The hotel industry has been bucking the recesionary fears of its global counterparts, with luxury hotel brands announcing aggressive expansion plans.
Though there has been a sharp decline in occupancy rates, the expansion trend seems to indicate a growing confidence in the sustainability of India Inc. On an average hotels need a 54-per cent occupancy to break even.
The new investment in the hotel industry has been spurred by the government's decision to bring in hotels under the infrastructure category, with a five-year holiday from holiday from income tax for two- , three- and four- star hotels as well as for convention centres with a seating capacity of 3,000 plus capacity in the National Capital Territory of Delhi or in the adjacent districts of Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar constructed between 1 April 2007 and 31 March 2010.
Three international hotel chains have announced expansion plans in India in the last few days.
Marriot International has unveiled a plan to triple its hotel portfolio in India by 2012. The US-based hospitality chain manages more than 2,800 properties (130,000 rooms) across the world under brands like Ritz-Carlton, JW Marriott, Renaissance, Residence Inn and Courtyard.
Of the scheduled seven Marriott hotels, one will be JW Marriott luxury hotel and Marriott Hotel & Convention centre and the rest will be set up as Courtyards, a mid-market hotel brand by the multinational hotelier.
The Rs140-crore real estate company JMD Group has enterd into the hotel business in India by roping in the US-based hospitality group Hilton Hotels' Doubletree brand of luxury hotels.
The Delhi-based company will spend around Rs150 crore over the next two years to establish three hotels.
A 187-room hotel will open in Gurgaon in March next year ahead of the Commonwealth Games. Forty five per cent of the work has been completed.
Besides, Gurgaon and Ludhiana will have one four-star hotel each, consisting of between 125-140 rooms.
Hotel Leelaventure, a luxury hotel chain operator will invest Rs2,500 crore to set up three new luxury hotels in different cities over the next 18 months.
With the addition of new capacities, the company aims to double its turnover to Rs1,000 crore by end of FY10 from Rs514 crore posted during the last financial year ended 31 March 2008.
New Leelaventure hotel properties will come up in Chennai, New Delhi and Udaipur, increasing its room inventory to almost 2,000 rooms from 1,125 rooms at present.
The company plans to tap into funds raised through FCCBs for the expansion.
The New Delhi property will be located in the Chanakyapuri area, which will serve the Commonwealth Games also to be hosted by the national capital in 2010.
Investments prove negative forecasts wrong
In December accountancy firm PricewaterhouseCoopers forecast US demand for hotels in 2009 to fall by 2 per cent which, when coupled with an increase in supply, would reduce occupancy levels to 58.6 per cent -- the lowest since 1971.
This represents the first consecutive two-year RevPAR decrease since the 7.0 per cent and 2.7 per cent decrease in 2001 and 2002, respectively.
According to the PwC forecast, 2008 RevPAR would decrease by 0.8 per cent, primarily due to a 3.7-per cent decrease in occupancy, the highest annual decrease in occupancy since 2001. In 2009, it projected a demand forecast decrease of 2.0 per cent, which, when coupled with a 1.6 per cent increase in supply, is expected to further reduce occupancy to 58.6 per cent, the lowest since 1971.
As a result, hotels are expected to continue to lose pricing power, resulting in an ADR decrease of 2.4 per cent, which, coupled with a 2.1 point drop in occupancy, is expected to decrease RevPAR by 5.8 per cent, the greatest annual decline since the 7.0 per cent drop in 2001.
PwC's revised forecast reflects recessionary economic forecasts by Macroeconomic Advisers, LLC, of three consecutive quarters of declining GDP, beginning with the decline in the third quarter of 2008, and resulting in forecasted GDP growth of just 0.2 per cent for 2009 overall.
Despite the slow growth projections, the Hilton group is upbeat on India. It has 20 hotels with a combined capacity of with 3,500 rooms in various stages of development, with the first two scheduled to open in Delhi and Chennai this year.
Martin Rinck, who took over as the president Asia Pacific of Hilton Hotels Corporation a few months back, told the Business Standard in an interview that of the 120,000 rooms in India only 39 per cent were branded properties. "This means that the whole of India has less branded rooms than Manhattan Island," he said.
Rinck said that the unprecedented slowdown did not alter the underlying potential for growth in India, especially in business hotels as tourist arrvals in India were expected to double in the next five or six years from the five million arrivals in India recorded in 2008.
"With the growth in domestic travel, the demand for branded accommodation will only grow," he told the busines daily.
Even though as a core brand Hilton would be the key driver for growth , Rinck told the business daily, the group planned to bring other brands such s Hilton Inn Garden, Doubletree by Hilton, Homewood Suites by Hilton, Hampton by Hilton.
"We have a JV with DLF that's job is to secure the land and develop the projects; the JV in turn has a management agreement with Hilton. We have a franchise deal with Marigold Hospitality for 16 Hampton hotels. We have an agreement with Shiva to develop 2,000 rooms, and on Wednesday, we signed a deal with JMD to develop 160-room Doubletree hotel in Gurgaon.
The long term potential is very strong. We intend to have 50 hotels in India by 2015, when India could account for 15-20 per cent of our Asia-Pacific revenues. The other statistic that shows India's potential is that 17 per cent of Hilton's new projects in Asia-Pacific are coming up in India, next only to China (63 per cent). There's no so much underlying demand for branded hotels…"