India’s Hospitality Industry: Prospects and Challenges

Despite several challenges, India’s hospitality industry has shown impressive performance during 2018. According to the market report titled ‘India Hotel Market Review 2018’, which is a collaboration of STR and Howarth HTL,  at all India level, occupancy was the highest during 2018 since the last 10 years; ADR the highest since 2012. RevPAR for Mumbai, Hyderabad, Pune and Jaipur was the highest in 2018 since the last 10 years; for Ahmedabad, Bengaluru and Delhi, it was the highest since 2010, 2011 and 2012 respectively. The report was published in February 2019.

“During 2018, foreign tourist arrivals (FTAs) in India stood at 10.56 million, achieving a growth rate of 5.20 percent year-on-year. FTAs in January 2019 stood at 1.10 million, up 5.30 percent compared to 1.05 million year-on-year,” informs IBEF. The impressive growth in foreign tourist arrivals portends well for the hospitality industry.

An industry expert also echoed similar sentiment. “Altogether it was a great year for India’s hotel industry, not only in terms of occupancies but in terms of ARR also. There were many up and downs in the year but on an average it was a fantastic year for the industry. Increase in Revpar was the most positive sign for India’s hotel industry during 2018-2019. ” expressed Sanzeev Bhatia, VP & GM , The Metropolitan Hotel & Spa, New Delhi.

A Buoyant Trend  

The future of India’s hotel industry also seems to be promising. It seems medical tourism, destination weddings and MICE would play important roles in the near future in fostering the growth of India’s hospitality industry. 

“Going forward, CARE expects the industry to register an overall healthy growth in revenue on back of economic growth and consistently growing middle class along with increasing disposable income. There are various other key factors that drive the market, including India’s attractiveness as a medical tourism destination; steadily growing MICE segment; and, an increasing fondness among millennial towards travel,” noted CARE Ratings in its report titled ‘Indian Hotel Industry-Review and Prospects,’ which was published in January 2019.

“MICE segment followed by medical tourism and destination wedding hold a lot of potential and they have indeed emerged as key demand drivers for India’s tourism and hospitality industry. Huge revenues can be created f o r m these segments if marketed effectively,” observed Sanzeev.

“With increasing demand on back of improvement in economic activities and lower room additions, we expect the major markets in the industry to sustain the average room rates (ARRs) going forward and grow at an average of 3.5-4.5 percent per annum. Also, we expect the occupancy to inch up to an average of about 68-70 percent by the end of FY23, as compared with 66.6 percent in FY18. Accordingly, the hotel industry is expected to see an increase in room revenue at the rate of about 10-12 percent CAGR over the five years,” added the CARE Ratings report.

CARE Ratings also said in the same report that “On the back of positive sentiments and expected pickup in demand, we expect the momentum to pick up and the industry to register a growth of about 7-9 percent in revenues for FY19.” 

Sanzeev sounded optimistic for India’s hospitality industry, during 2019-20. “The fiscal year 2019-20 will be an excellent year for India’s hospitality industry once the election results are declared and a stable government is formed. Seeing the performance in terms of international arrivals, domestic tourism and corporate travel movements in India during 2018-19, I am confident of a better growth in 2019-20. The reason for this confidence emanates not very much f o r m inbound tourism to India, but on account of numerous domestic factors including the emergence of aspirational young millennial travellers in a big way, revival in corporate and business travel in the country, and rapidly evolving connectivity factor in the country,” he elaborated.

“There will be multiple factors that will drive India’s hospitality industry during 2019. Increased connectivity amongst less popular and newer destinations thanks to the UDAN (Ude Desh Ka Aam Nagrik) scheme by the Government of India and additional flight routes and the launch of operations by airliners to international locations f o r m non-metro and tier-II towns of the country will drive demand for hotels. Furthermore, government initiatives like Smart City, Swadesh Darshan, and Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD), friendly e-visa schemes and the likes will also propel business and religious travel within and to the country,” observed Sanzeev.

Challenges to Address

It is true that India’s hospitality industry has recovered f o r m its sluggish phase and is showing impressive growth potential. However, we cannot overlook the real impediments plaguing the growth prospects of this industry. The true and awe-inspiring potential of India’s tourism and hospitality industry can come anywhere near to its actualisation in the long-run only if the challenges and roadblocks in the path of India’s tourism and hospitality industry are effectively addressed or at least some significant successful endeavours to address them are being executed.

One of the multiple roadblocks towards the growth of India’s hospitality industry’s revenues is the long rigmarole of regulations needed to activate a hotel project, which in turn increases the gestation period and the cost of the hotel project. “Hoteliers in India face regulatory constraints at every step in the process of development of hotels, beginning f o r m land acquisition stage (for which laws differ f o r m state-to state) to approval by various ministries & associations on various matters. The process of identifying new land parcels as per the requirement for hotels is a tedious task in India,” Sanzeev explained. 

Exorbitant land cost seems to be another perpetual lacuna for India’s hospitality industry. “Compared to international standards, where land costs account for 15-20 percent of the total project cost, in India this is often in the range of 40-50 percent. This is also one of the reasons for low development of budget & mid-market hotels in India, in comparison to upscale luxury hotels, as budget hotels with lower average rates are less likely to become economically viable with such high land cost,” the hotelier elaborated further.

He also pointed to the shortage of skilled manpower as another challenge for India’s hospitality industry. This is also impeding the fruition of the industry’s growth potential. “Hotels in India face the continued challenge of shortage of trained employees, especially at the managerial and supervisory levels. Most of the companies are falling short of skilled employees for their hotels. Major reason for this shortage is the paucity of quality educational institutes for development of skilled employees for the hospitality industry in the country. Retaining the workforce even through training and development is also a tedious task as attrition levels are too high in India’s hotel industry. One of the reasons for this is by and large, unattractive wage packages through the industry,” averred Sanzeev.

As single women travellers are a fast emerging segment in India’s hospitality industry, hotels and resorts operating in the country should not only reserve a floor for single women travellers and group of women travellers if their budget and infrastructure permits them to do so; they should also make sincere endeavours to give more attention to women’s safety and security and tailor travel and entertainment packages catering to the interests of women travellers.

Promotion of offbeat tourist destinations is another need of the hour for India’s tourism and hospitality industry. Lack of sufficient endeavour in this direction is reflecting in untapped growth potential for our tourism and hospitality industry. 

“Thankfully, India’s hospitality industry has been catching up with the changing trends of preferences among a sizeable section of travellers, who have been wanting to ditch conventional touristy places to explore more offbeat destinations,” observed Aditi Balbir, the Founder and CEO of V Resorts, a new-age travel solutions company that provides standardised boutique experiences in the leisure travel space. The company has been primarily built on the concept of introducing the harried Indian travellers to new and unexplored places in the country.

“The biggest trend in India’s tourism and hospitality industry is the creation of new destinations and experiences for travellers. Many travellers have evolved f o r m being regular tourists who liked to visit the typical tourist spots to explorers who like to experience the local lives of the offbeat destinations,” opined Aditi. To tap these huge numbers of experiential travellers, India’s tourism and hospitality industry needs to vigorously promote and creatively market many more offbeat but fascinating tourist destinations of India.

The present day MICE infrastructure in India is still not very encouraging. It needs to be bolstered quickly to meet the expected growing demand for the MICE segment. If that is not being done, our hospitality industry would lose much of its potential revenues which may go to Japan, Australia, Malaysia and Singapore among others.  

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