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19 Feb, 2007

Indian Hotels Over-Priced Vis-a-Vis Product Quality, says HVS Report

India’s booming economy has made its hotels hugely expensive but the fact that the product quality does not match the price will do “more damage to India’s tourist industry than any good in the medium to long term,” an Indian hotel report warns.

The Indian Hotel Industry Survey, covering 1,151 hotels (62,055 rooms) across various cities in India, was undertaken by the Federation of Hotel & Restaurant Associations of India in cooperation with the consultancy company HVS International.

It is designed to provide reliable data for feasibility studies and investment decisions to those interested in setting up new hotel projects in various cities in India.

Says the report, “Tourist arrivals to India have shown a robust growth and will go past the 4 million international arrival mark for the first time in 2006. However, the focus has to shift towards domestic travel, which is the real driver of hotel business in the country.

“While the Incredible !ndia campaign has been a huge success in the recent past, India now runs the risk of over-playing it. We are suddenly amongst the most expensive hotel markets in the region.

“Our infrastructure of airports and roads still remain a disappointment and by enticing tourists to come and pay those high prices for a stay and providing them with hotel products which do not match price expectations, we are doing more damage to our tourist industry than any good in the medium to long term.”

The report said that the percentage of foreign guests decreased to 24.9% in 2005-06, compared to 28.3% in 2004-05. Domestic guests continue to be the most important segment, accounting for 75.1% of all guests in 2005-06 registering an average length of stay of 2.6 days.

However, the report indicated that change may be in the air.

Although the country’s nationwide average hotel occupancy was 64.1%, a marginal increase over 2004-05, the average room rate decreased 5.4% over 2004-05, as a result of increased participation by two-star and one-star properties and lower average rates achieved by two-star and one-star properties located in tier two and tier three cities.

The main metropolitan cities are still doing booming business, the report said.

In 2005-06, Hyderabad (the rapidly growing IT centre to which Thai Airways International began flying last year) was the market leader in terms of occupancy (80.2%) followed by Coimbatore (79.7%).

Properties in Ahmedabad recorded the highest growth in average occupancy, growing over 16 occupancy points from 52.6% in 2004-05 to 68.9% in 2005-06. Ahmedabad was followed by Coimbatore and Thiruvananthapuram, which grew by approximately 12 and 10 occupancy points over 2005, from 67.5% and 47.5% respectively in 2004-05 to 79.7% and 57.6% respectively in 2005-06.

New Delhi – NCR had the highest average room rate (ARR) among the 30 cities, with an ARR of Rs6,699. Bangalore recorded the second highest ARR, registering an ARR of Rs6,534.

Bangalore hotels also recorded a decrease in average occupancy over the previous year which, also in respect to the average rate, may be attributable to a change in the mix and composition of respondents.

The report said that properties in Vadodara (formerly Baroda) registered the highest growth in ARR recording an ARR of Rs2,085 in 2005-06, which may be attributed towards a change in the mix and number of respondents from Vadodara.

Hyderabad registered the second highest growth in ARR in 2005-06 recording an ARR of Rs4,305 in 2005-06 compared to Rs2,729 in 2004-05. Net income as a percentage of revenue has gone up in nearly all categories (except in the four-star and Heritage hotel categories), the report says.

It says that many new opportunities are also emerging.

India “desperately needs world-class conference facilities in many of our Indian cities. HVS also foresees the development of resort destinations, which would cater not only to the families but also to the MICE segment.

“An opportunity which has not really been tapped to its fullest is the extended stay segment. The government should also encourage hotels to look at the concept of Condo hotels, which will help rationalise the steep prices of land and make hotels more affordable to build.

“Other issues that need to be addressed include higher FSI (floor space index) norms for hotels while keeping stricter parking norms for the same. Moreover, banks should look at longer-term lending than what is being offered presently in India.”

One of the interesting findings was that Internet, e-mail and website systems used by hotels as distribution channels continued to gain importance growing from 64.5% and 33.2% respectively in 2004-05 to 86.7% and 77.3% respectively in 2005-06.

Accounting systems and internet/email were utilised the highest by hotels among all technology systems, representing approximately 92% and 87% respectively of hotels using each technology in 2005-06.

Reservations made through the Chain Reservation System (CRS), Global Distribution Systems (GDS) and hotel/chain website declined 1.0% over 2004-05. Heritage and one-star category hotels experienced the highest growth in the use of CRS, GDS and hotel/chain website representing 23.6% and 2.7% respectively of total reservations in 2005-06, compared with 15.0% and 1.8% respectively in 2004-05, the report said.

A full copy of the report is available free from: http://www.hvsinternational.com/

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