Hospitality: Where do we stand? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Hospitality: Where do we stand?

Mar 22, 2003

The Indian hotel industry has been in turmoil for the last couple of years. Since 1998, India has become the hot bed for a lot of geo-political concerns. In May 1998, the Buddha smiled (Pokhran blasts), post that tensions between India-Pak reached a boiling point with Kargil (in 1999). All this proved to be negative for the Indian tourism industry in the coming years. The death knell was sounded during the September 11 WTC incident in the US, which focused the world’s eye on this part of the world. The parliament attack added to this negative perception as India being an unsafe destination. Travel advisories by western countries became a norm and tourist arrivals slowed down. All this coupled with the global economic slowdown deeply affected the performance of the sector, which is one of the key bread earners for India economy. It is estimated that in the last three years till FY02 tourist arrivals reported a CAGR dip of 0.6%.

Tourists: Global movement
  Tourist arrivals   Market share
Tourist regions 2000 2001* % change 2000 2001*
America 129 121 -6.0% 18.4% 17.4%
Europe 403 400 -0.7% 57.8% 57.7%
Africa 27 28 4.4% 3.9% 4.1%
East Asia and Pacific 109 115 5.5% 15.7% 16.6%
Middle East 23 23 -2.2% 3.3% 3.3%
South Asia 6 6 -4.9% 0.9% 0.8%
India 3 3 -3.8% 0.4% 0.2%
*Source: WTO September 2002

This fall in tourist arrivals was in line with the global fallout on tourism. According to World Tourism Organisation (WTO), globally there has been a fall of 0.6% in international tourism from 697 m tourists in 2001 to 693 m in 2002. This decline is the first in the last 10 years. This fall is attributed to the economic slowdown and unrest seen around the globe, which escalated with the attack on America and other parts of the world.

The interesting thing to note here is that at a time where almost all tourist regions (America, Europe, Africa and South Asia) around the world saw a dip in tourist influx, the East Asia and Pacific region saw a rise in tourist market share to 16.6% in 2001 from 15.7% in 2000. This happened because China, which has a 29% market share in the region, saw an 11% YoY growth in 2001. The emergence of China as one of the fastest growing economies in the world (over 8% GDP growth) has attracted business travel to this nation. Added to that, China has been aggressively promoting itself as a tourist destination.

India vs China
Year 2001* India China
Tourist Arrivals (mn) 2,537 33,167
% Growth YoY -4.2% 6.2%
% Share in South East Asia 2.1% 27.4%
% Global Share 0.2% 3.8%
*Source: WTO September 2002

If one were to do a comparison between India and China, then China has a 27.4% market share of tourist arrivals in South East Asia, while India has a mere 2.1%. India has stagnant 2.5 m tourist arrivals, where China has 35 m, and which is growing at a healthy 10% plus. According to WTO, by the year 2020 China would have around 145 m tourists.

It is widely known that India’s tourism industry has stagnated largely because of years of government apathy in developing this sector. Seeing the government’s disinterest even the private players did not take the extra efforts to develop India as a global tourists destination. It is only in recent years that the government has realized the opportunity that tourism offers both in terms of forex revenues and also in terms of employment generation.

So now one can see the thrust to connect India by roads, rail, air and ports. The government will not only redevelop the existing airports in Mumbai and Delhi but also construct new airports in other cities as well. These initiatives would help promoting India as a tourist destination.

The government also increased the FDI limit for foreign investors. This means that there is more tourist traffic albeit in the business class segment. For many hotels its business segment hotels revenues witnessed a near 40-50% CAGR (FY97-FY01) growth. Business travel is concentrated in the gateway cities of Mumbai, Delhi, Bangalore, Chennai and Hyderabad. In the last few years, hotel capacity has dramatically increased in these cities. Although as there is no fresh capacity expected to be commissioned, increase in the business travel is likely to positively impact business hotels over the next two - three years.

All these infrastructure pushes will only make a difference in the next five years or so. But the focus on infrastructure will definitely give a fillip to domestic and international travel. Moreover, Indian hotel majors too, are redefining their business strategies by looking beyond the metros for growth. Food & beverages also form a core part of their growth strategy.

The hospitality sector had shown signs of a bounce back in the December quarter and this is likely to continue till March end. Though it has done well so far, the conflict in the Middle East has cast a spell of gloom on the global tourism industry. In the short term, the Indian hospitality sector does not have much to worry about as the holiday season is more or less over. But if the conflict becomes longer, the sector again may go back to gloom. Despite this, we maintain that long term prospects of the Indian hospitality sector are promising owing to the infrastructure push as well as the push for development of India’s image as a tourist destination


Equitymaster requests your view! Post a comment on "Hospitality: Where do we stand? ". Click here!

  

More Views on News

MAHINDRA HOLIDAYS Announces Quarterly Results (1QFY21); Net Profit Up 47.4% (Quarterly Result Update)

Aug 24, 2020 | Updated on Aug 24, 2020

For the quarter ended June 2020, MAHINDRA HOLIDAYS has posted a net profit of Rs 268 m (up 47.4% YoY). Sales on the other hand came in at Rs 2 bn (down 29.4% YoY). Read on for a complete analysis of MAHINDRA HOLIDAYS's quarterly results.

THE INDIAN HOTELS Announces Quarterly Results (4QFY20); Net Profit Down 42.9% (Quarterly Result Update)

Jun 11, 2020 | Updated on Jun 11, 2020

For the quarter ended March 2020, THE INDIAN HOTELS has posted a net profit of Rs 668 m (down 42.9% YoY). Sales on the other hand came in at Rs 11 bn (down 14.6% YoY). Read on for a complete analysis of THE INDIAN HOTELS's quarterly results.

MAHINDRA HOLIDAYS 2018-19 Annual Report Analysis (Annual Result Update)

Oct 18, 2019 | Updated on Oct 18, 2019

Here's an analysis of the annual report of MAHINDRA HOLIDAYS for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of MAHINDRA HOLIDAYS. Also includes updates on the valuation of MAHINDRA HOLIDAYS.

EIH 2018-19 Annual Report Analysis (Annual Result Update)

Jul 24, 2019 | Updated on Jul 24, 2019

Here's an analysis of the annual report of EIH for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of EIH. Also includes updates on the valuation of EIH.

Chalet Hotels IPO: Should You Bet on This High-End Hotel Chain Owner? (IPO)

Jan 29, 2019

Should you subscribe to the IPO of Chalet Hotels Ltd?

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS