Hotels Sector Analysis Report 

• Tourism has now become a significant industry in India. As per the World Travel & Tourism Council, the tourism industry in India is likely to generate US $121.4 bn of economic activity by 2015, and the hospitality sector has the potential to earn US $24 bn in foreign exchange by 2015. The booming tourism industry has had a cascading effect on the hospitality sector with an increase in the occupancy ratios and average room rates. In FY14, the occupancy ratio was around 57%, up 1% from last year. The average room rate decreased over the last one year by about 3.4% due to supply pressures and the general slowdown in the economy. The long term outlook for the Indian hospitality business continues to be positive, both for the business and leisure segments with the potential for economic growth, increases in disposable incomes and the burgeoning middle class.
• Government of India increased spend on advertising campaigns (including for the campaigns 'Incredible India' and 'Athithi Devo Bhava' - Visitors are like God) to reinforce the rich variety of tourism in India. The new Indian government has stated that tourism will be a key focus sector.
• As per Cushman & Wakefield (C&W) reports, hospitality sector of India is expecting to witness better infrastructure growth. Approximately 4,304 new hotel rooms are expected to open in 2014, of which 36% for Mid-scale, 13% in the upscale segment, 17% is expected for Budget segment, 13% in Upper Upscale, and 20% in the Luxury segment.

• Supply
• There is a shortage of about 100,000 guest rooms in the country. This is expected to keep ARRs stable for at least the next few years.
• Demand
• Largely depends on business travelers but tourist traffic is also on the rise. Demand normally spurts in the peak season between November and March.
• Barriers to entry
• High capital costs, poor infrastructure facilities and scarcity of land especially in metros.
• Bargaining power of suppliers
• Limited due to higher competition, especially in metros.
• Bargaining power of customers
• Higher in metros due to increasing room supply.
• Competition
• Intense in metros, slowly picking up in tier-2 and tier-3 cities. Competition has picked up due to the entry of foreign hotel chains.

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• The international travel and tourism industry continues to show moderate growth and as per United Nations World Tourism Organisation (UNWTO). International Tourist Arrivals, worldwide, grew by 5% in 2013 to reach 1.087 bn from 1.035 m in 2012. As per World Travel and Tourism Council (WTTC) estimates, travel and tourism sector’s contribution to the global economy continued to increase for a fourth consecutive year. Its economic contribution, from both direct and indirect activities combined, was US $7 trillion in Gross Domestic Product (GDP) and 266 m jobs. Thus, travel and tourism sector accounts for 9.5% of global GDP, 1 in 11 jobs, about 5% of investment and 5% of exports.
• As per WTTC, in India, the total direct and indirect economic impact of the travel and tourism industry was US$ 128 bn, being 6.7% of the GDP and over 39.4 m jobs. As per statistics updated by the Indian Ministry of Tourism, the Foreign Tourist Arrivals in India has remained steady. While there has been a considerable slowdown in the growth rate, it is at par with the global scenario and can be expected to pick up. India’s export earning earnings from tourism increased to US$ 21.9 bn in 2013. This was 13% of all exports from the services sector.
• In terms of hospitality industry’s performance in India, the overall rates, occupancies and RevPAR (Revenue per room) have been stagnant owing to the impact of increased supply in the market and the general recessionary environment.
• Supply overhang in certain cities, increase in food and fuel costs and rising interest rates have eroded the margins for the Indian hotel industry over the last few years. The balance sheets of hotel companies remained under stress in FY14 on account of acquisitions of land banks at unrealistically high prices in the past and the resultant rise in debt levels.

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• In the long term, the demand-supply gap in India is very real and that there is need for more hotels in most cities. The shortage is especially true within the budget and the mid market segment. There is an urgent need for budget and mid market hotels in the country as travellers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.
• The United Nations World Tourism Organisation (UNWTO) expects growth to continue in 2014 at 4%, in line with UNWTO long term forecast. While Asia Pacific and America will lead the growth, Europe and Middle East are expected to remain under pressure. As per WTTC, the travel and tourism sector in India is forecasted to grow at a rate of 7.9% over the next decade. While key source markets of America and Europe are expected to continue to be the largest contributors to tourism, domestic short haul travel across Asia Pacific will remain a growing trend, with Asia Pacific being a key growth driver for outbound tourism.
• The depreciation of the Indian rupee against the dollar is of great concern to almost every industrial and service sector in the Indian economy. However, India's current economic woes are good news for tourists. Whether it is foreign traveler arrivals or domestic tourism, India's tourism industry is experiencing a real boom. The rising value of the dollar against the rupee has made quite an impact on the foreign travel plans of many Indian holidaymakers, prompting them to switch to cheaper destinations to make their depreciated currency go further. As a result, domestic destinations like Goa and Agra are witnessing increasing interest. Anticipating an inbound travel upswing during the winter season, tourism stakeholders nationwide are excited about the prospects of a robust tourism revival.
• Safety and security issues must be understood with the context of tourism. In addition, safety has become a more prominent concern for tourists. Concerns about women’s safety remains of paramount importance. Safety and security are vital to providing high quality tourism. Hence, to promote tourism there should be sound law and order to assure tourists that they are safe.

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Related Links for Hotels Sector
Quarterly Results | Sector Quote | Over The Years