Global Hotel Chains Look to the Indian Market

Global hotel chains are piling into the Indian hospitality industry, lured by the country's rising economy and growing business and tourism attractions.

The hotel industry in India is thus a prime example of the way developing-world growth, in the wake of the Global Financial Crisis, is luring multinationals from their stagnating economies at home. Some 40 international hotels are expected to open in India in the next three years, covering the full range—upscale, mid-scale, economy and budget.

The United Nations World Tourism Organization projects foreign tourist arrivals to India to grow at 9-10 percent in the next few years. A report by Credit Analysis and Research Ltd, a leading ratings agency, forecasts that India`s hotel industry will grow at a compound annual rate of 11.8 percent over the next five years.

But despite this exponential growth, the country will still not have enough rooms to cater to the burgeoning demand. Analysts predict a shortfall of about 10 percent or roughly 12,000 rooms by 2015 in India, which has for years suffered from both a scarcity of rooms and often-lackadaisal service.

Manav Thadani of HVS, a leading consulting and services organization focused on the hotel and leisure industries, says as much as US$10.3 billion will be invested in the next four years, doubling the room capacity of branded hotels to 125,000.

Domestic chains are reacting to the competition by upgrading their existing properties and adding to their portfolios. The Jaypee Group, for instance, has already firmed up plans to launch more properties in Agra and Jaipur as well as southern Chennai and Kerala. The group is also strengthening its presence with its partnership with the Global Hotel Alliance (GHA) the world's largest alliance of independent hotel brands.

Oberoi Hotels will add five properties in the next two years. Taj Hotels and Resorts, another domestic leader owned by tycoon Ratan Tata, is also opening eight new properties this year, including one in Kashmir which recently opened its doors.

"We have a robust expansion plan to address the growing needs of the industry," says a Taj spokesperson. "With 20 new hotels in the pipeline scheduled to open by 2013, we will add another 3,000-plus rooms to our inventory. We have been expanding our footprint in the 1st and 2nd tier cities and have in the last two years opened eight new hotels. We have also signed management contracts for over 12 hotels which are expected to commence operations within the next two years."

The global chains include Hilton Worldwide, for instance, which is building 10 new hotels over the next couple of years while the InterContinental Hotels Group (IHG) will pump in about US$30 million to develop 19 new Holiday Inn Express properties by 2015. Starwood Hotels, which already operates 31 hotels, including 10 under the Sheraton brand, plans at least 100 by 2015, making India Starwood's third-largest market after the US and China. The group also plans to launch its first `W` brand hotel in the country's financial capital of Mumbai. Starwood, India's largest international five-star hotel operator already has six of its nine global brands operational. By 2012, the group hopes to have 50 properties underway on the sub-continent including its upscale brand, St Regis.

Meanwhile, in the south, World Hotels has signed an agreement to build a resort at Amby Valley in Maharashtra as well as business hotels in New Delhi and Chennai. Mandarin Oriental Group, one of the world's most upscale brands, will add 16 new properties in the next five years. Small Luxury Hotels of the World (SLH) hopes to add 10 more properties to its existing of 13 by the end of this year.

MGM Mirage Hospitality too, intends rolling out hotels in Mumbai, Hyderabad, Bangalore, Chennai, Kolkata, Kerala, Goa and Rajasthan. The group also plans to unleash its other brands out of its global portfolio, like the upscale Bellagio, MGM Grand and Skylofts.

"India represents an enormous opportunity for our business model," says Rahul Chaudhary, Executive Director (Indian Subcontinent), Zinc InVision Hospitality. Zinc InVision is a joint partnership between Thailand-based In Vision Hospitality and Zinc Holdings Inc, the Singapore based investment arm of Cinnovation CG. The group plans to roll out 15 properties in the Indian subcontinent by 2013 under different brand names in tier II locations and metropolitan areas.

"The need for more rooms will only skyrocket further in India due to a spurt in domestic and international travel and an acceleration in the number of middle class travelers and executives undertaking more and business trips," he said.

"As tourist arrivals in India surged," according to the HVS research firm, "foreign brands were better placed to attract these visitors due to their strong reservations networks around the world. With the continued growth in India's GDP, improvement in per capita income, and increased aspirational spending, the Indian hospitality sector is expected to grow faster than most countries around the world."

Prateek Sarkar, formerly a business development manager for a leading Indian hotel chain who now runs his own consultancy, says "India's business buoyancy and burgeoning hospitality industry provides global businesses with a compelling rationale to strategically invest in this market."

"India," Sarkar added, "is a far more profitable proposition for global hospitality firms than many other nations as there is a huge demand-supply gap which can be exploited by the hospitality chains. In fact they can hope to reap profits which are as high as 40-50 percent compared to 20 percent in the West."

"When we started out in India we knew there was a lot of potential for growth here," Ken Greene, group president and managing director, Wyndham Hotels, another international chain with brands including Ramada and Days Inn, told local media.

Wyndham, which operates 7,210 hotels globally with some 612,000 rooms in 67 countries, has signed deals for a dozen hotels with eight more under development.

Such is the enthusiasm among foreign players that rather than opt for management contracts or franchises, that they are now even open to signing joint ventures with local firms or investing in the land or building. InterContinental, for instance, has acquired 24 percent of a joint venture with Duet India Hotels group. It plans to invest about $30 million in developing 19 new Holiday Inn Express properties across India and establish its presence in key business and leisure hubs.

The direct contribution of travel and tourism to the Indian GDP is expected to be US$ 34.8 billion in 2011 which is about 1.9 per cent of the country's GDP. Industry reports predict that the capital investment in India, in the travel and tourism sector will grow at the rate of 8.8 per cent between 2010 and 2020.

Neeta Lal is a New Delhi-based senior journalist