Oversupply Drives India Hotel Tariffs Further Down
<B>Oversupply Drives India Hotel Tariffs Further Down</B>
By Neelam Mathews
The Indian hotel industry has been witnessing declining revenues for three consecutive years. Average room rates at most five-star hotels have seen a 10 percent to 15 percent reduction, and occupancies, too, are under strain. With more than 5,200 hotel rooms expected to be added in Delhi and Mumbai by 2001, the oversupply is expected to further pressurize occupancies and rates this quarter.
A recent Pannell Kerr Forster study found that occupancy fell by 2 percent during March 1999 to April 2000, to 63.77 over the previous year, in India's commercial capital, Mumbai (formerly Bombay). Occupancy in Delhi remained flat at 61.6 percent. The star performer was Bangalore, India's silicon capital, up by 8.4 percent from 57.9 percent during 1998-99 to 66.3 percent during 1999-2000.
According to the survey, the pressure on room rates continued in all four cities during the year, with decreases in average room rates. In Mumbai, the decline in hotel rates was 6.35 percent; in Delhi, it was 12.8 percent; Chennai, 3.6 percent; and Bangalore, 9.1 percent--indicating that protecting or increasing the occupancy was at the cost of tariff. Mumbai, at $140, had the highest average achieved room rate in the country, followed by Delhi at $116 and Bangalore at $100 per room.
The decline in occupancy and average room rate has compounded a decline in yield, i.e., average revenue per room. Delhi and Mumbai were the worst hit, with a slide of 11.65 percent and 9.4 percent, respectively. Chief executive of PKF Consultants India Uttam Davé, said, "I see an increasing look inward, to internal cost efficiencies, in order to protect bottom lines. Even though early results for 2000-2001 show encouraging results thanks to a reviving economy, the overall demand-supply scenario shows that occupancy and rates will continue to remain under pressure for some years as hotels fight for market share."
Carlson Wagonlit national marketing manager Malvinder Rikhy, said, "It has not been a good winter for the past three years, so hotels are not taking any chances. Corporations have negotiated deals up to 25 percent less than the previous year."
The performance of the hotel industry is, in many ways, a barometer of the country's economy. Financial services and e-commerce have emerged as the new darlings of foreign investors, with computer software industry accounting for more than a quarter of all approved foreign direct investments. Additionally, states in India, such as Karnataka, of which Bangalore is the capital, have used their newfound freedom in the liberalized environment to encourage private investment. As a result, the increase in travel predicted is expected to help increase occupancy this year.
For the first time the Indo-U.S. partnership has become active. There now are an estimated 1.5 million Indian Americans in Silicon Valley, many doing business with Bangalore. India's demand for an expansion of H1-B visas for infotech personnel, approved by Congress, has shot up from 65,000 a few years ago to a projected 200,000 next year.
Travel Air managing director Nagaraja Gupta, said, "There is a big demand for rooms by companies for training staff. For instance, Infosys alone trains 100 people every fortnight for six days." To accommodate this demand, more than 800 rooms are expected to be added to Bangalore by 2002.
As well, the Confederation of Indian Industry has invited many American CEOs to the Partnership Summit at Hyderabad to be held in January, and has initiated talks with various states as a follow-up of which, delegations from Atlanta, Pennsylvania, Memphis and Long Island IT Council, would visit India in the coming months.
"Hotels in the two southern cities Bangalore and Hyderabad are sure to be gainers of this exchange," Rikhy said. A price war may well be in the offing with the $29 million ITC Hotels indicating it will reduce hotel tariffs at some of its premium properties. ITC Hotels managing director SSH Rehman said rack rates at the Maurya Sheraton in Delhi were being revised to narrow the gap between the dollar and rupee rates. "Premium hotels in the country are overpriced,'' he added.
Said a competitor: "ITC Hotels has increased capacity in the city here from 431 rooms to 700-plus rooms with the launch of Sheraton Towers. By reducing tariffs for a certain segment, they want to ensure they don't have too many empty rooms. It won't last long.''
The travel and tourism industry has welcomed the move, saying it will boost tourism. "Our hotels are high-priced, compared with their counterparts in other destinations. By reducing tariffs, they stand to gain,'' said Trade Wings Tours managing director Avinash Anand.
Little wonder then, a recent declaration by five-star hotels to raise room rates by 5 percent to 7 percent is being viewed by the industry with prudence.