and wild life experience to tourists, surface, air and water transport facilities to

tourists, leisure, entertainment, amusement, sports, and health units for tourists and

Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if:

Up to 3 per cent of the capital cost of the project is proposed to be paid for technical and

Consultancy services including fees for architects, design, supervision, etc.

up to 3 per cent of net turnover is payable for franchising and marketing/publicity

Support fee, and up to 10 per cent of gross operating profit is payable for management

fee, including incentive fee.

Other Government Initiatives

Government has undertaken following initiatives to attract both inbound and outbound Tourists:

Incredible India - Under this program the Government promotes India through various

integrated marketing programs.

Atethie devo bhava (guests are equal to god) - Under this program the Government create

awareness among Indian people who come in contact with the tourist.

Various Infrastructure building initiatives

Encourage religious tourism for instance promotes various places in India as Buddhist abodes.

Other projects are the Rs. 5,400 million National Highways Development Project, the 5,846 km

Golden Quadrilateral and the 7,300 km north-south and east-west corridors. Sagarmala project

which intends to create a network of seaports, which will change the way people discover and

experience real India.


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FISCAL REGULATION

India's credit-starved hotel industry can now afford to heave a sigh of relief. In a move

that promises to make credit easily available to the sector, the Union tourism ministry has

permitted the hotel industry to go in for external commercial borrowings up to $100 million

during the current financial year. Meanwhile, the Reserve Bank of India too has removed hotels

from the 'commercial real estate' classification.

This two-pronged push will make larger credit available to the capital-intensive and

credit starved hospitality industry at lower rates of interest, thus bringing down the high cost of

the hotel projects.

Tourism ministry sources have that said that efforts are on to obtain infrastructure status

for hotel projects and the RBI's approval is being sought for this. This will help the interest rate

to go down further to single-digit levels for hotels. Sources said yet another proposal of the

ministry pending with RBI is to provide fiscal amenities for creation of additional hotel room

capacity to meet the surge in demand in the tourism sector.

The ministry has been canvassing that the hotel segment of the tourism industry is

highly capital-intensive and has a long gestation period. India is already facing acute shortage of

quality accommodation for both international as well as domestic tourists. With the delinking of

hotels from commercial real estates, promoters will be able to seek capital loans from banks and

ease out the liquidity issues particularly to the new hotel projects, the sources added.

Food processing in India covers a spectrum of products from agriculture, horticulture,

plantation, animal husbandry and fisheries. While India has an abundant supply of food, the food

processing industry is still nascent with only two per cent of fruit and vegetables, and 15 per cent

of milk produced being processed.

The processed food industry food industry ranks fifth in size in the country, representing

6.3 per cent of GDP. It accounts for 13 per cent of the country's exports and 6 per cent of

total industrial investment.


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The industry size is estimated at US$ 70 billion, including US$22 billion of value added

products.

FDI in the Food Processing Sector has witnessed over two and a half times increase from

Rs 174 crore in 2005 to Rs 441 crore in 2007. It is expected that FDI inflow into the

processed food sector would be in the region of Rs 1,300 crore in 2009. This sector is

emerging as one of the fastest growing sectors with international retailers like Wal-Mart,

Carrefour and Woolworth taking interest in the Indian market.

Policy initiatives

The Indian government has abolished licensing for almost all food and agro-processing

industries.

Automatic investment approval (including foreign technology agreements within

specified norms), up to 51 per cent foreign equity or 100 per cent for NRI and Overseas

Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector.

Wide-ranging fiscal policy changes have been introduced progressively. Excise and

Import duty rates have been reduced substantially. Many processed food items are totally

exempted from excise duty.

Hospitality industry in India

The hospitality Industry in India is poised for major growth. 20,000 more hotel rooms are

required for the Commonwealth Games. To cater to the demand for rooms five-year tax holiday

for two, three and four-star hotels, as well as, convention centers. Hospitality India which

encases various categories of equipment being used, offers a platform for the manufacturers and

suppliers to display the latest state of the art equipment manufactured by them. For achieving

international standards, investment is being made by manufacturers on improving skills of

manpower, in quality machinery and tools and latest technology. Areas which have seen

remarkable change in these years are bakery, laundry and food service equipment.


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AAHAR 2009

AAHAR 2009 will offer a segmentised platform for showcasing the developments and

progress achieved in the processed food and hospitality sectors, through a wide ambit of display

covering products, technologies and services, and the scope embodied by them for investment

and tech up gradation. On display will be all kind of foods, processed food, alcoholic (subject to

obtaining prior permit from the office of Excise Commissioner of NCT of Delhi) and other

beverages, food processing, packaging, mill machinery and equipment; poultry and farm

equipment and supplies, dairy and confectionery equipment, air-conditioning, refrigeration and

cold storage systems, air and water pollution control equipment and accessories, hotel and

kitchen equipment and tableware, laundry, interior and house keeping, health and fitness

equipment, consultancy services and hospitality supplies.

This exposition helps the visitors from the hospitality sector to find a one window solution to

their need to provide hygienic environment at back of the house (kitchen), good quality food and

higher level of productivity. AAHAR also brings together potential business partners from India

and abroad and provides a platform for implementing in government schemes for infrastructural

development like establishing food parks, packaging and value-added centres, integrated cold-

chain facility, irradiates and modernized abattoir. It also offers a reliable and time tested forum

for B2B transactions, exploration of joint venture and technological up-gradation and sourcing

opportunities.

Significantly, with 20 per cent rise in participation, the forthcoming edition of the fair will be

divided into two independent shows viz.

`FOOD INDIA' covering food and food processing sector and `HOSPITALITY INDIA' representing

hotel and restaurant equipment and supplies.


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The government of India has taken a number of steps to promote tourism. An amount of

Rs 0.6 bn is to be allocated for the Commonwealth Games. Income tax exemption for 5 years is

granted to two, three or four star hotels established in specified districts having UNESCO-

declared World Heritage Sites.

The hotel should be constructed and start functioning during the period April 1, 2008 to

March 31, 2013. The industry wants it to be treated at par with other infrastructure sectors such

as roads, ports and telecommunications and be granted full tax benefits.

The slowdown in the global economy, rising crude prices and higher airfares has affected

the hotel sector to a certain extent. Due to rising costs, companies are facing pressure on their

earnings. Plus, cost cutting measures have led to lower business tourist arrivals in recent times.

There is an urgent need for the hotels to adopt cost cutting devices. These can include using

resources more efficiently; minimizing waste production; using products and materials that have

the least negative impact on the environment, both in use and source of origin; pursuing action

programs that benefit the environment in the local community; and fostering the education of

environmental awareness, both internally and externally.

Waste management; energy conservation; water use; and laundry and dry-cleaning should

be given priority because these areas have huge wastages which can be curbed. Paper andstationery can be recycled; air conditioners and other electrical appliances should be switched off

when not in use. Some hotels also offer free wine and hence it should be available in only those

rooms where it is demanded. People generally tend to misuse the free stuff that is available in the

hotels. Hence, it should be made available only on demand. The government should increase its

budget towards the hotel industry as it is observing high rates of growth and can lead to Indias

development as well.

'Hotel Industry in India' have supply of 110,000 rooms. According to the tourism

ministry, 4.4 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.


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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.

With the USD 23 billion software services sector pushing the Indian economy skywards,

more and more IT professionals are flocking to Indian metro cities. 'Hotel Industry in India' is set

to grow at 15% a year. This figure will skyrocket in 2010, when Delhi hosts the CommonwealthGames. Already, more than 50 international budget hotel chains are moving into India to stake

their turf. Therefore, with opportunities galore the future 'Scenario of Indian Hotel Industry'

looks rosy.

Indian tourism and hospitality sector has reached new heights today. Travelers are taking

new interests in the country which leads to the upgrading of the hospitality sector. Even an

increase in business travel has driven the hospitality sector to serve their guests better. Visiting

foreigners has reached a record 3.92 million and consequently International tourism receipts

have also reached a height of US$ 5.7 billion. Hospitality Industry is closely linked with travel

and tourism industries. India is experiencing huge footfalls as a favorite vacation destination of

foreigners and natives and the hospitality industry is going into a tizzy working towards

improving itself.


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PORTERS FIVE FORCES MODEL

INTRODUCTION

Porters model is based on the insight that a corporate strategy should meet the

opportunities and threats in the organizations external environment. Especially, competitive

strategy should base on and understanding of industry structures and the way they change.


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Porter has identified five competitive forces that shape every industry and every market.

These forces determine the intensity of competition and hence the profitability and attractiveness

of an industry. The objective of corporate strategy should be to modify these competitive forces

in a way that improves the position of the organization. Porters model supports analysis of the

driving forces in an industry. Based on the information derived from the Five Forces Analysis,

management can decide how to influence or to exploit particular characteristics of their industry.

1.BARGAINING POWER OF SUPPLIERS

The term 'suppliers' comprises all sources for inputs that are needed in order to provide

goods or services.

The high class hotels are operating by few hotel chains like-TAJ,EIH,ITC&THE LEELA

PALACE so they have a control over the industry.

There are no substitutes for spas and five star hotels.

The hotels customers are fragmented, so they have to reduce their bargaining power to

attract the customers.

The Taj, ITC& Oberoi are having various rates and tariffs. Because they are having their

own brand image.

The hotel chains are operating different services like Spas, Boatels, Resorts, City Centers,

Heritage HOTELS, etc.


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2 . BARGAINING POWER OF CUSTOMERS

Similarly, the bargaining power of customers determines how much customers can

impose pressure on margins and volumes.

The hotel industry is one of the most invested in its fixed assets. So they are trying to

recover their amount quickly.

The suppliers are providing better information about them to attract the customers .Here

the buyers are highly informed.

If the hotel price changes are moderate, the Customers have low margins and are price-

sensitive.

Some unseasoned timings the hotels are offering discounts and incentives to reduce thebargaining power of buyers.

3.THREAT OFNEW ENTRANTS

The competition in an industry will be the higher; the easier it is for other companies to

enter this industry. In such a situation, new entrants could change major determinants of the

market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a

latent pressure for reaction and adjustment for existing players in this industry.

The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and using

the latters brand name.

Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new

entrants.

Access to raw materials and Distribution channels are controlled by Existing players like

TAJ, ITC, and LEELA PALACE.

The cost of land in India is high at 50% of total project cost as against 15% abroad. This

acts as a major deterrent to the Indian hotel industry.

In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%.

Effective tax in the South East Asian countries works out to only 4-5%.


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4. THREAT OF SUBSTITUTES

A threat from substitutes exists if there are alternative products with lower prices of better

performance parameters for the same purpose. They could potentially attract a significant

proportion of market volume and hence reduce the potential sales volume for existing players.

This category also relates to complementary products.

Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the

substitutes.

The hotel relationship with customer and costs also the reasons to switching to

substitutes.

The price variation of same class hotel services from various brands is one of the reasons

to choose a substitute.

The present demand and supply of hotel rooms is one of the reasons to choose a

substitute.

More fixed cost and switching costs affects the business.

5. COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS

This force describes the intensity of competition between existing players (companies) in

an industry. High competitive pressure results in pressure on prices, margins, and hence, on

profitability for every single company in the industry.

The top competitors in hotel industry are having the same services like five star, spas,

boatels and motels, heritage hotels and palaces.

The healthy competition among the all players is helping to increase the industry growth.

Intense in metro cities, slowly picking up in secondary cities.


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MARKET SHARES

The tourism in India has seen a steep decline over last 12 months and the effects of that have

seen Hospitality Industry in India cut to half.

ASSOCHAM recently released the report on the performance of Hospitality Industry. Mumbai

terrorist attack combined with the global slowdown, have severely impacted the bottom line to

the extent of 64 per cent of the Indian hospitality sector, as per the analysis carried out by the

Associated Chamber of Commerce and Industry of India (ASSOCHAM).

Here are some of the key findings of the report:

The average net profit of 10 hotels has declined by 65 per cent in Q4 FY 09 as

compared to the Q3 FY 09.

Out of these 10 hotels, in Q4 FY 09, 8 hotels have registered decline in net profit on

sequential basis.

The interest cost of 10 hotels went up by 51.65 per cent in the fourth quarter of FY 09.

The fall in total income was about 4.47 per cent as compared to the third quarter of FY

09. The total expenditure in fourth quarter of FY 09 rose by 7.47 as compared to the third

quarter of FY 09.

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 fastest-growing 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
http://www.assocham.org/http://www.assocham.org/


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India is now emerging as one of the hot destinations for medicaland tourism after

Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia

While the inflow of foreign tourist came down sharply and the rates shrieked, there has

been a rise in expenses as based on profitability and cost parameters of the hotels on the

quarterly results posted by hotel companies listed on the Bombay Stock Exchange (BSE) from

1st April-25th- May 2009.

The total income of such hotels, which included income from operation and other income

also, registered average decline by 4.47 per cent in Q4 FY 09 as compared to the Q3 FY 09.

The income from operation also showed the average decline by 4.63 per cent during Q4 FY 09.

Hotel companies such as TAJGVK Hotels & Resorts Limited has registered decline in net profit

by 41.49 per cent in Q4 FY 09 as compared to the Q3 FY 09 followed the Jaypee Hotels

Limited which registered decline in net profit by 44.86 per cent during the same period. The

other hotels which registered major decline in net profit were Oriental Hotels Limited (28.34 per

cent), Jindal Hotel Limited (58.12 per cent) and Howard Hotels Limited (57.28 per cent).

Performance Analysis of Hotel Industry

Parameters Per cent Change

Income from Operation -4.63Total Income -4.47

Employee Cost 7.47

Fuel, Power and Light 11.28

Total Expenditure 19.84

Interest 51.65

Net Profit -64.80

Source:

Corporate Announcements for the year ending 2008-09.


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SWOT ANALYSIS

STRENGTHS

A very wide variety of hotels is present in the country.

There are international players in the market such as Taj and Oberoi & International

Chains

A manpower cost in the Indian hotel industry is one of the lowest in the world.

India offers a readymade tourist destination with the resources

Natural and cultural diversity

Demand-supply gap

Government support

Increase in the market share

WEAKNESSES

The cost of land in India is high at 50% of total project cost as against 15% abroad.

The hotel industry in India is heavily staffed.

High tax structure in the industry makes the industry worse off than its international.

Only 97,000 hotel rooms are available in India today.

Only limited value added services

Poor support infrastructure

Slow implementation

Susceptible to political events.


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OPPORTUNITIES

Demand between the national and the inbound tourists can be easily managed due to

difference in the period of holidays.

In the long-term the hotel industry in India has latent potential for growth.

Unique experience in heritage hotels.

Rising income.

Open sky benefits.

THREATS

Guest houses replace the hotels.

Political turbulence in the area reduces tourist traffic and thus the business of the hotels

Changing trends in the west demand similar changes in India The economic conditions of a country have a direct impact on the earnings in hotel

industry.

Lack of training man power in the hotel industry.

Fluctuations in international tourist arrivals.

Increasing competition


50/50


CONCLUSION

This hotel industry analysis report helps to know the full information of Indian hotel

industry. The government support towards the hotel industry and its development is appreciable.

It creates interest of the competitors to grow drastically. The hotel industry comprises a major

part of the tourism industry. The hotel industry contributes employment and economical growth

of the country.

The report shows that the present and future skyrocket scenario of the industry. Various

classes and categories of hotels and their services of the industry are very effective. The market

share and expansion of industry in Indian economy is rosy day by day. At present the

government is very liberal in regulating and licensing to the hotels because to increase foreign

tourist average daily rate.

report on Hotel industries

Documents

Transcript of report on Hotel industries