PROJECT REPORT ON

"STUDY OF PROBLEMS IN HOTEL INDUSTRY"

Submitted

In Partial Fulfillment of the Requirements for Qualifying

BHMCT
4th year

Submitted to -

Submitted to Submitted by:

Mr. Solan Chauhan Tanishq Yadav
Roll No. - 1515774101

IHM MEERUT
77th Milestone, Delhi-Dehradun
Highway, NH-58, Daurala, Meerut – 250 008 (U.P) INDIA

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CERTIFICATE

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 ACKNOWLEDGEMENT

I would like to express my extreme gratitude to for his inspiring and supporting guidance

during the course of this project . No words of appreciation are good enough for the

constant encouragement , which I have received from him.

I would also thank my institution and my faculty members without whom this

project would have been a distant reality.

At last I would like to extend my sincere thanks to all the respondents to whom I

visited for giving their support and valuable information , which helps me in

completing my project work.

Tanishq Yadav

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 DECLARATION

I Tanishq Yadav student of BHMCT hereby declare that the Summer Training Project

Report presented in this project report entitled "STUDY OF PROBLEMS IN HOTEL

INDUSTRY". For the fulfillment of the award of BHMCT from IHM Meerut is based

on my work. The project embodies the result of original work and studies carried out by

me and the contents of the project do not form the basis for the award of any other degree

to me or to anybody else

DATE
PLACE:-MEERUT

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 EXECUTIVE SUMMARY

Hotel operators and observers often employ industry-wide averages as key points
of comparison and analysis for room rates, occupancy, and revenues. The use of simple
averages, however, can be misleading if one does not take into account the possibility that
a mean will be pulled in one direction or another by extreme values. This analysis of three
industry averages shows that those averages are, indeed, subject to distortion, or skew. The
analysis, which examines figures for virtually all brand-name hotels in the United States,
determined that the means for average daily rate (ADR) and revenue per available room
(RevPAR) are skewed in a positive direction by hotels with extremely high rates. On the
other hand, occupancy is skewed in a negative direction by a group of hotels with
inordinately low occupancy levels.

Many of the extreme values are found in the top-25 markets, which have hotels
with inordinately high ADRs. Analysis of those markets shows that, once again, the overall
statistics are distorted by a relatively small set of hotels with exceptional ADRs and
occupancies. However, each of the top markets shows a distinctive rate and occupancy
pattern.

The pattern of skewed operating statistics carries over into individual lodging
segments. The greatest distortions arise in the luxury and upscale segments, while
economy and budget hotels record more consistent (normally distributed) statistics.

Finally, the analysis shows that although the events of created much turmoil for the
industry, the hotel business had already cooled substantially from its record pace of a year
earlier. In conclusion, managers must be careful in applying overall industry statistics to
their own situation and should take into account the factors that distort operating statistics.

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Scope of the report

At the backdrop of such a conducive business atmosphere 'Pre-feasibility Report on Five-

star Hotel Industry' attempts to examine such critical factors which will provide vital inputs
in general to the potential investors and estimation of commercial viability of such an
investment.

- It presents the market analysis of Indian hotel industry in terms of structure&

segmentation, market size, major hotels etc.

- It analyses the steps involved in setting up a hotel describing the technical aspects in
terms of locational details and land requirement.

- It assess the manpower planning and financial estimate involved in setting up a hotel.

- Brings an insight into the procedure for setting up a hotel, type of machinery

& floors space required, requirement of regulatory permissions & clearances.

-Analysis of porter’s five forces and SWOT of the industry.

INTRODUCTION

Global travel increased by 6% in 2007 compared with 2006, crossing tourism forecasts for
the fourth year in succession. Among the various regions, the Middle East registered the
highest growth in arrival of international tourists with 46 million tourists compared with 41
million in 2006, a growth of 12.2%.The opening up of the aviation industry in India has
resulted in exciting opportunities for the hotel industry.

- The share of Travel & Tourism industry to the global GDP was 6.48% in the year 2007
with value of US$ 3,493.19 billion and industry demand contributed to 13.21% of global
GDP in 2007.
- Middle East was the fastest-growing region in terms of arrivals of international tourists
during 2007.

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- According to the report by World Travel and Tourism Council, India currently ranks 18th
in business travel and will be among the top 5 nations by the end of 2010.
- ASSOCHAM has projected that Medical Tourism is likely to become the leading foreign
exchange earner for India
- India is now emerging as one of the hot destinations for medical
- tourism after Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia
A touch of tenderness, a helping hand, a welcoming visage... the Indian hospitality sector
is certainly the most apt replication of the belief ‘ATITHI DEVO BHAVA'.
Good quality products and services at affordable prices should be the USP of any
successful venture - and hotels in the country boast of exactly this!
According to the world travel and tourism council, the growth in the hospitality industry is
pegged at 15% every year, and with 2, 00,000 rooms (both luxury and budget) needed in
the country, the segment is poised for a stupendous growth.

Travel tales
While the high influx of foreign tourists has ensured huge footfalls for the sector over the
years, internal tourism too has, off late, begun offering great potential. With travelers
taking new interests in the country, players in the hospitality sector have had to offer the
best of services, at affordable prices. Also, with the USD 23 billion software services
sector pushing the Indian economy skywards, more and more IT professionals are flocking
to Indian metro cities, thus signaling a boom time for the hotel and hospitality segment.
Several other factors such as Commonwealth Games in Delhi are fueling the need further.
The best bet
The Indian hospitality industry is projected to grow at a rate of 8.8% between 2007-16,
placing India as the second-fastest growing tourism market in the world. Initiatives like
massive investment in hotel infrastructure and open sky policies made by the government
are all aimed at propelling growth in the hospitality sector.

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 "Hotel and hospitality industries are among the biggest employment generators in
the country. Towards propelling its growth, while the government should confer
infrastructure status to the hotel industries, several taxation issues also need to be
rationalized. Further permits and licenses required for the hotel operations need to be
rationalised by offering a "single window" mechanism," says Sanjay Gupta, CMD, Neesa
Leisure Ltd - the Group which boasts of providing state-of-the-art facilities and services at
its hotels.

Be it Cambay Sapphire - the elegant 3 star business hotel at Ahmedabad or The

Cambay Grand - the upcoming 5 star hotel in Ahmedabad that takes contemporary luxury
to new heights with opulent rooms and suites, exotic spa, virtual golf, and multi cuisine
fine dinning, redefining luxury is the perennial mantra in each of Cambay's hospitality
projects.

Some of the Group's forthcoming ventures include The Cambay Spa & Resort at
Neemrana, Rajasthan - a proposed five star business hotel boasting of one of the largest
conference and convention facilities, another venture of Neesa Leisure Ltd in Dahej (SEZ)
to have 100 rooms including apartment and conference facilities and Cambay Sapphire,
Jodhpur - a business hotel. Exclusive and innovative initiatives like the Cambay projects
certainly focus on ensuring a bright future for the Indian hotel industry.

The government's decision to substantially upgrade 28 regional airports in smaller towns

and privatization & expansion of Delhi and Mumbai airport has improved the business
prospects of hotel industry in India. Also, the upgrading of national highways connecting
various parts of India has opened new avenues for the development of budget hotels in
India. Couple this with the availability of qualified human resources and the hospitality
sector has already got great growth prospects!

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 BACKGROUND OF THE HOTEL INDUSTRY

The Hotel Industry comprises a major part of the Tourism industry. Historically
viewed as an industry providing a luxury service valuable to the economy only as a foreign
exchange earner, the industry today contributes directly to employment (directly
employing around 0.15 million people), and indirectly facilitates tourism and commerce.
Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consisting
primarily of relatively static, single-hotel companies.

However, the Asiad, held in New Delhi in 1982, and the subsequent partial
liberalization of the Indian economy generated tourism interest in India, with significant
benefits accruing to the hotel and tourism sector, in terms of improved demand patterns.
Growth in demand for hotels was particularly high during the early 1990s following the
initiatives taken to liberalize the Indian economy in FY1991, as per the recommendations
of the International Monetary Fund (IMF).

The euphoria of the early 1990s prompted major chains, new entrants and
international chains to chalk out ambitious capacity additions, especially in the
metropolitan cities. However, most of these efforts were directed towards the business
travelers and foreign clientele. In recent years, the hotels sector has grown at a faster rate
than GDP. As a result, the share of hotels & restaurants in GDP at current prices has
increased from 1.2per cent in FY2000 to 1.5per cent in FY2005.

In constant (1999-2000) prices, the GDP from hotels and restaurants has increased
from Rs. 222.65 billion in FY2000 to Rs. 335.49 billion in FY2005. As a result, the share
of hotels and restaurants in total GDP at constant prices has increased
from 1.24per cent in FY2000 to 1.40per cent in FY2005.

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STRUCTURE OF THE INDUSTRY
Hotels in India are broadly classified into 7 categories (five star deluxe, five-star, four star,
three star, two star, and one-star and heritage hotels) by the Ministry of Tourism,
Government of India, based on the general features and facilities offered. The ratings are
reviewed every five years. As of December 2005 (latest available figure) there are
following number and category of hotels.

Star No.of No.of

Category Hotels Rooms
5-Star 82 18764
Deluxe
5-Star 92 11332
4-Star 132 9401
3-Star 704 31039
2-Star 587 19031
1-Star 212 695
Heritage 83 2216
To be 50 5127
classified
Total 1934 103973
Source: Ministry of Tourism, Government of India

The table excludes hotels in the unorganized sector that have a significant presence
across the country and cater primarily to economy tourists. Premium and Luxury Segment
This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to
the business and up market foreign leisure travellers and offer a high quality and range of
services. The segment accounted for 29per cent of the total hotel rooms in the country in
December 2005.

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Mid-Market Segment
This segment comprises 3 and 4 star hotels, which cater to the average foreign and
domestic leisure travellers. This segment also caters to the middle level business travellers
since it offers most of the essential services of luxury hotels without the high costs since
the tax component of this segment is lower compared with the premium segment.
Budget Segment
These comprise 1 and 2 star hotels referred to as ‘Budget Hotels’. These categories do not
offer as many facilities as the other segments but provide inexpensive accommodation to
the highly price-conscious segment of the domestic and foreign leisure travellers.
Heritage Hotels
In the past four decades, certain architecturally distinctive properties such as palaces and
Forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has
Classified these hotels as heritage hotels.
Others
At any point in time, applications for classification are usually pending with the Ministry
of Tourism because of which such properties remain unclassified. The number of hotel
rooms pending classification has declined from historical 15-20per cent to 5per cent of the
total rooms available in the recent past.

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 CURRENT SCENARIO OF HOTEL INDUSTRY

Over the last decade and half the mad rush to India for business
opportunities has intensified and elevated room rates and occupancy levels in India. Even
budget hotels are charging USD 250 per day. The successful growth story of 'Hotel
Industry in India' seconds only to China in Asia Pacific.

'Hotels in India' have supply of 110,000 rooms. According to the tourism ministry,
4.4 million tourists visited India last year and at current trend, demand will soar to 10
million in 2010 – to accommodate 350 million domestic travelers. 'Hotels in India' has a
shortage of 150,000 rooms fueling hotel room rates across India. With tremendous pull of
opportunity, India is a destination for hotel chains looking for growth.

The World Travel and Tourism Council, India, data says, India ranks 18th in
business travel and will be among the top 5 in this decade. Sources estimate, demand is
going to exceed supply by at least 100% over the next 2 years. Five-star hotels in metro
cities allot same room, more than once a day to different guests, receiving almost 24-hour
rates from both guests against 6-8 hours usage. With demand-supply disparity, 'Hotel India'
room rates are most likely to rise 25% annually and occupancy to rise by 80%, over the
next two years.

'Hotel Industry in India' is eroding its competitiveness as a cost effective

destination. However, the rating on the 'Indian Hotels' is bullish. 'India Hotel Industry' is
adding about 60,000 quality rooms, currently in different stages of planning and
development and should be ready by 2012.

MNC Hotel Industry giants are flocking India and forging Joint Ventures to earn
their share of pie in the race. Government has approved 300 hotel projects, nearly half of
which are in the luxury range. Sources said, the manpower requirements of the hotel
industry will increase from 7 million in 2002 to 15 million by 2010.
With the USD 23 billion software services sector pushing the Indian economy
skywards, more and more IT professionals are flocking to Indian metro cities. 'Hotel

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Industry in India' is set to grow at 15% a year. This figure will skyrocket in 2010, when
Delhi hosts the Commonwealth Games. Already, more than 50 international budget hotel
chains are moving into India to stake their turf. Therefore, with opportunities galore the
future 'Scenario of Indian Hotel Industry' looks rosy. It is expected that the budget and
mid-market hotel segment will witness huge growth and expansion while the luxury
segment will continue to perform extremely well over the next few years.

The roles of the multinational companies are significant with their increasing
contribution to the Economy. Basically Services are intangible deeds, processes and
performances that cannot be touched, seen or felt but can be experienced. The Service
sector is characterized by its diversity. Global opportunities are growing due to accelerated
growth of the service economy.

In the hospitality industry, Average room rate (ARR) and occupancy are the two
most critical factors that determine the profitability, since most of the marginal revenue
gets added to the bottom-line. ARR in turn depends upon location, brand image, star
rating, quality of facilities, pricing of value added services, complementary services
offered and the seasonal factor. The hotels to manage and invest their fund in India adopt
many business strategies to establish their place of business and create innovative service
packages to their custom. In a long-term perspective, these measures bring significant
financial returns.

The hotel industry in India has a latent potential for growth. This is because India
is an ideal destination for tourists as it is the only country with the most diverse topography
and relative political stability. At present India attracts approximately 2.5 Million tourists
every year, which is just 0.4% of the world tourist arrivals.

Normally the Multi national hotels operated In India can be owned, leased or
acquired under management contract basis. Hotel operators want the leverage on their
management expertise and brand equity without making enormous capital investment. In
management contract agreements a fee calculated as a percentage of revenue and/or

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operating profit is charged. Typically, the management fee is to the tune of 3% of the total
revenue and 7% of gross operating profits.

Most players, with the exemption of IHCL and EIH, have entered into a marketing
tie-up with major international hotel chains. Thus we have Hyatt Regency a renowned
international hotel chain having tied up with AHL, Leela having tied up with Kempinski
and ITCH having a franchisee agreement with ITT Sheraton to use the latter's brand name.

For the Indian hotel owners and the international hotel chains the benefit is mutual,
tie-up with an international hotel chain puts the hotel on the global map with access to
chain's reservation network worldwide. For the international hotel chain they can ride on
the boom of the industry without making enormous capital investments on infrastructure
and facilities. Associations with international brand also play a major role in image
building and attracting foreign tourists. However the value of the international brand gets
diluted if a foreign entity enters an agreement with several Indian companies.

Luxury hotels operate under single tariff structure whereby the foreign tourists are
charged in dollar terms whereas the domestic guest is charged the equivalent amount in
rupees. The luxury hotels earn about two-thirds of their revenue from foreign tourists.
Leisure travelers constitute approximately 76.5% of the total tourist arrivals whereas
business travelers constitute 21% of the total arrivals. The remainder is accounted by
students. The hotel industry is the second largest foreign exchange earner and between
1991 and 1998 there has been a 100% growth in foreign tourists.

Hotels benefit from rupee depreciation as over 60% of revenues in the luxury hotel
segment are in foreign currencies. Thus any depreciation of the rupee goes directly to the
bottom line (FOREX income is also fully tax exempt), as none of the costs are directly
linked to the exchange rate. The hotel debt environment is also improving. While many
countries are hampered by a still sluggish economy, those with a low interest rate
environment with relatively stable-banking conditions will provide opportunities for hotel
investors to raise capital. For hotel lenders, from a risk/return basis, there has never been a
better time to provide new capital to this industry in India

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 FEATURES OF HOTEL INDUSTRY

The hospitality industry consists of companies within the food services,

accommodations, recreation, and entertainment sectors.

The hospitality industry is a several billion dollar industry that mostly depends on
the availability of leisure time and disposable income. A hospitality unit such as a
restaurant, hotel, or even an amusement park consists of multiple groups such as facility
maintenance, direct operations (servers, housekeepers, porters, kitchen workers,
bartenders, etc.), management, marketing, and human resources.

Usage rate is an important variable for the hospitality industry. Just as a factory
owner would wish to have his or her productive asset in use as much as possible (as
opposed to having to pay fixed costs while the factory isn't producing), so do restaurants,
hotels, and theme parks seek to maximize the number of customers they "process".

In viewing various industries, "barriers to entry" by newcomers and competitive

advantages between current players are very important. Among other things, hospitality
industry players find advantage in old classics (location), initial and ongoing investment
support (reflected in the material upkeep of facilities and the luxuries located therein), and
particular themes adopted by the marketing arm of the organization in question (such as a
restaurant called the 51st fighter group that has a WW2 theme in music and other
environmental aspects). Very important is also the characteristics of the personnel working
in direct contact with the customers. The authenticity, professionalism, and actual concern
for the happiness and well-being of the customers that is communicated by successful
organizations is a clear competitive advantage

This significant growth of the tourism industry is the direct result of changes in
international consumer behaviors as well as economic prosperity and political stability
within the region. Historically, the supply of lodging facilities within the region has proved
to be both inadequate in terms of product quality as well as insufficient in quantity for
meeting the increasing levels of demand.

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 These elements of supply and demand have created a favorable investment climate
for development within the region, resulting in a real estate boom in both tourism and
residential development. The growth in residential real estate development has been
primarily driven by foreign demand for vacation and retirement homes in both urban and
resort destinations within the region. Investment and development has been further
supported by the variety of financial incentives for investment in tourism projects offered
by national governments as well as the availability of local capital for the financing of
large projects.

The first goal is to find ways to operate the hotel according to the idea of a “triple
bottom line,” which embodies profitable operation combined with attention to the people
who use and work in the hotel and a focus on careful stewardship of resources. While that
goal is important, even more vital is to use the hotel’s position as an industry leader in the
nation’s capital to demonstrate to the hotel industry, customers, and vendors that
sustainable operation is the best strategy to ensure successful hotel operation. The
sustainability initiative goes beyond such well-known ideas as reusing guest linens,
recycling waste materials, and changing to compact fluorescent lamps.

CLASSIFICATION OF HOTELS:

Classification is based on many criteria and classifying hotels into different types is
not an easy task. The hotel industry is so vast that many hotels do not fit into single well
defined category. Industry can be classified in various ways, based on location, size of
property etc. The main hotel chains of India are: The Taj Group of Hotels, the Oberoi
Group and ITC Welcome group.

Some of the international chains are Hyatt, Marriott, and Le Meridian etc. these
properties have also come up in India now.

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1. Based on location
• City center: Generally located in the heart of city within a short distance from
business center, shopping arcade. Rates are normally high due to their location
advantages. They have high traffic on weekdays and the occupancy is generally
high.
Example: Taj Mahal, Mumbai

• Motels: They are located primarily on highways, they provide lodging to highway
travelers and also provide ample parking space. The length of stay is usually
overnight.

• Suburban hotels: They are located in suburban areas, it generally have high traffic
on weekend. It is ideal for budget travelers. In this type of hotel rates are
moderately low.

• Airport hotels: These hotels are set up near by the airport. They have transit guest
who stay over between flights.

• Resort hotels: They are also termed as health resort or beach hill resort and so
depending on their position and location. They cater a person who wants to relax,
enjoy themselves at hill station. Most resort work to full capacity during peak
season. Sales and revenue fluctuate from season to season.

• Floating hotels: As name implies these hotels are established on luxury liners or
ship. It is located on river, sea or big lakes. In cruise ships, rooms are generally
small and all furniture is fixed down. It has long stay guest.

• Boatels: A house boat hotels is referred as boatels. The shikaras of Kashmir and
kettuvallam of kerala are houseboats in India which offers luxurious
accommodation to travelers.

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 • Rotels: These novel variants are hotel on wheel. Our very own "palace on wheels"
and "Deccan Odessey" are trains providing a luxurious hotel atmosphere. Their
interior is done like hotel room. They are normally used by small group of
travelers.

2. Based on Size of Property

The main yardstick for the categorization of hotel is by size the number of rooms
available in the hotel.

• Small hotel: hotel with 100 rooms and less may be termed as small hotels.

• Medium sized hotel: hotel which has 100-300 rooms is known as medium sized
hotel.

• Large hotels: hotel which have more than 300 rooms are termed as large hotels.

• Mega hotels: are those hotels with more than 1000 rooms.

• Chain hotels: these are the groups that have hotels in much number of locations in
India and international venues.

3. Based on the Level of Service

Hotels may be classified into economy, and luxury hotels on the basis of the level of
service they offer.

• Economy/ Budget hotels: These hotels meet the basic need of the guest by
providing comfortable and clean room for a comfortable stay.

• Mid market hotels: It is suite hotel that offers small living room with appropriate
furniture and small bed room with king sized bed.

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 • Luxury hotels: These offer world class service providing restaurant and lounges,
concierge service, meeting rooms, dinning facilities. Bath linen is provided to the
guest and is replaced accordingly. These guest rooms contains furnishing, artwork
etc. prime market for these hotels are celebrities, business executives and high
ranking political figures. Example: Hyatt Regency, New Delhi.

4. Based on the Length of Stay

Hotel can be classified into transient, residential and semi residential hotels depending
on the stay of a guest.

• Transient Hotel: These are the hotel where guest stays for a day or even less, they
are usually five star hotels. The occupancy rate is usually very high. These hotels
are situated near airport.

• Residential hotels: These are the hotel where guest can stay for a minimum period
of one month and up to a year. The rent can be paid on monthly or quarterly basis.
They provide sitting room, bed room and kitchenette.

• Semi residential hotels: These hotels incorporate features of both transient and
residential hotel.

5. Based on Theme

Depending on theme hotel may be classified into Heritage hotels, Ecotels, Boutique
hotels and Spas.

• Heritage hotel: In this hotel a guest is graciously welcomed, offered room that
have their own history, serve traditional cuisine and are entertained by folk artist.
These hotels put their best efforts to give the glimpse of their region. Example: Jai
Mahal palace in Jaipur.

• Ecotels: these are environment friendly hotels these hotel use eco friendly items in
the room. Example: Orchid Mumbai is Asia first and most popular five star Ecotels.

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 • Boutique hotels: This hotel provides exceptional accommodation, furniture in a
themed and stylish manner and caters to corporate travelers. Example: In India the
park Bangalore is a boutique hotel.

• Spas: is a resort which provide therapeutic bath and massage along with other
features of luxury hotels in India Ananda spa in Himalaya are the most popular
Spa.

6. Based on Target Market

• Commercial hotel: They are situated in the heart of the city in busy commercial
areas so as to get good and high business. They cater mostly businessmen.

• Convention hotels: These hotels have large convention complex and cater to
people attending a convention, conference

Example: Le meridien, Cochin, is a hotel with largest convention center

in south India.

• Resort hotels: These leisure hotels are mainly for vacationers who want to relax
and enjoy with their family. The occupancy varies as per season. The atmosphere is
more relaxed. These are spread out in vast areas so many resorts have solar
powered carts for the transport of guest.

• Suite hotels: These hotel offer rooms that may include compact kitchenette. They
cater to people who are relocating act as like lawyers, executives who are away
from home for a long business stay.
• Casino hotels: Hotel with predominantly gambling facilities comes under this
category, they have guest room and food and operation too. These hotels tend to
cater leisure and vacation travelers. Gambling activities at some casino hotels
operate 24 hours a day and 365 days

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 DEMAND DRIVERS

The hotel and restaurant industry of India was Rs. 658.89 billion during 2007-08.
Travel & Tourism Industry of India was valued at US$35.73 billion in 2007, contributing
3.56% to India’s GDP. The number of foreign tourists arriving to India reached 5.08
million compared with 4.45 million in the year 2006, showing growth of 14.16%. India’s
share in international tourist arrivals at global level gradually improved from 0.46% in
2004 to 0.49% in 2005 and further to 0.52% in 2006 and 0.56% in 2007.

The number of domestic tourists in India was 526.57 million compared with 461.76
million in 2006, showing growth of 14.03%. There are 1,437 hotels approved and
classified by the Ministry of Tourism, Government of India, with a total capacity of 84,327
hotel rooms as on December 31, 2007. Indian hotel industry is currently adding about
60,000 quality rooms, which are expected to be ready by 2012.
 International Tourist Traffic
The foreign tourist arrivals in India increased at CAGR of 5.5per cent from 2.29
million in 1996 to 3.92 million in 2005. Significantly, the bulk of international arrivals into
India, both in 2004 and 2005, have been business travelers. Main reason for this increase
has been following fundamental factors:
•India’s strong GDP growth.
•Opening of sectors of the economy to private sector/ foreign investment.
•Strengthening of ties with the developed world.
•Reforms in aviation sector which led to better connectivity with many countries (such as
ASEAN) and created additional capacity on existing routes (for e.g. USA, Middle East).
Also, introduction of low cost airlines also contributed to the demand. The increase in
international flights, seat capacity and frequency into the country and the decision to allow
private airlines like Jet Airways and Air Sahara to fly overseas has had a positive impact
on tourist and business arrivals into India, by way of providing additional seats to

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  Key destinations.
•Development of infrastructure by the Government
•India’s emergence as an outsourcing hub.
•Success of “Incredible India” campaign and other tourism promotion measures.
•India’s growing recognition as an exciting place to visit (‘The Readers Travel Awards
2006’, conducted by Condé Nast Travellers has recently placed India at number four
among the world’s must-see countries, up from number nine in 2003) has helped boost its
image as a leisure destination.
 Foreign Tourist Arrivals

Foreign Tourist Arrival (Nos.) Percentage Change

Months 2005 2006* 2007* 2006/05 2007/06
January 385977 444260 514453 15.1 15.8
February 369844 407198 462578 10.1 13.6
March 352094 390824 443976 11.0 13.6
April 248416 309775 334558 24.7 8.0
May 225394 258527 271454 14.7 5.0
Total 1581725 1810584 2027019 14.5 12.0

 Foreign Exchange Earnings

Foreign Ex change Earnings (in R s. billion) P ercentage Change

MONTHS 2005 2006* 2007* 2006/05 2007/06
January 23.26 27.22 33.00 17.0 21.2
February 23.43 26.36 30.04 12.5 14.0
March 22.11 24.34 27.99 10.1 15.0
April 16.50 21.27 23.41 28.9 10.0
May 14.53 16.74 18.59 15.2 11.0
Total 99.83 15.94 133.03 16.1 14.7

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 KEY SUCCESS FACTORS

The market for the hotel industry can be divided into the following key consumer segments
based on purpose of visit:
The Business Traveler
The Business Traveler is a businessman or a corporate executive travelling for
business purposes. This segment includes corporates, both domestic and foreign, who open
offices in the hotel premises during start-ups, corporate executives who make extended
stay either for long duration projects or while waiting for permanent accommodation
(primarily expatriates) and convention arrivals. While the senior executives usually stay in
5 star hotels, the middle level executives, who are much larger in number, stay in the
budget hotels. This segment offers better realizations, as they demand relatively smaller
discounts on room rents (about 10per cent-15per cent), use more of facilities such as PCs,
fax multi-media, conference halls. Also, the Food & Beverage (F&B) revenues are better
as they usually eat in the hotel itself due to their busy schedules.

The Leisure Traveler

The Leisure Traveler could either be a foreigner or a domestic traveler whose
primary purpose of visit is holiday or site seeing. Among non-business foreign tourists the
primary motivation for visiting India is largely cultural attraction followed by conferences
and conventions, tourist attractions like beaches, wild life, hill resorts etc. Usually, leisure
travelers are part of a package run by a tour operator. The margins offered by leisure
travelers tend to be lower because of two reasons. Firstly, they seek higher discounts and
also provide less F&B revenues as they usually eat out. The business offered by this
segment is highly seasonal and tends to peak in the September to March period.

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Airline Cabin Crew
Airline Cabin Crew forms another important segment because of the repetitive and
guaranteed nature of the business that they provide. Usually, these are a part of an annual
contract whereby, in return for a fixed rate, a certain number of rooms are provided on
demand for cabin crews. With discount rates in the range of 40per cent and 50per cent, this
represents a low-yield segment for hotels in general
Premium and Luxury Segment

This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly
cater to the business and up market foreign leisure travelers and offer a high quality and
range of services. The segment accounted for 29per cent of the total hotel rooms in the
country in December 2005.

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 ENVIRONMENTAL ISSUES

International Society of Hospitality Consultants (ISHC) represents a significant part

of the lodging industry's brain power; it was disheartening that rising energy costs and
other environment-related issues. Is it any wonder that the lodging industry has such a long
way to go to become sustainable? Keeping in mind that there are a lot of positive things
happening in the industry, and that there are a lot of industry leaders who do recognize the
importance of environmental protection, here is my own list for the New Year: The
Environmental Issues Facing the Hospitality Industry in 2009.
Staying ahead of rising energy costs. Yes, the industry did get a breather from
skyrocketing energy costs in the second half of 2008, but prices were still higher than the
previous year for the fifth straight year.
Climate change. As evidence continues to mount regarding the reality of global warming,
how will the lodging industry react? What companies will demonstrate the greatest
leadership?
Indoor air quality. Last year saw Marriott, Westin and others transition to 100 percent
nonsmoking environments. What chains will be next? Increasingly, voters and travelers are
clamoring for clean air.
At the association level, the lodging industry is hungry for leadership: individuals to take
the lead in pushing the industry toward sustainability. Who will step forward?
Meeting planners increasingly will require green practices as they select their meeting
destinations. What hotel companies and cities will be best positioned to take advantage of
this trend?
There is a need for a greater environmental presence at the lodging industry's largest trade
shows. Will that happen in 2009? The National Restaurant Assn. show in Mumbai will
feature a Green Restaurant Products Pavilion for the second year. It will be 40 percent
larger than last year. Other major industry shows -- the International Hotel/Motel &
Restaurant Show and the many large hotel chain conferences -- should consider similar
setups.
Green lodging certification programs are popping up at the state level around the country.
National level programs also continue to grow in India. Will 2009 be the year when

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stakeholders in these programs start to talk to one another with the goal of establishing one
green hotel rating system?
Greenhouse gas/carbon offsetting programs are becoming more common. In 2008, Vail
Resorts announced it will offset 100 percent of its energy use by purchasing nearly
152,000 megawatt-hours of wind energy. What other companies will join Vail Resorts and
others in doing this in 2009.
These are just some of the environment-related issues the lodging industry will face in the
New Year. As you meet with your management teams this month, be sure to set
measurable, green goals and make the environment a priority. If you do so, you can be sure
that 2009 will be a much more profitable year for everyone

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 DOMESTIC PLAYERS

Major players in the Indian Hotel Industry:

 Hotel Chains
They comprise major players including Indian Hotels Company Limited (the Taj
Group) and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited
(the ITC Welcome Group), Indian Tourism Development Corporation (ITDC) and Hotel
Corporation of India (HCI) (the latter two being under the Public Sector). Most of these
chains had an established presence in one or more metro cities prior to the tourism boom of
the 1980s. Subsequent to the tourism boom, these chains aggressively expanded their
presence in other locations. The private players among the hotel chains are industry leaders
and have well-established brand identities across the different industry segments.

 Small Chains
They are companies that have come up after the tourism boom of the 1980s and
1990s. Due to lack of prior experience in the hotel industry, these players have preferred to
opt for operating/management arrangements with international players of repute.
Some of the companies in this category are Hotel Leela Venture (with Kempinski),
Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn
and Hilton and now with Intercontinental). As late entrants, most of these hotel companies
have fewer properties, compared with the big chains. However most of these players have
initiated expansion plans during the late 1990s.
 Public Sector Chains
ITDC and HCI boast of some of the best locations in major cities but are relative
underperformers, as compared with their private sector counterparts International Hotel
Chains They are also looking at India as a major growth destination. These chains are
establishing themselves in the Indian market by entering into joint ventures with Indian
partners or by entering into management contracts or franchisee arrangements. Some of the
players who have already entered or plan to enter the Indian market include Marriott, Star
wood, Berggren Hotels, Emaar MGF. Most of these chains have ambitious expansion plans
especially with a strong focus on the budget segment and tier II cities.

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  Localized Hotel Companies
They are mainly comprise early entrants who have an established localized
presence and who preferred not to expand during the tourism boom but focus on building
and catering to a loyal customer base.

PROFILES OF SOME OF THE MAJOR PLAYERS IN THE HOTEL INDUSTRY

 The Indian Hotels Company

The Indian Hotels Company and its subsidiaries are collectively known as Taj
Hotels Resorts and Palaces, recognized as one of Asia's largest and finest hotel company.
Incorporated by the founder of the Tata Group, Jamsetji N Tata, the company opened its
first property, The Taj Mahal Palace Hotel, Bombay, in 1903. The Taj, a symbol of Indian
hospitality, completed its centenary year in 2003. Taj Hotels Resorts and Palaces
comprises 59 hotels at 40 locations across India with an additional 17 international hotels
in the Maldives, Mauritius, Malaysia, United Kingdom, United States of America, Bhutan,
Sri Lanka, Africa, the Middle East and Australia.

The company has had a long-standing commitment to the continued development

of the Indian tourism and hospitality industry. From the 1970s through the 1990s, the Taj
played an important role in launching several of India's key tourist destinations. Working
in tandem with the Indian government, the Taj developed resorts and retreats while the
government developed roads and railways to India's hidden treasures.

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  ITC/ Sheraton Corporation
ITC's Hotel division was launched on October 18, 1975, with the opening of its
first hotel -Chola Sheraton in Chennai. ITC – Welcome group Hotels, Palaces and Resorts,
is today one of India's finest hotel chains, with its distinctive logo of hands folded in the
traditional Namaste is widely recognized as the ultimate in Indian hospitality.

Each of the chain's hotels pays architectural tribute to ancient dynasties, which
ruled India from time to time. The design concept and themes of these dynasties play an
important part in their respective style and decor. With more and more hotels being added
at strategic destinations, the group has joined hands with the Sheraton Corporation to
strengthen its international marketing base. A successful marketing franchise for almost 25
years now, there are currently 10 ITC – Welcome group Sheraton hotels, and more in the
pipeline

 The Leela Group

Founded in 1957 by Capt. C.P. Krishnan Nair, the Rs.4.5 billion Leela Group is
engaged in the business of ready-made garments and luxury hotels and resorts. The Leela
Kempinski, Mumbai and The Leela, Goa are two of the best hotels in India, and have also
won Considerable international acclaim. For this to have been achieved in 12 short years is
Nothing short of remarkable. Recently in 2001 Capt. Nair fulfilled his longstanding dream
of constructing a palace hotel in the garden city of Bangalore.
The Leela Palace Kempinski, Bangalore is built in art deco style recreating the
grandeur of The Mysore Maharajas Palace. It is set amidst 8 acres of landscaped garden
and waterfalls. It is a palace with the heart of a modern hotel. Its 254Kovalam is Kerala’s
largest resort, built on a rock face cradled between two wide sweeping Beaches with a
stunning view of the famous Kovalam coastline.

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  The Bharat Hotels Group
The Bharat Hotels group is a major player in India’s tourism and hotel sector. It
operates its hotels under ‘THE GRAND’ banner and its present portfolio of hotels
incorporates 14 luxury hotels in the five-star deluxe segment. These include
Intercontinental ‘The Grand’ hotels in New Delhi, Mumbai, Goa & Srinagar and The
Grand Ashok Bangalore, The Grand Laxmi Vilas Palace Udaipur and The Grand Temple
View Khajuraho. Additionally, soon to open hotels in 2008-09 are – The Grand Great
Eastern Kolkata, The Grand Jaipur, The Grand Resort Bekal, The Grand Ahmedabad, The
Grand Chandigarh, The Grand Noida and The Grand Fort Dubai. By 2009, the company
plans to open hotels in Hyderabad, Amritsar and other key locations.

 The EIH Ltd (The Oberoi Group)

Asian elegance is the key to running hotels, if you ask EIH (better known as The
Oberoi Group). The company owns and operates about 20 luxury hotels, about 10 mid-
range hotels, and two inland cruises; The Oberoi Group operates primarily in India, but
also in Australia, Egypt, Indonesia, Mauritius, and Saudi Arabia. Most of the company's
luxury properties bear the Oberoi banner.
The company in 2004 joined forces with Hilton International to rebrand most of its
mid-range hotels as Trident Hiltons (the former Oberoi Towers is now known as the Hilton
Towers Mumbai). The Oberoi Group also operates luxury cruises of the Nile River and
India's Kerala region.

 Jaypee Hotels Ltd.

Jaypee Hotels Limited primarily engages in the ownership and operation of hotels
in India. The company owns three Five Star Deluxe Hotels, namely Jaypee Palace Hotel at
Agra, and Jaypee Vasant Continental and Jaypee Siddhartha Hotel at New Delhi. It also
manages the operation of the hotels Jaypee Residency Manor at Mussoorie and Jaypee
Green Resorts. In addition, Jaypee Hotels involves in construction operations. The
company is headquartered in New Delhi, India. Jaypee Hotels Limited is a subsidiary of
Jaiprakash Associates Limited.

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  India Tourism Development Corporation (ITDC) / The Ashok
Group:
India Tourism Development Corporation (ITDC) was established in 1966 as an
autonomous public sector corporation, entrusted with the task of helping develop tourism
infrastructure and promoting India as a tourist destination.

The ITDC Ashok Group of hotel chains manages some of the best five star and
luxury tour hotels in the Indian hospitality industry. The hotels run by the ITDC Ashok
Group of hotel chains may be divided into different categories; these are elite hotels,
comfort hotels and classic hotels. The ITDC Ashok Group of hotel chains manages 33
hotels in 26 different tourist destinations all over India. The management of Ashoka Group
believes in offering the best in the hospitality industry and the staff at each of the hotels
run by the group is especially trained to be courteous and efficient.

The Ashok Group of hotel chains boasts of running some of the best hotels in the
Indian hotel industry. The hotels that are a part of the elite and classic category of the
ITDC Ashok Group are the Ashok Hotel in New Delhi, the Kovalam Ashok Beach Resort
in Kovalam, Kerala, the Agra Ashok in Agra, Hotel Jaipur Ashok in New Delhi and the
Qutab Hotel in New Delhi. Most of the hotels managed by the ITDC Ashok Group have
had the privilege of playing host to several international and national dignitaries.

 The Hotel Corporation of India (HCI)

The Hotel Corporation of India Limited (HCI) is a public limited company wholly
owned by Air India Limited and was incorporated on July 8, 1971 under the Companies
Act, 1956 when Air India decided to enter the Hotel Industry in keeping with the then
prevalent trend among world airlines. The objective was to offer to the passengers a better
product, both at the International Airports and at other places of tourist interest, thereby
also increasing tourism of India.

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 GOVERNMENT POLICIES

Tourism being a concurrent subject under the Indian constitution, both the central
and state governments regulates the hotel industry. The regulations include statutory and
regulatory sanctions (or approvals and licenses) from the Central and State departments or
agencies. This includes license to operate a restaurant, a hotel license (issued by municipal
authorities), license from police (issued by local police) and a bar license (issued by excise
department).
Tourism Policy

In order to develop tourism in India in a systematic manner, position it as a major

engine of economic growth and to harness its direct and multiplier effects for employment
and poverty eradication in an environmentally sustainable manner, the National Tourism
Policy was formulated in the year 2002. Broadly, the “Policy” attempts to:
• Position tourism as a major engine of economic growth
• Harness the direct and multiplier effects of tourism for employment generation,
economic development and providing impetus to rural tourism
• Focus on domestic tourism as a major driver of tourism growth
• Position India as a global brand to take advantage of the burgeoning global travel trade
And the vast untapped potential of India as a destination
• Acknowledges the critical role of private sector with government working as a pro-active
facilitator and catalyst
• Create and develop integrated tourism circuits based on India’s unique civilization,
heritage, and culture in partnership with States, private sector and other agencies
• Ensure that the tourist to India gets physically invigorated, mentally rejuvenated,
culturally enriched, spiritually elevated and “feel India from within”.

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The Government’s major policy initiatives include:
• Liberalization in aviation sector
• Pricing policy for aviation turbine fuel which influences internal air fares
• Rationalization in tax rates in the hospitality sector
• Tourist friendly visa regime
• Immigration services
• Procedural changes in making available land for construction of hotels
• Allowing setting up of Guest Houses
The Indian Ministry of Tourism has identified 31 villages across the country to be
developed as tourism hubs. The states in which these villages have been identified include
Himachal Pradesh, Gujarat, Maharashtra, Bihar, Karnataka, Madhya Pradesh, Andhra
Pradesh, Kerala, Tamil Nadu, Orissa, Assam, Sikkim, Rajasthan and West Bengal.
Government’s Open Skies Policy
The Government’s Open Skies policy, permission for domestic airlines to
commence International flights, start-up of various low-cost carriers, and fleet expansion
by domestic players have created a huge incentive for domestic travelers to explore far-off
destinations within and outside India. The booming aviation business is bringing an ever-
increasing number of passengers to India, and pulling Indians out of their homes and into
hotels. The numbers, according to the Ministry of Tourism, speak for themselves:
• The number of domestic and international passengers has increased fifteen-fold to 73.34
million in 2005/06 since 1970.
• Domestic air passenger traffic grew by 16.8 per cent in 2005/06 compared to 2004/05.
• International passenger traffic observed a growth of 16.9 per cent in the same period.
• Private airlines accounted for 77.0 per cent of the total domestic traffic.

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Foreign Trade Policy

The Foreign Trade Policy announced in April, 2006, offered following incentives
to the hospitality industry:
Hotels and Restaurants are allowed to import duty free equipment and other items
including liquor, against their foreign exchange earnings under the Served from India
Scheme. As in previous years, this entitlement is 5per cent of previous year’s foreign
exchange earnings for hotels of one-star and above (including managed hotels and heritage
hotels) approved by the Department of Tourism and other service providers in the tourism
sector registered with it.

The stand-alone restaurants will be entitled to duty credit equivalent to 10per cent
of the foreign exchange earned by them in the preceding financial year (instead of the
earlier 20per cent). Service exports in Indian Rupees, which are otherwise considered as
having been paid for in free foreign exchange by RBI, will now qualify for benefits under
the Served from India Scheme. Also, foreign exchange earned through International Credit
Cards and other instruments as permitted by RBI for rendering of service by the service
providers shall be considered for the purposes of computation of entitlement under the
Scheme. Benefits of the Scheme earned by one service provider of a Group company can
now be utilized by other service providers of the same Group Company including managed
hotels.

The measure aims at supporting the Group service companies not earning foreign
exchange in getting access to the international quality products at competitive price and
providing services of international standards. This new initiative allows transfer of both the
script and the imported input to the Group Service Company. The earlier provision allowed
transfer of imported material only.

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FDI in Hotel and Tourism Sector
100 per cent FDI is permissible in the sector on the automatic route. The term
hotels Include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry
include travel agencies, tour operating agencies and tourist transport operating agencies,
units providing facilities for cultural, adventure and wild life experience to tourists,
surface, air and water transport facilities to tourists, leisure, entertainment, amusement,
sports, and health units for tourists and Convention/Seminar units and organizations.
For foreign technology agreements, automatic approval is granted if:
• Up to 3 per cent of the capital cost of the project is proposed to be paid for technical and
Consultancy services including fees for architects, design, supervision, etc.
• up to 3 per cent of net turnover is payable for franchising and marketing/publicity
Support fee, and up to 10 per cent of gross operating profit is payable for management
fee, including incentive fee.
Other Government Initiatives
Government has undertaken following initiatives to attract both inbound and outbound
Tourists:
• Incredible India - Under this program the Government promotes India through various
integrated marketing programs.
• Atethie devo bhava (guests are equal to god) - Under this program the Government create
awareness among Indian people who come in contact with the tourist.
• Various Infrastructure building initiatives
• Encourage religious tourism for instance promotes various places in India as Buddhist
abodes.
• Other projects are the Rs. 5,400 million National Highways Development Project, the
5,846 km Golden Quadrilateral and the 7,300 km north-south and east-west corridors.
Sagarmala project which intends to create a network of seaports, which will change the
way people discover and experience real India.

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 FISCAL REGULATION
India's credit-starved hotel industry can now afford to heave a sigh of relief. In a
move that promises to make credit easily available to the sector, the Union tourism
ministry has permitted the hotel industry to go in for external commercial borrowings up to
$100 million during the current financial year. Meanwhile, the Reserve Bank of India too
has removed hotels from the 'commercial real estate' classification.

This two-pronged push will make larger credit available to the capital-intensive and
credit starved hospitality industry at lower rates of interest, thus bringing down the high
cost of the hotel projects.

Tourism ministry sources have that said that efforts are on to obtain infrastructure
status for hotel projects and the RBI's approval is being sought for this. This will help the
interest rate to go down further to single-digit levels for hotels. Sources said yet another
proposal of the ministry pending with RBI is to provide fiscal amenities for creation of
additional hotel room capacity to meet the surge in demand in the tourism sector.

The ministry has been canvassing that the hotel segment of the tourism industry is
highly capital-intensive and has a long gestation period. India is already facing acute
shortage of quality accommodation for both international as well as domestic tourists. With
the delinking of hotels from commercial real estates, promoters will be able to seek capital
loans from banks and ease out the liquidity issues particularly to the new hotel projects, the
sources added.

Food processing in India covers a spectrum of products from agriculture,

horticulture, plantation, animal husbandry and fisheries. While India has an abundant
supply of food, the food processing industry is still nascent with only two per cent of fruit
and vegetables, and 15 per cent of milk produced being processed.

• The processed food industry food industry ranks fifth in size in the country,
representing 6.3 per cent of GDP. It accounts for 13 per cent of the country's
exports and 6 per cent of total industrial investment.

36
 • The industry size is estimated at US$ 70 billion, including US$22 billion of value
added products.
• FDI in the Food Processing Sector has witnessed over two and a half times increase
from Rs 174 crore in 2005 to Rs 441 crore in 2007. It is expected that FDI inflow
into the processed food sector would be in the region of Rs 1,300 crore in 2009.
This sector is emerging as one of the fastest growing sectors with international
retailers like Wal-Mart, Carrefour and Woolworth taking interest in the Indian
market.

Policy initiatives

• The Indian government has abolished licensing for almost all food and agro-
processing industries.
• Automatic investment approval (including foreign technology agreements within
specified norms), up to 51 per cent foreign equity or 100 per cent for NRI and
Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food
processing sector.
• Wide-ranging fiscal policy changes have been introduced progressively. Excise and
Import duty rates have been reduced substantially. Many processed food items are
totally exempted from excise duty.

Hospitality industry in India

The hospitality Industry in India is poised for major growth. 20,000 more hotel
rooms are required for the Commonwealth Games. To cater to the demand for rooms five-
year tax holiday for two, three and four-star hotels, as well as, convention centers.
Hospitality India which encases various categories of equipment being used, offers a
platform for the manufacturers and suppliers to display the latest state of the art equipment
manufactured by them. For achieving international standards, investment is being made by
manufacturers on improving skills of manpower, in quality machinery and tools and latest
technology. Areas which have seen remarkable change in these years are bakery, laundry
and food service equipment.

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AAHAR 2009

AAHAR 2009 will offer a segmentised platform for showcasing the developments
and progress achieved in the processed food and hospitality sectors, through a wide ambit
of display covering products, technologies and services, and the scope embodied by them
for investment and tech up gradation. On display will be all kind of foods, processed food,
alcoholic (subject to obtaining prior permit from the office of Excise Commissioner of
NCT of Delhi) and other beverages, food processing, packaging, mill machinery and
equipment; poultry and farm equipment and supplies, dairy and confectionery equipment,
air-conditioning, refrigeration and cold storage systems, air and water pollution control
equipment and accessories, hotel and kitchen equipment and tableware, laundry, interior
and house keeping, health and fitness equipment, consultancy services and hospitality
supplies.

This exposition helps the visitors from the hospitality sector to find a one window solution
to their need to provide hygienic environment at back of the house (kitchen), good quality
food and higher level of productivity. AAHAR also brings together potential business
partners from India and abroad and provides a platform for implementing in government
schemes for infrastructural development like establishing food parks, packaging and value-
added centres, integrated cold-chain facility, irradiates and modernized abattoir. It also
offers a reliable and time tested forum for B2B transactions, exploration of joint venture
and technological up-gradation and sourcing opportunities.

Significantly, with 20 per cent rise in participation, the forthcoming edition of the fair will
be divided into two independent shows viz.

`FOOD INDIA' covering food and food processing sector and `HOSPITALITY INDIA'
representing hotel and restaurant equipment and supplies.

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 INTERNATIONAL SCENARIO

Tourism has suddenly become a booming sector. During 2007, an estimated 4.4
million tourists visited the country, registering a growth of 14 per cent. With this robust
trend in tourism, the hotel industry has also witnessed a rise in the growth and over the last
decade and half, there has been a mad rush to India for business opportunities, elevating
room rates and occupancy. The Hotel Industry in India is second only to China in Asia
Pacific.

India is a destination for hotel chains looking for growth. According to the World
Travel and Tourism Council, India ranks 18th in business travel and will be among the top
5 in this decade.

Hotels in India have a supply of 110,000 rooms. At the current trend, demand will
soar to 10 million in 2010. With a shortage of 150,000 rooms, likely to result in demand-
supply disparity, room rates will see a rise to 25 per cent annually and occupancy would
rise by 80 per cent over the next two years. The industry seems to be fast getting rid of
competition when it comes to being a cost-effective destination.

The industry is adding about 60,000 quality rooms, currently in different stages of
planning and development and should be ready by 2012. Government has approved 300
hotel projects, nearly half of which are in the luxury range. The manpower requirements
will increase from 7 million in 2002 to 15 million by 2010.The hotel industry is set to grow
at 15 per cent a year.

This figure will skyrocket in 2010, when Delhi hosts the Commonwealth Games.
Already, more than 50 international budget hotel chains are moving into India to stake
their turf. Therefore, the future scenario of the Indian hotel industry looks rosy.

The government of India has taken a number of steps to promote tourism. An

amount of Rs 0.6 bn is to be allocated for the Commonwealth Games. Income tax
exemption for 5 years is granted to two, three or four star hotels established in specified
districts having UNESCO-declared World Heritage Sites.

39
 The hotel should be constructed and start functioning during the period April 1,
2008 to March 31, 2013. The industry wants it to be treated at par with other infrastructure
sectors such as roads, ports and telecommunications and be granted full tax benefits.

The slowdown in the global economy, rising crude prices and higher airfares has
affected the hotel sector to a certain extent. Due to rising costs, companies are facing
pressure on their earnings. Plus, cost cutting measures have led to lower business tourist
arrivals in recent times. There is an urgent need for the hotels to adopt cost cutting devices.
These can include using resources more efficiently; minimizing waste production; using
products and materials that have the least negative impact on the environment, both in use
and source of origin; pursuing action programs that benefit the environment in the local
community; and fostering the education of environmental awareness, both internally and
externally.

Waste management; energy conservation; water use; and laundry and dry-cleaning
should be given priority because these areas have huge wastages which can be curbed.
Paper and stationery can be recycled; air conditioners and other electrical appliances
should be switched off when not in use. Some hotels also offer free wine and hence it
should be available in only those rooms where it is demanded. People generally tend to
misuse the free stuff that is available in the hotels. Hence, it should be made available only
on demand. The government should increase its budget towards the hotel industry as it is
observing high rates of growth and can lead to India’s development as well.

'Hotel Industry in India' have supply of 110,000 rooms. According to the tourism
ministry, 4.4 million tourists visited India last year and at current trend, demand will soar
to 10 million in 2010 - to accommodate 350 million domestic travelers. 'Hotels in India'
has a shortage of 150,000 rooms fueling hotel room rates across India. With tremendous
pull of opportunity, India is a destination for hotel chains looking for growth.

The World Travel and Tourism Council, India, data says, India ranks 18th in
business travel and will be among the top 5 in this decade. Sources estimate, demand is
going to exceed supply by at least 100% over the next 2 years.

40
 Five-star hotels in metro cities allot same room, more than once a day to different
guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With
demand-supply disparity, 'Hotel India' room rates are most likely to rise 25% annually and
occupancy to rise by 80%, over the next two years. 'Hotel Industry in India' is eroding its
competitiveness as a cost effective destination. However, the rating on the 'Indian Hotels' is
bullish.

'India Hotel Industry' is adding about 60,000 quality rooms, currently in different
stages of planning and development and should be ready by 2012. MNC Hotel Industry
giants are flocking India and forging Joint Ventures to earn their share of pie in the race.
Government has approved 300 hotel projects, nearly half of which are in the luxury range.
Sources said, the manpower requirements of the hotel industry will increase from 7 million
in 2002 to 15 million by 2010.

With the USD 23 billion software services sector pushing the Indian economy
skywards, more and more IT professionals are flocking to Indian metro cities. 'Hotel
Industry in India' is set to grow at 15% a year. This figure will skyrocket in 2010, when
Delhi hosts the Commonwealth Games. Already, more than 50 international budget hotel
chains are moving into India to stake their turf. Therefore, with opportunities galore the
future 'Scenario of Indian Hotel Industry' looks rosy.

Indian tourism and hospitality sector has reached new heights today. Travelers are
taking new interests in the country which leads to the upgrading of the hospitality sector.
Even an increase in business travel has driven the hospitality sector to serve their guests
better. Visiting foreigners has reached a record 3.92 million and consequently International
tourism receipts have also reached a height of US$ 5.7 billion. Hospitality Industry is
closely linked with travel and tourism industries. India is experiencing huge footfalls as a
favorite vacation destination of foreigners and natives and the hospitality industry is going
into a tizzy working towards improving itself.

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 PORTER’S FIVE FORCES MODEL

INTRODUCTION

Porter’s model is based on the insight that a corporate strategy should meet the
opportunities and threats in the organizations external environment. Especially,
competitive strategy should base on and understanding of industry structures and the way
they change.

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 Porter has identified five competitive forces that shape every industry and every
market. These forces determine the intensity of competition and hence the profitability and
attractiveness of an industry. The objective of corporate strategy should be to modify these
competitive forces in a way that improves the position of the organization. Porter’s model
supports analysis of the driving forces in an industry. Based on the information derived
from the Five Forces Analysis, management can decide how to influence or to exploit
particular characteristics of their industry.

1.BARGAINING POWER OF SUPPLIERS

The term 'suppliers' comprises all sources for inputs that are needed in order to
provide goods or services.

• The high class hotels are operating by few hotel chains like-TAJ,EIH,ITC&THE

LEELA PALACE so they have a control over the industry.

• There are no substitutes for spas and five star hotels.

• The hotels customers are fragmented, so they have to reduce their bargaining power

to attract the customers.

• The Taj, ITC& Oberoi are having various rates and tariffs. Because they are having

their own brand image.

• The hotel chains are operating different services like Spas, Boatels, Resorts, City

Centers, Heritage HOTELS, etc.

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2 . BARGAINING POWER OF CUSTOMERS

Similarly, the bargaining power of customers determines how much customers can
impose pressure on margins and volumes.

• The hotel industry is one of the most invested in its fixed assets. So they are trying
to recover their amount quickly.
• The suppliers are providing better information about them to attract the customers’
.Here the buyers are highly informed.
• If the hotel price changes are moderate, the Customers have low margins and are
price-sensitive.
• Some unseasoned timings the hotels are offering discounts and incentives to
reduce the bargaining power of buyers.

3.THREAT OF NEW ENTRANTS

The competition in an industry will be the higher; the easier it is for other
companies to enter this industry. In such a situation, new entrants could change major
determinants of the market environment (e.g. market shares, prices, customer loyalty) at
any time. There is always a latent pressure for reaction and adjustment for existing players
in this industry.

• The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and
using the latter’s brand name.
• Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new
entrants.
• Access to raw materials and Distribution channels are controlled by Existing
players like TAJ, ITC, and LEELA PALACE.
• The cost of land in India is high at 50% of total project cost as against 15% abroad. This

acts as a major deterrent to the Indian hotel industry.

• In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%.
Effective tax in the South East Asian countries works out to only 4-5%.

44
4. THREAT OF SUBSTITUTES

A threat from substitutes exists if there are alternative products with lower prices of
better performance parameters for the same purpose. They could potentially attract a
significant proportion of market volume and hence reduce the potential sales volume for
existing players. This category also relates to complementary products.

• Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the
substitutes.
• The hotel relationship with customer and costs also the reasons to switching to
substitutes.
• The price variation of same class hotel services from various brands is one of the
reasons to choose a substitute.
• The present demand and supply of hotel rooms is one of the reasons to choose a
substitute.
• More fixed cost and switching costs affects the business.

5. COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS

This force describes the intensity of competition between existing players

(companies) in an industry. High competitive pressure results in pressure on prices,
margins, and hence, on profitability for every single company in the industry.

• The top competitors in hotel industry are having the same services like five star,
spas, boatels and motels, heritage hotels and palaces.

• The healthy competition among the all players is helping to increase the industry
growth.
• Intense in metro cities, slowly picking up in secondary cities.

45
 SWOT ANALYSIS
STRENGTHS

 A very wide variety of hotels is present in the country.

 There are international players in the market such as Taj and Oberoi &
International Chains
 A manpower cost in the Indian hotel industry is one of the lowest in the world.
 India offers a readymade tourist destination with the resources
 Natural and cultural diversity
 Demand-supply gap
 Government support

 Increase in the market share

WEAKNESSES

 The cost of land in India is high at 50% of total project cost as against 15% abroad.
 The hotel industry in India is heavily staffed.
 High tax structure in the industry makes the industry worse off than its
international.
 Only 97,000 hotel rooms are available in India today.
 Only limited value added services

 Poor support infrastructure

 Slow implementation

 Susceptible to political events.

46
OPPORTUNITIES

 Demand between the national and the inbound tourists can be easily managed due
to difference in the period of holidays.
 In the long-term the hotel industry in India has latent potential for growth.
 Unique experience in heritage hotels.

 Rising income.

 Open sky benefits.

THREATS

 Guest houses replace the hotels.

 Political turbulence in the area reduces tourist traffic and thus the business of the
hotels
 Changing trends in the west demand similar changes in India
 The economic conditions of a country have a direct impact on the earnings in hotel
industry.
 Lack of training man power in the hotel industry.
 Fluctuations in international tourist arrivals.
 Increasing competition

47
 DATA ANALYSIS

PROBLEMS AND PROSPECTS OF HOTEL INDUSTRY

This chapter highlights the problems and prospects of hotel industry. Customers are

kings in the market place. Nowadays, modern marketing is consumer oriented. So, to

satisfy the customers needs and to capture the market is one of the vital tasks to the hotel

service providers. At the same time the marketers face hectic competition too. Here, the

researcher analyses the problems and various services provided by the hotel owners

to their guest for its prospects.

Majority of the hotels taken for the study are star category approved hotels which

provide catering and restaurant facilities, etc. Only these star hotels could provide

various facilities and services to the tourists and others. The hotel owners use various

advertising media, sales promotion tools and other facilities to attract their customers

for the prospects of the hotel industry.

HOTEL INDUSTRY
Hotel industry being an important constituent of the tourism sector, offers

customer services by means of a well organized system. The service of hotels embrace

the organized system of apparatus, appliances and employees for supplying some

accommodation and activities required by the public. The service rendered by the hotels

48
for that matter by any service organization is subject to certain inherent attributes and

these posses problems in their marketing. These services are intangible and precise

standardization is difficult. Since they cannot be inventories they are perishable in nature.

Owing to the peculiar feature of services adopting different marketing strategy is

inevitable for the prospects of the hotel industry.

FINANCIAL ASSISTANCE PROVIDED TO HOTEL INDUSTRY

Finance plays the most crucial role in the development of hotels .Funds for the

development of hotels are blocked in the form of infrastructure facilities such as land,

building ,furnishing, fixtures and fittings etc.

“As far as financing is concerned, the hotel industry needs to be put on the same

floating, for loans from financial institution and banks as other primary priority

industries, conductive investment climate must be created for the hotel industry to

prosper”1

Tourism Finance Corporation of India

TFCI was incorporated as a Public Limited Company under the Companies Act

1956 on 27th January 1989 and has became operational with effect from 1st February

1989. TFCI provides financial assistance to enterprises for setting up and for

development of tourism-related projects, facilities and services, especially to Hotels,

Restaurants, Holiday Resorts and tourists activities.

It assist in the creation, operation ,expansion and modernization of such

49
enterprises and promotes private public ownership in such enterprises. Assistance from

TFCI is in the form of rupees, foreign currency, loan, underwriting or direct subscription

shares/debentures, guarantee for deferred payment , Equipment finance, equipment

leasing and supplying credit. TFCI is also expected to provide merchant banking,

Advisory services carry out activities of coordinating and formulating and finance of all

projects in tourism industry and tourism relating activities facilities such as Hotels,

Restaurants, Holiday Resorts ,Amusement Parks, Tourism Emporia etc. Since its

inception, TFCI provides high-quality research and Consultancy services to the tourism

industry in general and to the investors in tourism industry in particular. TFCI's range of

activities in the Consultancy Division covers tourism-related studies, surveys and project-

related services

50
 FINANCIAL ASSISTANCE PROVIDED BY

TOURISM FINANCE

CORPORATION OF INDIA

LIMITED

TABLE : 5.1
Type of project wise and purpose wise classification of
financial assistance sanctioned
(2010-2011)
(Rs` in Lakhs)
Ren/ Eq. Exp / Reno /
Purpose New Expansion Total
Finance Acq / Restre
Type of Project No. Amount No. Amount No. Amount No. Amount No. Amount
3 12600 0 0 0 0 3 9500 6 22100
5 Star Hotel
75 134875 16 17876 15 6808 19 30777 125 190336
2 8800 0 0 0 0 0 0 2 8800
4 Star Hotel
41 50746 6 7457 5 1995 4 1590 56 61788
3 8700 0 0 0 0 1 3000 4 11700
3 Star Hotel
245 130892 22 12587 11 3743 36 21277 314 168499
2 3740 0 0 0 0 0 0 2 3740
2 Star Hotel
23 9138 1 388 1 90 2 323 27 9939
0 0 0 0 0 0 0 0 0 0
Heritage
17 3764 3 1030 2 425 2 586 24 5805
0 0 0 0 0 0 0 0 0 0
Un Classified
2 1210 0 0 1 24 1 56 4 1290
Amusement Part / 2 4040 0 0 0 0 0 0 2 4040
Shopping Complex
Cum-Ent centre /
Water Part / Multiplex 33 28683 3 190 0 0 3 1267 39 30140
/ Activity Centre .
Integrated
0 0 0 0 0 0 1 1500 1 1500
Restaurant
16 5544 3 1835 3 109 2 1805 24 9293
Tourists Cars / 0 0 0 0 0 0 1 5000 1 5000
Coaches 2 241 3 1326 2 600 1 5000 8 7167
RTDC / Palace on 0 0 0 0 0 0 0 0 0 0
Wheels 2 2150 0 0 1 1000 1 500 4 3650
0 0 0 0 1 5000 3 10000 4 15000

51
 Others 32 36585 3 3600 3 5273 7 13829 45 59287
0 0 0 0 0 0 0 0 0 0
Infrastructure Projects
2 6300 1 3000 0 0 2 4500 5 13800

Source :Annual report of TFCI (2010-2011)

The table 5.1 shows that the TFCI has provided a large finance assistance of

168499 lakhs and 190336 lakhs to 3 star and 5 star category hotels respectively.

PROBLEM FACED BY THE HOTEL INDUSTRY

1. NON AVAILABILTY OF LAND

The availability of land is the overall requirement for the development of the

hotel industry. It is true that the best suite for the hotel is generally the best suite in the

locality and probably the most expensive4. The Entrepreneurs often shirk the idea of

mobilising capital for setting up a hotel because the magnitude of capital required to set

up hotels, especially in large and medium sector is high. The investment in accommodation

units is primarily an investment in land and building and the bulk of their capital is

permanently sunk in fixed assets. It is so because, hotels compete for sites in town

centres and other stations where land values are high.

Non availability of land makes it a highly capital intensive industry. For the

success of tourism, hotels are to be located at appropriate centres where the demand

exceeds the supply. The availability of land is the overall requirement for the

development of the hotel industry.

2. CAPITAL LOCKED IN FIXED ASSESTS

Hotel industry is not only capital intensive but capital is also locked up in fixed

assets. Extensive studies done in Switzerland and Germany reveal that in the hotel

industry the proportion of fixed assets is probably higher than in any other industry5.

52
High fixed costs mean high gross profit margins. This in turn means that each addition to

total revenue results in a substantial rise in net profit. The higher the percentage of fixed

costs the more difficult it is to maintain adequate profitability through cost manipulation.

Most of the financial capital is locked in fixed assets.

3. LONG GESTATION PERIOD

Compared to other industries, the gestation period in the hotel industry is

long. The long pay back period demands the long term finance for the land and building

and medium finance for interior assets . Since profits are slow coming, the investment

proposition is difficult for an entrepreneur, In the past, lending institutions recognised the

hotel and catering industry as a high risk industry. However, as hotels form an integral

part of the overall tourism activity in the country, their growth is important from many

angles. Hence the financial institutions should moderate their attitudes. They, should

besides extending long term loans, underwrite the majority of the shares of the hotel

entrepreneurs , especially of a new inexperienced one.

In order to overcome the infrastructural short comings a substantial injection of

funds is necessary. This long pay back period act as hindrance in procuring long term

finance to the hotel industry.

4. THE COST OF MAINTENANCE

A hotel starts deteriorating, the day it is completed and with the passage of time

deterioration rate grows faster. The cost of maintenance is the maximum in the hotel and

its rate of obsolescence is also the highest. Constructing hotels as per the requirement is

not an easy matter. With the passing of year, costs are rising to more exorbitant levels.

ITDC originally spent mere Rs.1.5 crore to establish Ashok Hotel in 1956. In 1983, it had

53
to spend Rs.5 crore to renovate the same The prices are so high that anyone who builds a

hotel automatically becomes an multinational company.

5. OTHER TAXES
In India the foreign tourists are subjected to other variety of taxes at the airport

.They include international departure tax, customs duty, service tax etc. These taxes are

assessed even if other taxes are collected

VARIOUS TAX PROBLEMS FACED BY HOTEL INDUSTRY

“The tax element on the hotel and restaurant industry in India is the highest in the

world”. All hotels survey have expressed that their reservation on imposing various taxes.

Tax is the great source of revenue to the government. “Government imposes various

taxes on the hotel industry”. The various taxes imposed on hotel industry are given below

1.There is a 10% as luxury tax and 10.3% as service tax on all hotel rooms in

India and Value Added Tax (VAT) of 12.5% to 20% on food and beverage purchases.

2.The service tax of 10.2% is exempted on Food and Beverage served in

conferences and banquets in hotels under the service tax categories of mandap keepers

and convention services.

TAX IMPOSED BY THE CENTRAL GOVERNMENT

Only hotel industry has all types of taxes levied by the central and state

governments The major tax imposed by the central government is expenditure tax and

central sales tax. The respective state government levy luxury tax and sales tax at various

54
rate. Apart from these taxes collected from the customers, taxes are also levied on

hoteliers such as income tax, wealth tax, etc, by the central government. Similarly

property tax and other taxes are levied by the respective state Government.

SALES TAX
Sales tax is the important source of revenue. Sales tax is levied on the sales of

various items including sale of food and beverages in hotels. The central sales tax is

levied by the central government. The states have its own sales tax procedure. In the case

of inter state transaction, obviously sales tax is not applicable to the hotel industry. The

tax rate varies among various states in India. The Chennai is charging 12.5% as sales tax

on the food and beverage sale. uniformitive of the sales tax would simplify the tax

computation process. This has been repeatedly proposed by the hotelier at different times.

The request is not considered by the government till now. Even though some state

express reservation on the issue of having a uniform sales tax law, they state that it would

likely erode the administrative power and would effect less of revenue to the

government.

JUDGMENT OF THE HONOURABLE SUPREME COURT:

In the famous case of northern India cater and the associated hotelier of India the

supreme court stated that the service provided by hotel cannot be taxed. “The historical

case judgment in the case of the associated hotels of India supreme court went a further

step and held that even in the case of the restaurant, there is no sale of food because

providing food is a part of the overall activity. To serve food in a proper atmosphere, the

atmosphere and the elements could not be taxed” The revenue therefore was not entitled

55
to split up the transaction into two parts: one for for food stuff served to the tourist and

other for the service of the charge by the hotelier, with a view to bring the latter under the

act”. Quoting the view of the supreme court “when travellers by plane or by steam

purchase his or her passage ticket, the transaction is one for his passage from one place to

another place. If in the course of carrying out that transaction, the travellers is supplied

with drinks or meals or cigarettes. No one should think that the transaction involved

separate sales of such items any of those things it had supplied, the transaction is essential

one for carrying the performance of the contract of the carriage, some thing is supplied to

them. Such supply is not only incidental to that service and not changing either the

pattern or the nature of the contract. Similarly when clothes are given for washing to a

laundry there is a transaction which essentially involves work or service and if the

laundry man stitches the button to a garment which had fallen off, there is no sale of the

button and the thread. A number of such cases can be citied and none of them can be said to

involve a sale as a part of the main transaction. The transaction between the hotelier and a

visitor to this hotel is thus once essential of man’s service in the performance of which

and as apart of the amenities incidental to that service, the hotelier serve meals of that

stated hours. Thus the supply of food or drinks to customer staying in a hotel does not

partake in the character of a sale of goods”6.Hence the hotel industries, constitutes a

distinct position to which the ordinary goods act would not apply. But government has

brought about an amendment in the legislation

LUXURY TAX
Luxury tax has been subjected to state jurisdiction. It depends upon the number of

rooms rented. It varies in accordance with the state. The star hotel in chennai charge only

10% as luxury tax in 2008 compared to luxury tax in 2003. The luxury tax that existed in

56
2003 was 20% on rooms whose tariff was less than 1000 rupees and 25 % on rooms

whose tariff was greater than 1000 Rupees. Tamil Nadu is the leading state in the

collection of luxury tax. The decrease in luxury tax and incentives provided by state

government of Tamil Nadu acts as window for the prospects and development of hotel

industry.

SERVICE TAX
With a view to stopping the evil practice of tipping which is humiliating for the

receiver and taxing the donor, the alternative of imposing a service charge was introduced

in India a few year ago.

Soon after its introduction, it was combined with tipping and the result was the payment

of service charges along with the tips. Despite huge sign-boards in hotels, the practice has

continued to this day. In Japan there is neither service charge nor tipping. In the U.S.A,

there are no service charges but only tips. The service charges-cum tipping is disliked by

most of the visitors. Whatever is talked against tipping/service charges the attitude of the

hoteliers still remains in favour of tipping, so that they can manage to get ample workers

at less wages.

Service tax is fast turning out to be an important tool of revenue collection for the

central government. The directorate of service tax, began with a modest collection of 410

crores in 1994-95. It expected to mop up nearly 5,000 crores in 2001-2002 but collected

twice the amount expected. Service tax is levied to guests by the hotelier. Generally

10.03 % is taxed as service tax on hotel with effect from 1.5.2011.

GENERAL PROBLEMS OF HOSPITALITY INDUSTRY

57
 The Indian hotel industry, like any other industry, is facing changes in policy,

technology, and customer aspirations. Location of the hotel plays a vital role for the

success of hotels. The cost of land situated in panoramic location with transporting

facilities, hygiene, drinking water, power and other amenities, etc will be higher than the

industrial location. The general problems faced by the hospitality industry are as follows:

(1) Problems relating to finance (2) Seasonality (3) Multiplicity of products (4) Cycle of

operation(5) Marketing (6) Package Tour (7) External factors (8) Excessive tax burden

aspect.

• One of the greatest challenges plaguing the hospitality industry is the non

availability of quality in workforce in different levels of skills.

• Retention of the workforce through training and development in the hotel

industry is a problem and attrition levels are too high. One of the reasons for

this is unattractive wage packages.

• The hotel industry is facing heavy shortage of rooms. It is estimated that the

current requirement is 1, 50,000 rooms. Though the new investment plan would

add 53,000 rooms by 2011, the shortage will persist.

• The industry is witnessing heightened competition with the arrival of new

players, new products and new systems. The competition from neighbouring

countries and negative perceptions about Indian tourism constrains the growth

of tourism. The image of India as a country overrun by poverty, political

instability, safety concerns and diseases harm the tourism industry further.

• As India is emerging as a destination on the global travel map, expectations of

customers are rising. The companies have to focus on customer loyalty and

repeat purchases.

58
 • Some of the services required in the tourism and hotel industries are highly

personalized, and no amount of automation can substitute for personal service

providers. India is focusing more on white collar jobs. The shortage of blue

collar employees will pose various threats to the industry.

One of the chief trends witnessed in the Indian hotel industry is the increasing

competition. Too many hotels are being constructed with a rapid increase in the metros
and as a result of which supply would outpace demand. At locations like Mumbai, Delhi,

Chennai, and Khajuraho, existing capacity outpaces the demand as a result of which there

are empty rooms available round the year. Many new projects in the country are being

delayed or are stalled due to cash crunch. The main reason for the cash flow problem is

that the investor’s confidence in big hotel projects is very low, mainly because of the fear

of increased supply; whereas in smaller towns, there is a dearth of quality hotels in the

mid-priced segment

For the prospects of the hotel industry the reduction of import duties on capital

goods will have a positive impact on the capital cost of constructing new hotels and

renovating existing hotels. This will encourage new hotels to come up and enthuse the

existing ones to undertake major renovations resulting in improved services. The

government may declare certain areas suitable for development as tourists areas and fix

prices for land to prevent speculation . Those areas have to be properly projected and

publicised in the potential markets. The government can go into collaboration with

promoters and developers to establish hotels on the basis of land offerings. Land can be

taken on long term leases and construction of hotels can be done on the leased land.

59
DISTRIBUTION OF THE SUGGESTION OF THE TOURISTS

REGARDING THE FACILITIES & ACTIVITIES

Customer satisfaction and suggestion of the tourists is the critical strategic

weapon and backbone beyond for any type of organization. One of the biggest

contemporary challenges of management in service industries is providing facilities to the

tourists of their hotel and maintaining customer satisfaction. Providing facilities and

customer satisfaction have increasingly been identified as the key factors in the battle for

competitive differentiation and customer retention. The hotelier claims that

overwhelming customer demand for facilities and services in recent years have become

increasingly evident to professionals in the tourism and hotel. The researchers has

collected the suggestion of the tourists about the facilities and service for the prospects of

the hotel industry

PROSPECTS IN HOSPITALITY SECTOR

Travel and technology have become inseparable. Technology is making its own

advances with high-tech video conferencing facilities, web cameras and virtual reality

mode of conferencing, on-line bookings, e-ticketing, Wi-Fi Internet connectivity, easy

access to information, etc. are just a few areas where technology has completely changed

the way we travel. This new trends in technology and advancement has changed the

hospitality sector to its prospects path.

SEASONALITY
Tourism affects the demand for hotels to a great extent. Seasonality is highly

60
unstable and unpredictable. This presents a problem in relation to employment

opportunities and financial performance in hotel industry. Therefore the problem of

seasonality requires immediate attention and care must be taken to minimize the impact

of seasonality in the hotel business.

OCCUPANCY RATIO
The occupancy rate is calculated as the ratio of hotel rooms occupied by the

tourists to the total rooms available in the hotel. It has been found that the occupancy

ratio is affected by seasons, duration of tourists stay, hotel image, star category, tariff

rate, location and facilities available in the hotel .

AVERAGE ROOM OCCUPANCY OF 4-5 STAR HOTEL DURING

NORMAL SEASONS

The researcher has collected the average room occupancy from 4- 5 star category

during normal season.

Table 5.16
AVERAGE ROOM OCCUPANCY OF 4-5 STAR HOTEL DURING NORMAL

SEASONS

Room occupancy Percentage

No of hotels
(Percentage)

61
 51-53 2 13.33

54-55 6 40.00

56-58 7 46.67

Total 15 100.00

Table 5.16 shows that 51-53 % is the room occupancy in 2 hotels, 54-55% is the

room occupancy in 6 hotels, 56-58% is the room occupancy in 7 hotels .

Thus, It has been found that majority of 4- 5 star category star hotels have the

room occupancy of 54-58 %

AVERAGE ROOM OCCUPANCY OF 1-3 STAR HOTEL DURING

NORMAL SEASONS

The researcher has collected the average room occupancy ratio of respondent star

hotels during normal season in 1-3 star category hotel.

TABLE 5.17
AVERAGE ROOM OCCUPANCY DURING NORMAL SEASONS

1-3 STAR CATEGORY HOTELS

Room Occupancy
No of hotels Percentage
(Percentage)

50-53 9 47.37

54-57 6 31.58

58-61 4 21.05

62
 Total 19 100.00

Table 5.17 reveal that 50-53% is the room occupancy in 9 hotels, 54-57% is the

room occupancy in 6 hotels, 58-61 % is the room occupancy in 4 hotels .

Thus, It has been found that majority of 1- 3 star category star hotels have the

room occupancy range between 50-53 %

AVERAGE ROOM OCCUPANCY OF 4-5 STAR CATEGORY HOTELS

DURING PEAK SEASONS

The researcher has collected and tabulated the average room occupancy ratio of

respondent star hotels during peak season from 4-5 star category hotels.

TABLE 5.18
AVERAGE ROOM OCCUPANCY OF 4-5 STAR CATEGORY HOTELS DURING

PEAK SEASONS

Room Occupancy
No of hotels Percentage
(Percentage)

80-82 2 13.33

83-85 6 40.00

86-88 7 46.67

63
 Total 15 100.00

Table 5.18 reveals that 80-82 % is the room occupancy in 2 hotels, 83-85% is the

room occupancy in 6 hotels, 86-88% is the room occupancy in 7 hotels .

Thus, It has been found that majority of 4-5 star category star hotels have the

room occupancy range between 83 - 88 %.

AVERAGE ROOM OCCUPANCY OF 1-3 STAR CATEGORY HOTELS

DURING PEAK SEASONS

The researcher has collected the average room occupancy ratio of respondent star

hotels during peak season in 1-3 star category hotels.

TABLE 5.19
AVERAGE ROOM OCCUPANCY OF 1-3 STAR CATEGORY HOTELS DURING

PEAK SEASONS

Room occupancy
No of hotels
(In percentage) Percentage

80-83 4 21.05

83-86 6 31.58

86-89 9 47.37

Total 19 100.00

Table 5.19 reveals the average room occupancy ratio of respondent star hotels

during peak seasons in 1-3 star category hotels. 80-83 % is the room occupancy in 4

64
hotels, 83-86 % is the room occupancy in 6 hotels, 86-89% is the room occupancy in 9

hotels .

Thus, It has been found that the majority of 1- 3 star category star hotels have the

room occupancy range between 86-89 %

AVERAGE ROOM OCCUPANCY OF 4-5 STAR CATEGORY HOTELS

DURING LEAN SEASONS

The researcher has collected the average room occupancy ratio of respondent star

hotels during lean season in 4-5 star category hotels.

TABLE 5.20
AVERAGE ROOM OCCUPANCY OF 4-5 STAR CATEGORY HOTELS DURING

LEAN SEASONS

Room Occupancy
No of hotels Percentage
(in percentage)

34-36 1 06.66

37-39 4 26.67

39-41 4 26.67

42-45 3 20.00

46-49 3 20.00

Total 15 100.00

Table 5.20 reveals that 34-36% is the average room occupancy in 1 hotel, 37-39% is

the average room occupancy in 4 hotels, 39-41% is the average room occupancy in 4 hotels,

65
42-45 % is the average room occupancy in 3 hotels, 46-49% is the average room occupancy

in 3 hotels.

Thus, It has been found that majority of 4-5 star category star hotel have the room

occupancy range between 37-41 %

AVERAGE ROOM OCCUPANCY OF 1-3 STAR CATEGORY HOTELS

DURING LEAN SEASONS

The researcher has collected the average room occupancy ratio of respondent star

hotels during lean season in 1-3 star category hotels.

66
 TABLE 5.21
AVERAGE ROOM OCCUPANCY OF 1-3 STAR CATEGORY HOTELS DURING

LEAN SEASONS

Room Occupancy (in

No of hotels Percentage
percentage)

25-30 3 15.79

30-35 7 36.84

35-40 5 26.32

40-45 4 21.05

Total 19 100.00

Table 5.21 reveal the average room occupancy ratio of respondent star hotels

during lean seasons in 1-3 star category hotels. 25-30 % is the average room occupancy

ratio in 3 hotels, 30-35 % is the average room occupancy ratio in 7 hotels, 35-40 % is the

average room occupancy ratio in 5 hotels, 40-45 % is the average room occupancy ratio

in 4 hotels.

Thus, It has been found that majority of 1- 3 star category star hotels have the

average room occupancy of range between 30-35 %

AVERAGE ANNUAL ROOM OCCUPANCY OF STAR CATEGORY HOTELS

The researcher has collected the average room occupancy ratio of respondent star

hotels during all seasons in all star category hotel.

TABLE 5.22

67
 PERCENTAGE OF ANNUAL ROOM OCCUPANCY

IN 2010-2011

Percentage of room
No of hotels Percentage
occupancy

60-62 1 02.94

63-65 10 29.41

66-68 6 17.64

69-71 8 23.33

72-74 9 26.47

Total 34 100.00

Table 5.22 reveals the percentage of annual room occupancy ratio of respondent

star category hotels during 2010-2011. It has been found that 60-62% is the annual room

occupancy in 1 hotels, 63-65 % is the annual room occupancy in 10 hotels, 66-68 % is

the annual room occupancy in 6 hotels, 69-71 % is the annual room occupancy in 8

hotels, 72 -74 % is the annual room occupancy in 9 hotels

Thus, it has been found that 63-65 % of star category star hotels have the room

occupancy of range between

ADVERTISING MEDIA USED FOR THE PROMOTION OF HOTEL

Advertising is one of the promotional mixes to improve the marketing of hotel

services. The hotel owners use print media, broadcast media and telecast media to advertise

their services.

68
 TABLE : 5.23

PROMOTION OF THE HOTELS

Promotion methods Star category hotel Percentage

Press Advertisement 31 91.2

Sign board 31 91.2

Travel agent 31 91.2

Tourists officers 28 88.4

“Promotion method is an attempt to move people from a state of un awareness to

one of awareness from liking to preference (or) from convicting to purchase about the

product”10. It is generally used to make them purchase their product from their preference

Table 5.23 shows the promotion methods adopted by various star hotels 91.2 % of

star hotels use press advertisement, travel agent and Sign board as promotion method.

88.4% of star hotels adapt sales tourists officers as promotion method.

Thus, 91.2 % of star hotels adopt press advertisement, travel agent and Sign board

as promotion method where else 88.4% of star hotel use tourist officers as the various

promotion method .

69
REVENUES TO HOTEL INDUSTRY

• Rooms are the biggest source of revenue. rooms falls into various types each with
their own price range.

• Most of the hotels recognize rooms as the potential of revenue from the business

sector and cannot overlook it. The business centre can be basic with a secretary, office

with computer and basic office automation. More sophisticated business centres can have

meeting rooms, teleconferencing facilities, multi-offices and the latest office automation.

There is a good potential for revenues from this facility.

• Health clubs are put under the charges of the rooms division, with an increasing

population of health conscious travelers this facility promise good revenue.

• Miscellaneous revenues can come from the sale of postage, safety deposit lockers

left luggage, additional services provided to the room like baby-sitting, extra beds, cribs

etc.

The summary of total income is provided in the table below

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 REVENUES TO

HOTEL INDUSTRY

Year Ended
Particulars % change
March 21, 2009 March 31, 2008

Room Income 843.19 978.71 (14)

Food & Beverage Income 508.99 585.32 (13)

Other operating Income 267.39 200.48 33

Non-operating Income 86.95 58.65 48

Total Income 1706.52 1823.16 (6)

Statistical Information
Average Room Rate 10504 10674 (2)
(Rupees)

Occupancy (%) 66 73 - 7% pts

Source :Report from ITC

FACTORS INFLUENCING THE SOURCE OF REVENUE TO HOTEL

INDUSTRY

1.Room sales were mainly driven by Average Room Rate being maintained at

previous year levels orbit a drop in occupancy rates.

2.Reduction in Food and Beverages sales due to lower room occupancy.

3.Other operating income mainly includes income from management fees,

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insurance claim on account of business interruption and other operating income from

hotels. Other operating Income for the year include Rs.85.54 crores for claim for Business

Interruption field on account of closure of Taj Mahal palace and Tower following the

terrorist attack on November 26, 2008.

4.Non-operating income was higher mainly due to Dividend Income earned on

Surplus Rights Issue proceeds invested with various mutual funds.

PERCENTAGES OF OVERALL REVENUE INCOME TO TOTAL INCOME

The majority of star Categories hotels room income is 843.19 lakhs as on March

21, 2009 compared to previous year of income of 978.71 lakhs as on March 31, 2008

OPERATING EXPENSES

The operating expenses increased by 8% from Rs.1148.41 crores to Rs.1247.57 crores.

The increase was mainly on account of payroll to keep in line with competition and

industry, wages settlement and reduction in interest rates leading to higher gratuity

liabilities, increase in advertisement and general administrative expenses. The increased

advertisement expenses are an endeavour to make Taj a global brand and create

awareness of its rapid international expansion. Depreciation for the year was higher due

to addition of Vivanta, Bangalore and capital expenditure incurred to upgrade our

properties.

PROFIT BEFORE INTERESTAND TAX (PBIT)

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 The PBIT was Rs.458.95 as compared to Rs.674.75 crores reflecting are reduction

by 32%.

INTEREST COSTS

Interest cost at Rs.90.44 crores for the year ended on March 31, 2009 as compared

to Rs.94.28 crores in the previous year. In view of the increase in debt levels, gross

interest cost increased to Rs.122.21 crores as compared to Rs.101.30 crores. Net interest

costs were lower on account of interest earned on unutilized rights issue proceeds.

PROFIT BEFORE TAX

Profit before tax, was Rs.362.30 crores as compared to Rs.580.47 crores achieved

in the previous year. Traditionally, Indian hotels have been room oriented. The Taj group

has a 35:65 food and beverage to rooms ratio. The Oberoi properties in New Delhi and

Mumbai also have a similar ratio. Room revenue is considered to be the most important

source of a hotel’s profitability, representing 56.4 percent of total revenue across all

hotels.

CONCLUSION
In the present scenario social – economics the role of the hotel industry plays a

very significant role. Thus it is becoming necessary to analyze the prospective issues of

the hotel industry and the significant role of the hotel industry in the area of the study

concerned. The study in this chapter presents with a view to understand the financial

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background highlighting the problem of the hotel industry faced in present status. The

opinion of the tourists about the facilities and services available in the hotel industry,

information about support schemes available all pertaining to the units located in chennai

are collected. Thus, this chapter highlights the various facts of the problem faced by the

hotel industry and prospects of the hotel industry there by generating the employment

opportunities, alleviate unemployment problem and bring desirable changes in the

society.

OVERALL FINDINGS
The TFCI had provided large finance assistance of 131198 lakhs and 109465

lakhs to 3 star and 5 star category hotels. The total sanctioned amount to hotel industry by

IFCI in 1996 was 1759.8 crores and in 2010 it was 66.71crores. It is to be noted that total

financial contribution to hotel industry had decreased to 0.6% at 2010. The State

Government of Tamil Nadu has sanctioned Rupees 62.00 Crores as financial assistance in

2009-2010 to hotel industry. 63%, 62% and 46% of the domestic tourists have graded the

hotel sales tax, luxury taxes and service tax as high. 64%, 43% and 34 % of foreign

tourists have graded sales taxes, luxury taxes and service tax as high. 37% and 41% of the

tourists wished the abolition of sales taxes, luxury tax and service tax. 58% of the domestic

tourists stated that the price of room and food are found as high. 56% of the

foreign tourists stated that the price of room and food are found as average. 58% and 26%

of the domestic and foreign tourists consider of price of beverage to be high. 100% of

domestic and foreign tourists consider cleanliness as an important factor in the selection

of a hotel. 83% and 60% of foreign tourists have graded the service of receptionists and

room boy as good. 88% and 81% of domestic tourists have graded the service of

receptionist and room boy as good. 69 % and 74% of domestic tourists have graded the

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taste of food as good. 65 % and 52 % of foreign tourists have graded the taste and variety

of food as good. 55% of domestic and 64% of the foreign tourists says that the

accommodation facilities of above mentioned parameter has improved. 39% of the tourists

were attracted by electronic media. 60% and 77% of foreign tourists and domestic tourists

have graded the furniture and room area as good. 70 % of the 1 to 5 star hotelier are

satisfied with loan repayment and grace period. 100% of 1 to 3 star hotels are using

electronic media as promotion method. 92.6 % of 4 to 5 star hotels use press

advertisement, sign board, sales promotion and travel agent as promotion method. It has

been found out that 71.3 % of one star category hotels and 70.25% of 4 star category

hotels is the average room occupancy ratio of respondent star category hotels at Chennai.

86-87% is the average room occupancy ratio of respondent star 1-3 star category hotels

during peak seasons. 86-88% is the average room occupancy ratio for 4-5 respondent star

hotels during peak seasons. 56-58% is the room occupancy the average room occupancy

ratio of respondent 4-5 star category hotel star category hotels during normal seasons. 50-

53% is the average room occupancy ratio of respondent 1-3 star category hotels star

category during normal seasons. 37-41% is the average room occupancy ratio of

respondent star hotels during lean period in 4-5 star deluxe category hotel. 30-35% is the

room occupancy ratio of respondent 1-3 star category star hotels during lean period .

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 THREAT OF HOTEL INDUSTRY

Not a day goes by that we hear information on coronavirus and its negative impact on

travel and hospitality businesses. Yet, the hotel industry had to deal with different crises

and viruses earlier. For example, the SARS virus impacted the industry drastically in 2003.

There was a 50% decline in hotel bookings, which led to a drop of nearly 9.4 million in

international tourist arrivals, with losses estimated at between $30 billion and 50 billion.

Despite the above-mentioned facts, the travel industry managed to register immense

growth by 2006, with a total contribution of $5,160 billion to the global GDP within the

year.

The truth is the pandemic is temporary and shall pass. Thus, we should continue to plan for

the future, as well as take steps to reduce long-term damage from coronavirus and drive

faster recovery. Here are some tips to help hospitality overcome the difficulties that

COVID-19 brings.

Adopt cloud technologies

Remote working becomes the norm for today. Thanks to innovations and technology, even

such a people-centric industry as hospitality experiences an increase in telecommuting. In

fact, hoteliers can manage all the hotel processes without even being there. With cloud-

based Property Management Systems, they are able to control all operations at any time

from anywhere.

Sure, PMS systems are not something new. Hoteliers have been using them for years. But

in these times, this system can bring even greater benefits. For example, if the software

goes with mobile concierge apps, which can help engage with the guests without personal

contact, starting from check-in to meal and service orders.

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With technology, hoteliers can transfer some hotel jobs to completely remote work, such as

sales-related or business development positions, eCommerce, Digital Marketing, etc.

Attract millennial travelers

According to the New York Post, millennials are the most eager to get back out and

explore the world after the coronavirus ends. Sure, they are worried about the outcome of

the COVID-19 pandemic. Yet, they are more fearless and more desiring of unique

experiences right here right now. As of now, they are taking advantage of the crazy low

prices showing no fear of the virus.

What's more, millennials are expected to be the first to start traveling once the restrictions

are relaxed. Thus, we recommend considering the exact ways how to attract them and

include them as an essential step in the business recovery plan. For example, 90% of

millennials value brand authenticity over "perfect and packaged" messaging of the hotel

(according to SayNTouch.com). They appreciate a high value on transparency, trust, and

brand authenticity. In terms of coronavirus communications, try to outline what you are

doing early, often, and openly.

Also, millennials are more in tune with advances in mobility and social media. Apart from

regular communications, you should adopt technology if you haven't done this yet. Being

tech-savvy travelers, they want a mobile-first guest experience, personalized messaging,

deals, and offers, the 24/7 service, and more. That said, it is hard to overestimate the

importance of concierge apps adoption.

Use this time for hotel maintenance and renovation

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Coronavirus outbreak doesn't mean hoteliers are closing doors and are just waiting for this

period to end. It's a perfect time to catch up and improve. Whether it is a spontaneous

renovation or completing your Property Improvement Plan, there's no better time to do

this. To begin, you can make a list of items, things, and everything that needs to be

repaired, do an inventory of maintenance supplies, laundry room systems check, railings

and balcony checks, elevators, life safety checks, pool systems, ensure all lights are off,

etc.

It's time to conduct a deep cleaning: A/C cleaning, carpet shampoo, pull furniture, get

under bed frames, clean behind frames/mirrors, vacuums cleaned with fresh belts and

filters, and more.

Focus on meal delivery from the hotel restaurant

Hoteliers can take steps to increase restaurant sales during the COVID-19. Reconsider your

marketing campaigns and try to find effective means of limiting declines like offering

specials or deals (two-for-one meals, a free dessert). Even though you might lose money

by giving away free items, it still helps increase the bottom line.

Remember about concierge apps that can help provide both hotel guests and non-guests

with the option of meal delivery right to their rooms without even talking to someone. You

can find more information here: https://hotelfriend.com.

Stay up-to-date on available forms of relief

Be aware of government assistance and financial support during coronavirus in your area.

In most countries of the world, governments defer payments, cut taxes, launch business

support grant funds, make low-interest working capital loans available to businesses, etc.

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In addition, large and small companies try to help their employees, customers, and the

community by providing free software, resources, sharing services, courses, and more. For

example, HotelFriend launched a free software program to help hotels overcome the severe

economic impact on their business caused by the novel coronavirus.

Reconsider existing health and safety techniques, policies, and procedures

Given the contagious nature of the virus, it is crucial to have appropriate health and safety

policies in place, especially for hotel business that relies on in-person interactions.

In these contexts, hoteliers should promote proper health and safety measures, which may

include the following:

Self-service pay systems.

Orders through mobile apps.

Non-contact service and order deliveries.

Complimentary hand-sanitizer stationed at the entrances and exits.

Suspension of unnecessary work-place gatherings.

Readiness to deal with staffing reductions.

Also, hoteliers should closely monitor employees' health conditions and take reasonable

precautions to ensure that the illness does not spread.

Thus, hoteliers should implement, amend, reconsider, update or adopt set protocols to

ensure the staff is not contributing to the spread of infection. The same refers to health

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policies, routine disinfecting of commonly used surfaces and other areas, specific actions

to prevent the spread of the illness. It is good to have a detailed course of action for

operating costs, worker's compensation and business interruption insurance coverages.

Ensure the accuracy of the information on the coronavirus

As new information is constantly appearing, not all of it is accurate. Hoteliers should take

special care to share verified information and not contribute to spreading misinformation to

customers and employees. You should read, share or post information from trusted sources

like the Centers for Disease Control and Prevention and other trusted health care providers.

In addition to potential misinformation, you can become a victim of a scam. Unfortunately,

scammers take advantage of fears and anxiety and seek ways to use financial and other

sensitive data, including confidential health information of employees and customers. So

make sure you protect yourself against scams. If you have fallen victim to a scam, report it

to a fraud reporting center in your area.

In the end, there is a variety of ways how to overcome these unexpected and challenging

times and recover. Taking the actions above may help you return to doing business as

usual.

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CONCLUSION

This hotel industry analysis report helps to know the full information of Indian

hotel industry. The government support towards the hotel industry and its development is

appreciable. It creates interest of the competitors to grow drastically. The hotel industry

comprises a major part of the tourism industry. The hotel industry contributes employment

and economical growth of the country.

The report shows that the present and future skyrocket scenario of the industry.

Various classes and categories of hotels and their services of the industry are very

effective. The market share and expansion of industry in Indian economy is rosy day by

day. At present the government is very liberal in regulating and licensing to the hotels

because to increase foreign tourist average daily rate.

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BIBLIOGRAPHY

• The Hindu Daily.

• Hotel and Hospitality Magazines

• Wikipedia.org

• Gdrc.org

• Zorg-biogas.com

• Wm.com

• Auroville.com

• Ficci.com

BOOKS

• Journal of industrial Ecology, S. Nakamura. 2002.

• International Journal Of Contemporary Hospitality Management, D.

Krik- 1995

• Waste Management And Reserch,Y. S Wang-1997

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