Hospitality Industry

Hospitality Industry- An insight June 13, 2011 Overview

As per an analysis done by retail consultancy Technopak, at the end of 2010 the Indian hotel industry’s worth was estimated around US$ 17 billion. Of the total revenue, nearly 70 per cent is being contributed by the unorganized sector and the remaining 30 per cent (US$ 5 billion approx.) comes from the organized sector. The hotel industry is estimated to grow at a CAGR (Compounded Annual Growth Rate) of around 15 per cent over the next five years. The share of hotel and restaurant sector in the overall economy is still below 2 per cent. For the last five years the total contribution of the hospitality sector has remained stagnant. Although the overall share increased from 1.46 per cent in 2004-05 to 1.69 per cent in 2007-08, but then after the phase of economic meltdown in US the total share again decreased to 1.45 per cent in 200910. According to Economic Survey of 2010-11 the average annual growth rate of hotel and restaurant sector has been 8.8 per cent for the period during 2005-06 and 2009–10. However, last two years have not been quite pleasant for the sector as growth faltered badly. Till five years ago, the sector was registering a growth of around 15 per cent but slowdown in the economy has affected the growth prospects of the sector badly and the growth rate has dropped into single digit level. The sector registered negative growth (-3.41 per cent) in 2008–09 over the year 2007–08, which was due to the adverse global economic conditions in this year. But, the sector is back in the positive growth territory and clocked a growth of 2.2 per cent in 2009-10. Annual growth rate (in per cent) Year 2005-06 Hotels & Restaurants 17.5 Source: Economic Survey 2010-11 2006-07 14.4 2007-08 13.1 2008-09 -3.1 2009-10 2.2

The hotel and tourism industry’s contribution to the Indian economy by way of foreign direct investments (FDI) inflows were pegged at US$ 2.35 billion from April 2000 to February 2011, according to the Department of Industrial Policy and Promotion (DIPP). But, there has been a rush of international hotel chains towards India since the latter half of 2010. A lot of major hotels have announced their plans to expand their footprints in India. Thus domestic hospitality sector is expected to see investments of over US$ 11 billion by 2012, with 40 international brands making their presence in the country in the next few years. Number of Greenfield projects Year 2007 Number 297

2008 2009 Source: UNCTAD, World Investment Report 2010 Highlights
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553 370

Tourist inflows to continue

World Travel & Tourism Council (WTTC) expects travel and tourism (T&T) demand in India to grow above 8 per cent annually till 2019, the highest growth, thereby making India second highest tourist destination after China.
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Structural problems aplenty

Although rapid rise in personal disposable income and changing lifestyle of younger generation augurs well for the hospitality sector but high land prices, low FSI, plethora of taxes, and low incentive from government are some key hurdles for hotel companies in India.
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International hotel chains eyeing India

To tap the growing opportunity, nearly 25 major international hotel companies like Accor, Marriott, Claridges, Shangri-la, and Carlson Hospitality are looking to enter India, either independently or in collaboration with domestic partners. Sector Status

Several studies have highlighted the demand-supply gap in hotel rooms in India. Most of them have estimated a gap of 150,000 hotel rooms. A greater need is being felt in the mid-market and budget hotels segment in which a shortfall of around 100,000 rooms is estimated. Since the construction of hotels is capital intensive with a long gestation period, the Government is making efforts to stimulate investments in this sector and speed up the approval process to attract private sector investments. It is estimated that the room demand in the premium segment hotels in 10 major cities in India increased by around 5 per cent since the past one year. The room demand in India is expected to grow by approximately 10 per cent over the next five years. 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. With such growth, sources estimate, demand is going to exceed supply by at least 100 per cent in coming years. Number of Hotels – 2010

Hotel categories 5 star deluxe/5 star 4 Star 3 Star 2 Star 1 Star Heritage Uncategorized Total Source- FHRAI

No. of Hotels 165 770 505 495 260 70 7,078 8,707

No. of Rooms 43,965 134 20 30,100 22,950 10,900 4,200 1,32,885

Although, organized sector contributes only one-third of revenue of the overall revenue of the industry but several well known hotel chains have lined up aggressive expanding plans for India. The foremost contribution of the organized hotel industry comes from 5-star hotels. Despite a dip in the year 2009, average growth rate of 8 per cent augurs well for the hotel industry. Industry is adding about 60,000 quality rooms, currently in different stages of planning and development and should be ready by 2012. An upward trend in growth of the overall hotel sector is expected in the next few years, whereby the industry is expected to grow to US$ 36 billion by 2018. Operating performance The hotel industry in India is recovering from the blows it suffered in the year 2008, first due to financial meltdown in America in September and later due to terrorists attack on the two 5-Star hotels – Taj and Oberoi in Mumbai. The onset of the global economic slowdown had a greater impact on the profitability of the sector determined by the occupancy rate. The occupancy rate came down from 69 per cent in 2007-08 to 60 per cent in 2008-09. It was hovering above 71 per cent before the incidents. Average room rates (ARRs) saw a marginal decline of about 2 per cent during that time. As the occupancy rates were badly hit, overall revenue per room (RevPAR) fell by 14 per cent, in 2008-09. The swine flu outbreak in 2009 further eroded the profitability. ARRs fell 25 per cent and ORs plunged to 53 per cent in the first half of 2009-10. By then, hotels were doling out generous discounts in a bid to fill up their rooms even as RevPARs declined by 30-40 per cent. Nationwide performance Year 200506 2006Occupancy Rate 71.5 71.4 % change 3.6 -0.1 Average Room Rate Rs 5,444 Rs 7,071 % change 26.6 29.9 Revenue Per Room Rs 3,892 Rs 5,049 % change 31.2 29.7

07 200708 200809 200910 201011 Source: HVS

68.8 60.3 65.0 68.0

-3.6 -12.4 7.8 4.6

Rs 7,989 Rs 7,837 Rs 6,426 Rs 6,800

13.0 -1.9 -18.0 5.8

Rs 5,496 Rs 4,726 Rs 4,177 Rs 4,624

8.9 -14.0 -11.6 10.7

After declining 3 per cent in 2009, foreign tourist arrivals (FTAs) to India saw a heartening 9.3 per cent increase during 2010. The inflows of tourists continued in 2010-1. As a result, ARRs have increased by 10-15 per cent in the past one year. The RevPAR though increased to Rs 4,624 but still it is way short of the revenue clocked by hotels in the year prior to crisis. Of the 60,000 rooms that are due for opening by 2015, Pune, Chennai, Bangalore and Delhi are likely to see maximum increase in supply.

Cities/No. of rooms Chennai Kolkata Bangalore Hyderabad Pune NCR Mumbai Source: ICRA Financials

Current premium room supply 2,150 1,240 3,350 2,250 1,600 8,750 8,000

Incremental room supply by FY14 2,500 1,400 4,500 3,000 3,000 5,000 3,500

Demand revival and occupancy rates will result in higher profits for the hospitality sector in 2011-12.

Revenues crore)

(Rs

Net Profit crore)

(Rs

EV/EBIDTA(X)

FY’ 10 Indian Hotels 2457 EIH 845 Taj GVK 228 Hotels Hotel 430 Leelaventure Source: Bloomberg Hotels – classification

FY’ 11E 2985 1144 266 540

FY’ 12E 3633 1363 315 769

FY’ 10 -137 66 26 41

FY’ 11E 86 69 45 56

FY’ 12E 274 161 59 81

FY’ 10 23 27 13 35

FY’ 11E 18 20 8 22

FY’ 12E 12 15 6 14

Presently there are 1593 classified hotels with a capacity of 95,087 rooms in the country. The hotels sector comprises various forms of accommodation, namely star category hotels, heritage category hotels, timeshare resorts, apartment hotels, guest houses, and bed and breakfast establishments. Based on that the hotels in India are classified into following segments: I. Star rated hotels (5 star and star deluxe) These are mainly situated in the business districts of metro cities and cater to business travelers and foreign tourists. These are considered to be very expensive. These account for about 30% of the industry. The star hotels are further classified into six categories: Five star deluxe, Five star, Four star, Three star, Two star, One star. a) Five Star Deluxe & Five Star:These are restricted to the four metros and some major cities like Bangalore and Hyderabad. The customers of these hotels are mostly foreign business and leisure travelers, senior business executives and top government officials. Three Star & Four Star: These are located in all major cities as well as tourist destinations. Their customer group ranges from middle level business executives to leisure travelers. One Star & Two Star:These are located in major cities as well as in small cities and other tourist destinations. Their customers include usually the domestic tourists. Major players in this segment are Taj, WelcomeGroup, EIH and Oberoi. Apart from Indian players some of the international hotels also have their presence in this segment. Those include, Best Western, Choice hotels, Bass Hotels, Park Plaza and Carlson Hospitality. Room supply in the 5-star segment has grown at a compounded annual growth of 5 per cent over the past decade. While, the 3 and 4-star categories have grown at 6 per cent and 8 per cent CAGR respectively during the same period.

b)

c)

II. Heritage hotels These are characterized by less capital expenditure and greater affordability and include running hotels in palaces, castles, forts, hunting lodges, etc. They are further classified as: Heritage classic (hotels built between 1920 and 1935), Heritage Grand (hotels built prior to 1920) and Heritage (hotels built between 1935 and 1950) III. Budget hotels: Budget hotels cater mainly to domestic travelers who favor reasonably priced accommodations with limited luxury. These are characterized by special seasonal offers and good services. IV. Unclassified hotels: These are low-priced motels spread throughout the country. A low-pricing policy is their only selling point. This segment accounts for about 19% of the industry. V. Resorts and Clubs Located at the outskirts of city could be from premium to budget category VI. Restaurant These are food chains and outlets set up in the India. They are usually by international chains like Dominos, Espresso, Pizza Hut and McDonalds. Key players

Company Indian Hotels ITC Welcomgroup EIH Carlson InterContinental Source: IBEF

Type of properties Luxury, mid-segment and budget Luxury, budget and heritage hotels Business hotels, leisure hotels and cruises Luxury, business hotels, economy and cruises Luxury, mid-segment and business hotels

Brands Taj, Gateway, Vivanta and Ginger ITC Hotel—Luxury Collection, WelcomHotel—Sheraton, Fortune and WelcomHeritage Oberoi and Trident Radisson Hotels and Resorts, Park Plaza, Country Inns & Suites, Park Inn InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, Hotel

In the Indian hospitality industry the major players are Indian Hotels, EIH, ITC hotels, Hotel Leela Ventures, Bharat Hotels and Asian Hotels, ITDC and Orient Hotels Ltd.

The booming industry has attracted many international players as well. A number of global players are already well established in India. These include Hilton, Shangri-La, Radisson, Mariott, Meridian, Sheraton, Hyatt, Holiday Inn, InterContinental and Crown Plaza. The country has been flooded by some of the world's leading hotel brands. New brands such as Amanda, Satinwoods, Banana Tree, Hampton Inns, Scandium by Hilt and Mandarin Oriental are planning to enter the Indian hospitality industry in joint ventures with domestic hotel majors. International Hotel Brands Brand Carlson Four Seasons Starwood Hyatt Marriott Wyndham Hilton Intercontinental Fairmont Raffles Accor Source: Business Standard Some announcements:
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No. of hotels 50 6 15 10 24 50 75 41 15 44

Target date 2012 2012-13 2012 2012-13 2012 2011 2015 2012 2012-13 2012

Carlson Group is bringing Regent to Gurgaon by 2013. To tie-up with Pioneer Urban Land and Infrastructure that will invest US$ 49 million.

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The Leela plans to open sixmore properties by 2013.

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ITC Ltd expects to add 8-10 hotelsin India in the next 3-5 years.

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The Thailand-based hospitality major, Amari, plans seven 4-star hotels near major airports in the country.

International hospitality chains are expected to acquire local players to increase their presence in the country.

For instance, in early 2010, Carlson increased its stake in RHW Hotel Management Services Ltd (RHW) from 13 per cent to 87 per cent. RHW has been managing hotels under Carlosn’s brands since 1998. Both domestic and international players are expected to form strategic alliances and partnerships with regional players /developers to expand in the country, reduce risk and optimize resources. Latest trends Investment in smaller cities Rising business and leisure travel to smaller cities such as Udaipur, Thiruvananthapuram, Bhubaneswar, Pune, Kochi and Chandigarh, have increased demand for quality hotel rooms in these cities. Hospitality chains are expected to increase their presence in smaller cities to leverage this opportunity. Further, they are likely to plan a suitable project mix (more budget/business hotels compared to luxury hotels) for these cities. For instance, Carlson has announced its plans to set-up mid-segment hotels in tier II and tier III cities. Diversification into new segments: Many hospitality chains that were earlier focused only on the luxury segment are now diversifying into new product segments, such as budget hotels and serviced apartments, in order to reduce risks. IHCL has already launched budget hotels in India, while Accor has announced plans to introduce its budget hotel brand, Formule1, in the country. Moreover, hotel chains are diversifying into niche segments such as medi-cities, wildlife lodges and spas to establish additional revenuegeneration streams. These segments also help hotel chains retain customers and provide them with value-added services. For instance, IHCL operates wildlife lodges under the brand TajSafari, a JV between IHCL and &Beyond, an Africa-based safari and ecotourism company. ITC-Welcomgroup and IHCL operates spas at some of their luxury properties. Regulations & Taxation

In the Hotel Industry Sector, Foreign Direct Investment (FDI) has been permitted up to 100 per cent under the automatic route. For foreign technology agreements, automatic approval is granted if:

1. Up to 3 per cent of the capital cost of the project is proposed to be paid for technical consultancy services. 2. Up to 3 per cent of the net turnover is payable for franchising and marketing/publicity fees. 3. Up to 10 per cent of gross operating profit is payable for management fees, including incentives fees.

Tax Holiday
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A deduction of an amount equal to 100 per cent of the profit and gain for the first 5 consecutive years to an undertaking deriving profits from the business of a hotel or from the business of building, owning and operating a convention centre, in specified areas, if such hotel/convention centre is constructed and has started or start functioning before July 31, 2010.

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A deduction of an amount equal to 100 per cent of the profit and gain for the first 5 consecutive years to an undertaking derived profit from the business of a hotel located in the specified district having a World Heritage Site. If such hotel is constructed and has started functioning before March 31, 2013.

Innovations in the Indian Hospitality Industry
Posted by Daniel Ratheiser • Sunday, August 1, 2010 • Category: In Depth

Innovations in the Indian hospitality sector can be analysed on many different levels. This analysis makes the attempt to give a broad overview on innovations taking place in the industry according to various categories of hotels as well as relevant functions, concluding with a brief outlook on future directions these innovations might take. India holds a special place in the international world of hospitality. Culturally the country might very well be the most diverse place in the world. It is a vivid kaleidoscope of landscapes, magnificent historical sites and royal cities, misty mountain retreats, colourful people, rich cultures, and festivities. Luxurious and destitute, hot and cold, chaotic and tranquil, ancient and modern - India's extremes rarely fail to leave a lasting impression. Hospitality is a long running tradition in India. From the majestic Himalayas and the stark deserts of Rajasthan, over beautiful beaches and lush tropical forests, to idyllic villages and bustling cities, India offers unique opportunities for every individual preference. However, until fairly recently this was hardly evident when looking at India's hospitality industry.

By now, accommodation options throughout India have become extremely diverse, from cosy homestays and tribal huts to stunning heritage mansions and maharaja palaces. From Kashmir to Kanyakumari, from Gujarat to Assam, there are different cultures, languages, life styles, and cuisines. This variety is increasingly reflected by the many forms of accommodation available in India, ranging from the simplicity of local guest houses and government bungalows to the opulent luxury of royal palaces and five star deluxe hotel suites.

Houseboats in Kashmir by trisb http://www.flickr.com/photos/trisb/2282110094/

From beach shags along Goa's soothing beaches to British colonial mansions in the many scenic hill stations, the hospitality industry in India sells "great experiences". As the experiences sought by travellers around the world diversify, the global hospitality industry is adjusting accordingly in order to satisfy these complex demands. India is no exception here - quite the contrary. Coming from a rather old-fashioned understanding of hospitality services, India is rapidly catching up and turning into an innovation leader on several key fronts.

Hospitality in the Indian Economy The contribution of the entire travel and tourism sector in India to Gross Domestic Product is estimated to rise from 8.6% (USD 117.9 billion) in 2010 to 9.0% (USD 330.1 billion) by 2020. Between 2010 and

2019 the demand for travel and tourism in India is expected to grow annually by 8.2%, which will place India at the third position in the world. Travel and tourism in India also accounts for 49,086,000 jobs in 2010 (about 10% of total employment) and is expected to rise to 58,141,000 jobs (10.4% of total employment) by 2020. Within the travel and tourism sector, the Indian hospitality industry is one of the fastest growing and most important segments, revenue-wise as well as employment-wise. According to an estimate of the Economic Survey of India and Technopak, the Indian hotel industry accounts for USD 17 billion, 70% (USD 11.85 billion) of which take their origin from the unorganised sector and the remaining 30% (USD 5.08 billion) from the organised sector. In 2000, India hosted only 2.6 million international visitors. By 2009, the figure had already increased to 5.13 million arrivals. Compared to other tourism markets in nearby Asian countries, this is still a limited success, but one with the potential to develop into a tremendous success story.

Historical Overview India has a great tradition of accommodating people of other origins and tolerating their different culture, lifestyle, habits, and religion. In Indian culture stories abound of hosts who lovingly cook up the best foods available to them for their guests beyond what they can afford, rather going themselves hungry than not being able to satisfy their guests. This element of Indian culture is based on the philosophy of "Atithi Devo Bhava", meaning "the guest is God" in Sanskrit language. From this stems the Indian generosity towards guests whether at home or elsewhere.

Welcome Puja by mckaysavage http://www.flickr.com/photos/mckaysavage/2458852328/

The growth story of the Indian hospitality industry started in the 1980s, when several prestigious hotels were developed to cater to the Asiad Games in New Delhi. Until about ten years ago, however, the hospitality industry in India continued to be characterised by its extremely limited choice of options. There was a very limited availability and lesser quality of hotels in cities beyond the usual suspects: Delhi, Mumbai, Kolkata, Chennai, and Bangalore. Other aspiring hospitality markets have been gradually catching up, such as Ahmedabad, Jaipur, Goa, Hyderabad, and Pune. Even during the 1990s India was characterised by a dichotomy of luxury hotels on one end and nondescript unclassified hotels on the other. The massive unclassified market was mainly composed of no-frills guest houses and lodges in the budget segment, many catering especially to backpackers, such as in Delhi's Paharganj; nondescript privately-owned standard hotels; and government-owned accommodation such as by the Power Department or the Wildlife Department as well as the various

hotels run by the Tourism Departments. Only during the last decade did the mid-segment gradually develop beyond non-chain properties, with entrants into the field such as Hilton Garden Inns and Taj Group's Ginger Hotels. Other prospective entrants consider the mid-market segment most promising, too. Since 2000, India has also experienced the rapid emergence of unconventional and innovative hospitality service providers, be it far-off ecolodges in the jungles or NGOs offering accommodation in tribal villages. After many years of obscurity, the Indian hospitality industry is suddenly now in the limelight of the global hospitality industry. The trade press is full of features on the potential of the Indian hospitality sector and presents ever new stories of successful innovations in the industry.

Innovation Much hope for the Indian economy lies in harnessing innovations in the hospitality industry. Not only has the Indian hospitality industry an enormous growth potential, the industry itself reinforces the diffusion of innovations by attracting foreigners, facilitating the movement of people, and so on. The hospitality business requires entrepreneurs to continuously come up with new services, new ways to present existing services, new ways of enhancing the experiences of their increasingly demanding clientele, and new processes to economise operations. Without innovation, hospitality service providers face the threat of becoming ‘obsolete’- ultimately driving them out of business or forcing them to hand the business over to more efficient and innovative entrepreneurs.

Innovations According to Particular Hospitality Categories Major players in the hospitality industry can be categorised into leading domestic hotel chains, international brands, emerging Indian brands, market entrants from outside of the industry, and the remainder of nondescript, largely standalone properties.

The Taj Mahal Palace & Tower, Mumbai by Knowledge Must

The leading Indian hotel chains, such as The Taj Group of Hotels, Oberoi Hotels & Resorts, and ITC Welcomgroup, and the government-run ITDC dominated the Indian hotel market for decades, when only a handful of international brands had a token presence in India. Of the major international hotel chains Sheraton, Hilton, Hyatt, Radisson, Marriott, and Le Meridien are already firmly established in the Indian markets and steadily expanding. With China and India as leading engines of growth in the global hospitality industry, few of the globally operating companies want to be left out. Considering the immense scope of opportunity in India, more and more international brands follow their footsteps. By now, about 50 international hotel chains have entered the Indian marketplace. With more international players and their sophisticated services, competition in the market is growing increasingly fierce thus leading to a higher degree of professionalism in the industry, and with the

spread of established hospitality brands, guests are increasing their demands and expectations on the whole industry, thus creating an environment conducive to innovation.

Neemrana Fort-Palace by dixie law http://www.flickr.com/photos/dixielaw/3352310731/

In recent years also local hospitality brands have been mushrooming in India. Starting with a single lounge or hotel, some ventures expand to become India-wide or even international hospitality brands. Examples are the Neemrana group of hotels and Delhi-based Shalom. The latter is a Mediterranean inspired hospitality provider that started out as a standalone lounge in Delhi and quickly developed into a professionally managed company that offers lounges, restaurants, bars, annually released music CDs, music concerts, and a chic hotel in Goa called Soul Vacation. Shalom has become a famous success story in the Indian hospitality industry, not least due to its innovative ways in which it is positioning and expanding its brand. Increasingly, hospitality services are also offered in India's rural areas. Private persons convert their country homes, villagers offer home stays, and agriculturalists as well as pastoralists open their farms to visitors. Notably, it is not only foreign tourists who demand these services. More and more Indian

families as well as corporate clients are tempted to the countryside with the advent of quality amenities and improved facilities. Many new and innovative leisure destinations are developed in the remote corners of India. Beaches, mountains, agricultural estates, wildlife sanctuaries, religious pilgrimage places, among others, have played a key role in putting rural India on the hospitality map. This trend has the potential to change the face of rural India enduringly. Other accommodation options emerge in special locations. One popular trend is the houseboat hotel, which is also referred to as a boatel. The houseboats of Kashmir and Kerala offer luxurious accommodation to travellers for affordable prices. Their unique location in nature combined with the rustic architecture of the boats is especially appealing to tourists from abroad as well as within. Rotels, such as the famous Indian luxury trains "Palace on Wheels" and "Deccan Odyssey", are continuously expanding the hotels on wheels concept. A growing number of other trains in India provide a luxurious hotel atmosphere to discerning tourists.

Budget Hotels The Bed and Breakfast concept has arrived in India. The government is now classifying home owners providing hospitality facilities as "Incredible India Bed and Breakfast Establishments". Remarkably, also big hospitality service providers are attracted to this nascent market. Mahindra Group's Mahindra Homestays already have hundreds of rooms on a Bed and Breakfast basis in Indian homes countrywide that can be booked online. Average room rates hover around INR 2,500 for facilities at par with three star category hotels. Also leading hotel groups offer quality accommodation for economical prices, such as Ginger Hotels, Lemon Tree, Sarovar Hotels, Fortune Hotels, Ibis, and Choice Hotels. High demand but a still rather limited supply in this mid-market segment proves attractive to potential investors and many of the upcoming hotel development projects currently taking place, position themselves in this segment. The Indian Hotels Company Limited (IHCL), a unit of Tata Group known mainly for its Taj luxury hotels, such as the famed Taj Mahal Hotel in Mumbai's Colaba district, is India’s largest hotel chain with more than 70 hotels in India and abroad as well as more than 100 years of presence in India’s hospitality sector. One innovative experiment by IHCL is Ginger Hotels, a revolutionary concept in hospitality for the value segment focusing on key facilities that meet the key needs of the economically-minded traveller. Ginger outsources a wide range of services from cleaning and laundry to computer support and cafeteria service. To free up space in the very compact rooms, TVs are mounted on the wall. To save on cleaning staff, the furniture, flooring, and bathroom fixtures are made of easy-to-clean materials. To cut the need for security, guests stash valuables in lockers. To deal with the increasingly expensive real estate rates in

India, the company has come up with an innovative strategy of offering landowners a share of the hotels' profits. With their concept they are able to offer rooms between INR 1,000 and 1,500, while making handsome profits selling highly sought after quality rooms at reasonable rates. Most bookings are made online and the brand spreads mostly through media reports and word of mouth due to the very reasonable rates, which allows the Taj Group to save on advertising expenses as well. The concept proves so successful that the company is planning to open hundreds of Ginger Hotels in India and around the world. Taj's brand sharpening exercise is bearing fruits. Credit Suisse recognised IHCL as one of the 27 ‘Great Brands of Tomorrow'.

Luxury Hotels India also has entered the field of Super Luxury Hotels; some are located in the big cities, while others are located close to nature. Mumbai's Sahara Star hotel, for instance, is one of famous the Super Luxury city hotels in India. It features the 3-floor Sahara Suite, which might well be India's most expensive suite at INR 400,000 per night (about USD 8,600). The price is justified by a private elevator, a personalised spa station with floatation tank, a glass-roofed lounged with artificial rainfall, etc. In the same line, Super Luxury resorts such as the Aman Bagh in Alwar have entered they fray, where the cheapest rooms are priced at about USD 600 per night.

Udaipur City Palace by tvangoethem http://www.flickr.com/photos/tvangoethem/418737260/

Often by necessity as much as opportunity in a time of declining importance Indian royalty open their family palaces to guests. Authenticity, a concept that already is in danger of becoming a cliché in the hospitality world, is quite an understatement for what is on offer. Guests in India easily know the difference between brand-new hotels built to look like 200-year-old palaces and authentic 200-year-old palaces turned into hotels with modern amenities and history that speaks to guests from every corner. Often the royal family will be present at dinner and be accessible to explain their heritage to hotel guests. More and more rustic colonial properties, beautiful havelis (stately mansions), and imposing palaces are renovated to become heritage hotels. Properties that are also converted are ruined castles, planters' clubs, and hunting lodges, among others. All, however, have one feature in common: a minimum of 50% of the floor area was built before 1950 and no substantial changes to the façade have been made.

Authenticity Based on the believe that it depends heavily on the type of accommodation how guests will experience local culture, a rising amount of hospitality service providers focus on cultural content, for example, accommodations that mirror the authentic architecture, flair, and lifestyle of the respective destinations. New hospitality ventures such as New Delhi-based Travel Must go a step further and take tourists to fascinating places that are not always easy to navigate on their own, trying to strike a balance between cultural immersion, vivid history, sheer natural beauty, and enjoyment. They offer exposure to local culture by giving deep insights into the local culture such as local trades, customs, art, architecture, religion, food, and music. These kind of authentic cultural experiences are tailored according to the demands and needs of the clients, and can be as diverse as a tribal village stay in the jungle-clad mountains of Alwar or an urban homestay run by a university professor and her scientist husband.

Welcome Rangoli by mckaysavage http://www.flickr.com/photos/mckaysavage/2225262197/

Travel Must as trusted intermediary between local communities and the interested public ensures that a meaningful exchange results between guests and hosts. Guests are welcomed into private homes, attend fascinating ceremonies, and gain invaluable insights into ancient, complex cultures often unknown and inaccessible to outsiders. Intricate local networks coupled with deep cultural expertise guarantee that guests learn about and participate in the rich traditions that make India such a vibrant destination.

Eco-Tourism Eco-Tourism can be defined as responsible travel to natural areas that conserves the environment and improves the well-being of native cultures, thereby contributing to the preservation of the diversity of our world's natural and cultural environments. According to the World Tourism Organization, EcoTourism is the fastest growing market in the entire tourism industry. From the 1990s, the global EcoTourism sector has experienced an annual growth rate of between 20% and 34%, thereby growing three times as fast as the tourism industry as a whole. Until 2014, the Eco-Tourism industry is expected to grow up to a quarter of the world's total travel market. India had initially been a laggard regarding ecological hospitality models rather following the old trodden path of mass tourism. However, the ugly face of mass tourism in India was soon visible and ecology emerged as a popular concept in the hospitality industry, striking a balance between business interests and sustainability. Given the massive potential Indian hoteliers have jumped on the bandwagon and are gradually harnessing the potential of some of the most outstanding ecosystems in the world, such as in the Himalayas and the Western Ghats.

Kerala Houseboat by Christian Haugen http://www.flickr.com/photos/christianhaugen/3286687515/

An excellent example here is Kerala, a state on the tropical Malabar Coast of south-western India that is nicknamed as "God's own country". It is famous especially for its houseboats travelling the extensive backwaters, Ayurveda retreats, jungle lodges in the Western Ghats, pristine beach resorts, eco-lodges, and other Eco-Tourism initiatives. Its unique culture and traditions, coupled with its varied geography, has made it one of the success stories in India. An increasing number of tour operators in India make it a point to minimise the negative environmental impacts caused by their customers and make positive contributions to the conservation of biodiversity. So when their customers chance upon a Red Panda in the Himalayas or witness the hatching of sea turtles on the Bay of Bengal, they have improved the chances of preserving their habitat by providing a realistic economic alternative to exploiting local natural resources.

Agricultural Tourism Agricultural tourism is widely acknowledged as an instrument for economic development and employment generation particularly in the remote and backward areas. It creates opportunities to generate additional revenue, makes for economic diversity, and improves the understanding of farmers in society. The Indian government collaborates with the United Nations Development Program (UNDP) to promote rural tourism and also sanctioned more than 100 rural tourism infrastructure projects to spread tourism and socio economic benefits to identified rural sites. Guests in India can stay on farms ranging from stud farms over dairy farms up to full-fledged agricultural farms. They are perfect for urbanites looking to unwind and get back to nature, but with a bit of comfort and the chance to freely choose the activities in what the guests want to engage in, whether they want to milk the cows, wash the buffalos, learn to grind wheat, pick vegetables, or go fishing. Besides, guests experience the natural, cultural, and heritage aspects of the region, such as the local geography, cuisine, and handicrafts.

Unconventional Accommodations Today's travellers are enthusiastic about travelling in different ways to widen their experiences. This is also reflected in their choice of unconventional accommodation options. In India religious centres, ashrams, and monasteries are among the popular alternatives to classic choices of accommodation. Given the cleanliness and hygiene of these accommodations, besides their unique cultural content, this segment offers huge potential. Organisations such as the Krishnamurti Foundation, Bharat Sevashram Sangha, Ramakrishna Mission, ISKCON, and Aurobindo Ashram are among the religious institutions that

offer accommodation options across India.

Unique Sales Points Many higher end hotels in India are realising that their key USP in international competition is not their high-tech facilities, but rather their outstanding staff-to-guest ratios and the longstanding tradition of Indian hospitality as immortalised by "Atithi Devo Bhava". Hospitality is about serving the guests and to provide them with a "feel-good-effect". Personalised comprehensive service, such as suites having their own personal butler, gives guests that extra feel of being valued by their hosts.

Hospitality Staff by Stuck in Customs http://www.flickr.com/photos/stuckincustoms/2640815977/

Journeys to India can be complex and challenging. If any tourist destination asks for support in logistics, knowledge of culture, local connections, and insightful guides, it must be India. At the same time, the extra amount of support and attention needed is highly affordable in India. Drivers fluently speaking English, high-profile facilitators accompanying guests in tribal villages, staying in the home of a professor and his family or dining with the Maharajas in their family palace, in India the extraordinary becomes the rule rather than the exception.

Diversification Innovative concepts of diversification hold the key to survival in the hospitality industry in the long run. Fierce competition has led to innovative ideas by hotel majors, thereby delivering impressive hospitality products and services. Exotic spas, gorgeous golf courses, multi-cuisine fine dining, spacious conference and convention facilities are all among the growing list of facilities found in leading hotels. Hotels are adapting to innovative operating models by bringing in external brands of restaurants, spas, and lounges on lease or management contracts to capitalise on proven concepts that generate substantial revenue by attracting hotel guests and local residents. Cafes and bars which have high profit margins are increasing their presence in hotels and are quickly developing into core profit centres. A prominent example is Café Coffee Day found at Ginger Hotels.

Ananda Spa by blaiq http://www.flickr.com/photos/blaiq/75116242/

Taking the example of India's most famous spa, Ananda Spa, one can feel the extent of diversification in the industry. Renovating the erstwhile palace of a local Maharaja in the Himalayas, Ananda Spa has created a spa resort that heavily draws on India's spirituality. Inviting "resident masters", such as those who teach Yoga and heal using Ayurveda, and combining and packaging spiritual wares with pure luxury, offers a promising revenue model.

Food and Beverages With the deeper integration of India in global economic exchange and the freer flow of goods across borders, the Indian hospitality industry now has access to better products, such as imported foods and beverages. Until recently, five star hotel restaurants were considered the epitome of fine dining

experiences in India and even now many of the best restaurants and bars are still located in India's five star hotels. The concept of high-end standalone restaurants remained a rare exception. By now, however, any new trend that emerges in any part of the world rapidly spreads to India, such as the latest fads of ice bars and ethnic lounges. With well travelled upwardly mobile consumers, new and trendy food concepts find an increasing following in India. The resulting manifold opportunities entice famed international chefs to move to India. At the same time, foreign tourists increasingly dare to sample the diversity of local food. Even many domestic guests seek for opportunities to dine on quality local delicacies, drink traditional beverages, and learn something of the culinary traditions of the locale.

Foreign versus Domestic Tourists Earlier foreign tourist arrivals to India were highly lopsided, with a few countries such as the US and the UK accounting for the bulk of arrivals in India. In recent years, foreign tourist arrival figures have been diversifying. More and more people from Afghanistan, Bangladesh, Sri Lanka, and Nepal visit India now, as are people from Southeast Asian countries, South America, and Africa. Domestic tourism in India has been a widely neglected topic. Even today, the statistics on foreign travellers garner all the attention. However, of the total of 500 million trips taken in India per year, only about five million are from international visitors. Domestic travellers form the major component of revenue generation in the Indian travel industry.

Indian Family by Wen-Yan King http://www.flickr.com/photos/medapt/430287982/

Tourism has taken Indians by storm. Indians travelling within the country have nearly doubled in the past decade. Besides business trips, the traditional pilgrimage tourism, and visiting relatives, the emerging Indian middle class with their rapidly rising disposable income are following suit and are discovering their myriad India. While family trips are still fairly dominant, the number of Free Individual Travellers (FIT) is increasing rapidly. The improved availability of quality hotels in the budget and mid market segment is also providing more cost-effective travel options, as Indians are very price sensitive. With more Indians travelling internationally, there also is greater awareness of international brands and service standards. Consequently, Indian guests will become more discerning in coming years and will take a good room and a meal for granted, and will increasingly demand special travel experiences.

Reading the Tea Leaves

India is today in the defining stages of the business of hospitality. Decisions taken today will massively impact the growth trajectory the industry will take. Reckoning the future of the Indian hospitality industry is a very difficult task, especially so due to the ever more rapidly changing market environment. According to World Travel and Tourism Council, India will be a tourism hotspot from 2009 to 2018, having the highest 10-year growth potential. Attempting to read the tea leaves, the Indian hospitality industry will experience a gradual consolidation process, especially in the unorganised sector. At the same time, more and more players are attracted to enter the field as profit margins and growth projections seem very promising. This increase in supply has the potential to benefit the hospitality industry as a whole, since new markets can be developed and more segments can be catered to than previously. More competition in the field also leads to better rates for clients and puts pressure on hospitality service providers to improve upon their quality and diversify their service offering. The guests of the future will become increasingly unpredictable. Social status and wealth will no longer be good predictors of the needs and objectives of the guests. That is why flexibility is becoming the key advantage in a highly volatile hospitality industry. Also technology will play an increasingly important role in the hospitality equation. Web-savvy India is in a good position to engage its international competition on search engine optimisation, web advertising, and e-marketing Many innovative concepts developed in the Indian market can also be easily adapted by other nations such as Nepal, Pakistan, China, and Brazil. One interesting innovation export might very well turn out to be the quality budget hotels that are mushrooming in India. While the possibilities for positive change seem endless, it will take an earnest effort, both from the industry's key stakeholders in the private sector as well as the relevant government authorities to truly harness the innovation potential of the Indian hospitality industry.

-This research was conducted for publication in a forthcoming book on the Indian tourism industry to be published by Oldenbourg Wissenschaftsverlag in Germany. Please get in touch with our Travel Must Team if you want to benefit from our unique expertise in the Indian travel industry and beyond.

The Indian travel and tourism industry has fared well in the recent few years, driven by government initiatives; development of new products; healthy growth of the Indian economy; increasing affordability; and promotion of India as a tourist destination. Geographical diversity India offers great geographical diversity with its mountain ranges, valleys, desert regions, tropical rain forests, fertile plains, dry plateaus and coastal areas. The mainland of India comprises four broad geographical areas: Northern Mountains, which has the great Himalayas, the vast Indo-Gangetic plains, the Southern (Deccan) Peninsula, and the coastal plains and islands. Each of these zones is unique with rich cultural heritage, which attract millions of tourists every year. With its rich geographical and cultural diversity, India has potential to offer almost all kinds of tourism such as wildlife tourism, adventure tourism, beach tourism, mountaineering, cultural exploration, and pilgrimages tourism. Government initiatives The Department of Tourism, Government of India (GoI), has undertaken a number of initiatives to harness the potential that tourism holds in India. GoI promoted various campaigns such as ―Incredible India‖, to showcase India as an ultimate tourist destination on the global map. The Indian Tourism Ministry also tied up with foreign airline companies to boost the multi-pronged Incredible India campaign. Last year, the Ministry of Tourism, along with the World Travel and Tourism Council, undertook the ―Visit India 2009‖ scheme. The hospitality, travel and airline industry also supported the scheme through various incentives. Moreover, GoI is allowing foreign direct investment (FDI) in all construction development projects including construction of hotels and resorts, recreational facilities and city and regional level infrastructure. These measures are expected to boost growth in the domestic travel and tourism industry. Development of new products Emergence of newer concepts and forms of tourism is also aiding growth in the industry. ―Bed and Breakfast‖ is one such recent concept in the Indian market. To tap this potential, GoI is recognising spare rooms available with various home owners by classifying these facilities as the ―Incredible India Bed and Breakfast Establishments‖. These newer forms of tourism — ecotourism, agritourism, cruise tourism — are still at a nascent stage and they hold immense potential. Once adequate measures are taken, these forms of tourism can drive strong growth in the industry. In line with these new concepts and taking into account the requirements of different types of travelers, travel companies are offering customised and attractive tour packages. These are also expected to increase tourist movement in the country. Healthy economic growth The Indian economy has recorded healthy growth in the past few years. It grew more than 9% in each of the years during FY06-FY08. In FY09 and FY10, despite the global economic

slowdown, India recorded growth of 6.7% and 7.4% respectively. The attractive Indian growth story has encouraged foreign players to set up operational facilities in the country. Domestic industries have also made heavy investments to expand facilities through greenfield and brownfield projects. Strong performance of the corporate sector and economic growth led to a surge in business travel during FY06- FY08. However, business travel was adversely affected during FY09-FY10 as companies cut travel budgets to curtail costs, given the global economic slowdown.

The Indian economy has fared well in the past two quarters and it is expected to grow more than 8% in FY11. Consequently, business travel is expected to revive. Moreover, healthy performance of the services sector (ITeS and BPO) has led to increased number of business travelers, both domestic and international, in the country. Changing consumer dynamics The country has been experiencing change in consumption patterns. The share of non-food consumption, especially of the traditionally-known non-essentials, has gone up in the past decade. Healthy economic growth coupled with rapid urbanisation has led to a bulging middleclass population, whose share in total population is expected to surge in the coming years. This section of the population with higher disposable incomes over the past decade has caused the shift in spending pattern, with discretionary purchases forming a substantial part of total consumer spending. Increased affordability and affinity for leisure travel are driving tourism in India. The changing consumption pattern would also aid growth of the domestic tourism industry. Ease of finance

Easier access to finance, in terms of emergence of credit culture and availability of holidays on EMIs, is another major growth driver for the travel and tourism industry. India is among the fastest growing financial cards market in the Asia Pacific. The credit card base in the country is expected to grow at 20-25 % per annum. Various attractive schemes offered by credit card companies would contribute significantly to this. Around 35% of users of credit cards utilise them for travel, hotel, and dining purposes. The expected growth in credit cards should lead to higher spend on travel and hotels. In addition to emergence of credit culture, easier availability of personal loans and schemes offered by travel companies have also boosted growth in the leisure travel segment. Travel companies have tied up with banks to offer ―holiday now… pay later‖ – EMI holiday schemes. Moreover, individuals are resorting to personal loans for travel purposes. Open sky benefits and low-cost airlines With the open sky policy, the travel and tourism industry is experiencing increase in business volumes. Increased airline activity has stimulated demand and helped in improvement of aviation infrastructure. Low airfares have also stimulated demand for travel. Budget airlines have encouraged business and leisure travelers, as they offer advantages such as low costs, more options, and strong connectivity. World-class medical facility The popularity of India as a major medical tourist destination has also aided growth in the industry in cities such as Chennai and Bengaluru. Many people from the developed countries come to India for the rejuvenation promised by yoga and Ayurvedic treatments. Furthermore, a nice blend of top-class medical expertise at attractive prices is enabling more Indian corporate hospitals to get patients from the developed nations. Most common treatments for which foreigners come to India are heart surgery, knee transplant, cosmetic surgery and dental care. The medical visa granted by GoI to tourists coming to India for medical treatment has aided growth in medical tourism in India. Increased tourist movement The country has seen a steady increase in tourist flow, both domestic and international. International tourism arrivals were up 4.3 % in FY10, while foreign exchange earnings were up 18.7% to US$ 12.5 bn. Hosting of international events Events such as trade fairs, exhibitions, and sports events tend to bring about higher tourist movement. International events held in the country lead to higher inbound tourism. The Commonwealth Games, to be held in October 2010, is expected to see an influx of tourists into the country. At the same time, events held in other countries tend to increase outbound tourism.