Urban Indian Business Hotels Witness Travelers' Return

Following setbacks in 2002, when travel warnings removed India as a potential destination for many European and U.S. visitors, business travel is returning to the commercial cities of Mumbai (Bombay)—which added 1,500 hotel rooms in the past three years—and Bangalore, India's software capital, where increasing meetings put pressure on hotel room inventory and drive up prices.

Between April and December 2003, India's foreign visitor arrivals were up 16.5 percent over the previous year, while the second half of 2004 witnessed a sharp upturn in occupancy rates. Operating margins significantly improved, apparent in the Federation of Hotels and Restaurants Association of India's Hotel Industry Business Confidence Survey, which tracks business prospects among hotels across the country. The trend is expected to continue, with the industry targeted to grow at an annual rate of 20 percent up to 2007.

After four years of low occupancies and yields, and with normalcy restored after the fall of the stock markets in June, the hotel industry is back in the pink. The new government's moves toward attracting foreign investments, liberalized policies for Open Skies, joint public/private marketing efforts, privatizing major airports and infrastructure improvements, including national highways, drive both business and leisure travel.

"There is improved business sentiment on account of disinvestment, launches in consumer goods and automobiles," said a Grand Delhi spokesperson.

Many hotel chains, located at lucrative destinations are expected to do well. The homegrown Leela Group's properties in Bangalore and Goa, for instance, are at an advantage, as the two cities face a room supply deficit in the five-star segment. The hotel industry in South India is poised for a boom, with 51 hotels planned.

From March 2004 to April 2005, average occupancy in five-star hotels in Bangalore is expected to rise to 89 percent, from 85 percent last year. Leela is expected to cross 90 percent. Average room revenues are around $200 at the Bangalore Leela.

Meanwhile, the InterContinental Park Royal New Delhi received around 550 room nights a month for the past six months from the U.S. market. General manager Scott Wilson said the average nightly room rate for that time period ranged from $110 to $170. "Now more than ever, U.S. business travelers are working through their companies' corporate relationships with hotels. The corporate rate negotiated by the InterContinental Group's sales team holds here. About 13 percent of business travelers book through our system on the Internet. These are travelers who are given the lowest rate on offer for the defined dates."

According to industry analysts, the rising rupee is unlikely to have an impact on hotels, as high occupancies have enabled the industry to hike tariffs and offset its impact. The industry also has gained from the depreciation of the rupee against the euro. With a large number of visitors from Europe, this has cushioned the impact, to some extent, of the rupee rising against the dollar.

Hoteliers now are planning to increase room rates by up to 20 percent this month."The hike is driven by market conditions," said Hyatt Regency Asian Hotels managing director Sushil Gupta. "There are different tariffs for tour operators who do group bookings, which are negotiable, so there is no reason for undue concern."

"Pricing moves according to market dynamics," said ITC Hotels vice president sales and marketing B. Hariharan. "When 9/11 happened, we dropped prices. We're not going for any radical change or obscene pricing." ITC Hotels flagship property in Delhi, Maurya Sheraton, showed 30 percent revenue growth in its first quarter.

Jaypee Hotels senior vice president Pradeep Kalra said the newly renovated 119-room property is gunning for U.S. business travelers, since it serves as a point of entry for visitors attending conferences at its convention hotel in Agra.