indian hotel industry analysis

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History & Evolution

The hotel industry that exists today can be traced back to 3000 B.C. where the earliest inns were homes with rooms provided for travelers. Conditions improved in 1700s England when the renaissance sparked the desire to travel. The United States saw its hotel industry created a century later. By this time they had revolutionized many firsts in the industry including private rooms with locks and doors, free soap, a trained staff, and a pitcher of water in each room. Indoor plumbing and the creation of the lobby followed shortly thereafter. The business of providing strangers with hospitable means has come along way. What once was a service to fellow man is now the foundation numerous economies throughout the world. The modern era of the hotel industry saw its beginnings in 1794 New York where the first ever hotel was built. Profit potential was recognized with the inception of the industrial revolution. Stock companies invested in hotels seeking profit from property value appreciation and room occupancy revenue. Surrounding communities were promised increase in sales by means of higher volume of people passing through., the industry creates a multitude of opportunities that now saturate the industry in the form of spin-offs of these top four hotel companies creating the most common chains we know of today. History has proven that the success of this industry has largely to do with two factors, location and innovative integration, the combination of these two has created a margin between the larger chains and those who operate on a smaller scale. Soap and locks on doors were the innovation for their day. Strategic placement and product differentiation once again guide the success of this industry. The word hotel is derived from the French hôtel (coming from

hôte meaning host), which referred to a French version of a townhouse or any other building seeing frequent visitors, rather than a place offering accommodation. A hotel is an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms and air conditioning or climate control. Additional common features found in hotel rooms are a telephone, an alarm clock, a television, and Internet connectivity; snack foods and drinks may be supplied in a mini-bar, and facilities for making hot drinks. Larger hotels may provide a number of additional guest facilities such as a restaurant, a swimming pool or childcare, and have conference and social function services. Some hotels offer meals as part of a room and board arrangement. Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the Growth in the Indian tourism industry has fuelled the growth of Indian Hotel industry. The thriving economy and increased business Opportunities in India have acted as a boon for Indian hotel industry. The Arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and international tourism and consequently the hotel industry. According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fuelling hotel room rates across India. According to estimates demand is going to exceed supply by at least 100% over the next 2 years. The future scenario of Indian hotel industry looks extremely 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.

1.2 List of players in the industry • Taj Group • Inter Continental • Le Meridien Group of Hotels • Oberoi Group of Hotels • The Park Group of Hotels • Welcome Heritage Group of Hotels • ITC Welcome group of Hotels 1.3 Categorization of players in the industry

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. 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. 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. 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. 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.

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 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. 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. 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.

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 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.

1.4 Brief profile of players in the Industry Best Hotel Chains Of India Mentioned below are the significant hotel chains of India, Taj Group of hotels in India: The most popular name that is almost synonymous to hospitality in India is that of the Taj Group. Offering the best hotels across various genres like business hotels, heritage resorts, luxury hotels and even sea resorts, the Taj Group is definitely the best in the field. The Oberoi Group of Hotels in India: One of the most prominent names among the hotel chains of India is the Oberoi Group. It also owns several properties in exotic places like Australia and Mauritius. With its world class facilities and efficient staff to manage and play the perfect Indian hosts, the Oberoi hotels is no doubt a great feather on the grand cap of tourism in India. Le Meridien Group of Hotels: The Le Meridien Group of Hotels has played an instrumental role in playing the perfect host to the millions of tourists and guests coming here. It is a luxury brand of great fame and reflects the inherent Le Meridien touch of elegance and class through all its properties in India. It is no wonder one of the exclusive hotel chains of India. Best Western Group: A world famous name when it comes to hospitality and service, the Best Western Group owns several properties across India. Each of the hotels has been equipped with numerous features to enable a cozy comfortable stay to the guest.


2.1 Products Rooms : The rooms in hotels are based on the Category of the hotel. The facilities in the rooms are based on the type of hotel and price of the rooms are based on the type and facilities provided in the room. Conference Rooms: The conference rooms are provided by hotels for the meetings and other requirements as per the request by the customers. The price depends on the facilities, space and time utilized. Banquets & Halls: Banquet halls are provided by hotels for parties and functions. These halls provide extra revenue for the hotels. Restaurants & Bar : Along with the rooms hotels provide restaurants and bars which are charged separately. This adds revenue as well as a facility for the customers who are staying in hotels. Recreation facility

2.2 Product Description There are several types of rooms provided by the hotels based on their category. Few types of rooms are explained below STANDARD: This category usually means the most basic room type offered by the hotel. It has basic, standard amenities and furnishings. Standard rooms in hotels with higher categories often have no view or have a poor view over the dumpster or parking lot. MODERATE: Usually a slight bit better than standard, but still not deluxe. It may

refer to the room view as well as the size and type of furnishings offered. SUPERIOR: This category is always subject to interpretation. It's supposed to mean superior to a standard room in both size and furnishings, but it often refers to just the view. Some hotels have only Superior rooms; the categories then are defined by the view and location of the room. DELUXE: These rooms are supposed to be Deluxe in every way: View, location, furnishings and size. JUNIOR SUITE: A "junior" suite is typically a larger room with a separate seating area. Sometimes it's got a small divider between the part of the room that the bed is in and the seating area, but it is not two separate rooms. SUITE: A Suite is usually two or more rooms clearly defined; a bedroom and a living or sitting room, with a door that closes between them. Many hotels use the word "suite" to define any room with a sofa in it so be sure to check thoroughly if what you really want are the two or more separate rooms. STUDIO : This is usually configured like a Junior Suite, but has the added advantage of a "kitchenette," or cooking facilities 2.3 Complimentary Products • Swimming pool, , Fitness Centre • Meeting Rooms, Business Centre • Complimentary High Speed Internet, Free Local Calls • Superstar Hot Continental Breakfast, Complimentary morning newspaper • Guest Laundry, Dry Cleaning • Coffee/tea Maker, Mini fridge, Microwave • Complimentary Valet Parking • Wake Up Service • Bike rental at the reception desk • Fitness centre • Tenis court • Beauty parlour Lucie: lifting cure, regeneration cure, manicure, pedicure • Hairdresser • Private car park on the hotel premises • Travel agent • Air port pick up and drop • Guide facilities • Banquit halls • Meeting rooms • Swimming pools

2.4 • • • •

Substitutes Friends or relative houses, Youth hostels, Paying guests Dormitories

• • • •

Resorts Motels Lounges in airports, railway stations, bus shelters. Private guest houses and R&B guest houses


3.1 Rate of Growth According to a report, Hotel Industry in India currently has supply of 10,000 rooms and there is a shortage of 150,000 rooms fuelling hotel room rates across India. According to estimates 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 rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a cost-effective tourist destination. To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different stages of planning and development, which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi hosting 2010 Commonwealth Games. The future scenario of Indian hotel industry looks extremely 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 hotel industry in India is going through an interesting phase. One of the major reasons for the increase in demand for hotel rooms in the country is the boom in the overall economy and high growth in sectors like information technology, telecom, retail and real estate. Rising stock market and new business opportunities are also

attracting hordes of foreign investors and international corporate travelers to look for business opportunities in the country. The arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The opening up of the aviation industry in India has led the way for exciting opportunities for the hotel industry as it relies on airlines to transport 80% of international arrivals. Moreover, the government’s decision to substantially upgrade 28 regional airports in smaller towns and privatization and expansion of Delhi and Mumbai airport will improve the business prospects of hotel industry in India. Substantial investment in tourism infrastructure is essential for Indian hotel industry to achieve its potential. The upgrading of national highway connecting various parts of India has opened new avenues for the development of budget hotels here. The Government of India’s Incredible India destination campaign and the Atithi Devo Bhavah campaign have also helped the growth of domestic and international tourism and consequently the hotel industry. In order to increase the stock of hotel rooms, the Federation of Hotel and Restaurant Associations of India suggested to the government that the floor area ration of the existing hotels should be increased. This was a couple of years before and will help create additional rooms in the existing properties and ease the burden of shortage of hotel rooms in the country. The proposal is yet to be implemented.

3.2 Pattern of Growth (Seasonal & cyclic) Pattern of growth in hotel industry is both seasonal and cyclical as hotel industry is inter related and based on the tourism industry. As the industry is related and run on the demand based on the location in some regions like historical places and business centers (ex: Delhi, Hyderabad, Tirupathi, etc) the demand for the hotels are cyclical and for few places the demand is seasonal. Seasonal demand is depend on the climate and location (ex: beaches in India are mostly visited in summer because of climate and vacations)

3.3 Growth Determinants Location Location is a critical consideration because if affects hotels ability to draw customers. It is important that hotel location be visible, accessible, convenient and attractive to market. Surrounding land uses are important for all types of lodging operations. Aesthetics of the area, noise, safety and other factors should be considered. Commercial Locations By location along major highways or in business or industrial districts, hotels and motels benefit from high visibility and proximity to generators of room night demand. Local colleges, hospitals, attractions, services and entertainment are examples of “room night” demand generators. Resort Locations

Hotels and motels in resort areas generate most of their business form leisure travelers who see the lodging facility and surrounds area as their “destination.” Access and visibility, while important, are secondary to the quality of the facility, services, amenities, and nearby attractions. Local Market Area A lodging facility must be located in a market area that attracts overnight visitors. Business Climate Hotels and motels that primarily serve business travelers usually rely on the strength of the local business community. Tourism Activity Hotels and motels in resort areas typically rely on local attractions to bring in customers. Attractions can include both natural and manmade places of interest.

Business Travelers: Business travelers represent a large portion of lodging demand in many market areas. They include people traveling on business representing commercial, industrial and governmental organizations. Peak business demand is usually experienced Monday through Thursday nights. Leisure Travelers: Leisure travelers may visit an area for a vacation, to attend sporting or social events, to shop, or to visit friends and relatives. They might be staying over simply because they are traveling to other destinations. Leisure travelers may be individuals, couples, families, or small groups. Travelers visiting hospitals and universities are typically included in this market segment. Leisure room demand is often seasonal. In larger, more urban market areas, leisure room demand may be limited to weekends, summer months and holiday periods. Other Travelers: Various lodging customers cannot be classified under the categories of business, leisure, or group. These travelers may include construction workers, truckers, utility crews and others.



4.1 Cost structure SOURCE OF FINANCE The source of finance available to a hotel development is similar to those available to real estate developers of others kind of project. The following are usual method of rising finance for the hotel Industries:1. Share capital 2. Preference share capital 3. Equity share capital 4. Borrowed capital 5. Debenture 6. Mortgage 7. Loan from commercial bank 8. Loan from financial institution 9. Trade debt- credit guaranteed by supplier 10. Inter company loans 11. Provision for taxation 12. Public fixed deposit 13. IPO FUND ALLOCATION FOR THE PROJECT Hotel industries displays an investment characteristic with Distinguishes it for other industries. The industry can be classified as one among those which are highly capital intensive. Most of the Hotel represented by land, building, furniture furnishing and Equipment. A study of the balance sheet of the leading hotel companies shows that bulk capital is 90%.

A hotel project requires money under the following heads: 1. Cost of land and building 2. Cost of civil works 3. Cost of electrics installation and fixtures 4. Cost of sanitary work and fixtures 5. Cost of furniture fixture and fitting 6. Cost of carpet 7. Cost of providing facilities like air-conditioning, boilers, water treatment plant, filtration plant, water pump, drainage system. 8. Cost of providing swimming pool, land scaping, land development,

9. 10. 11. 12.

Shopping arcade. Cost of kitchen ware. Cost of manpower Misllinious cost

The hotel industry enjoys the economies of scale based on the occupancy rate. When the occupancy rate is high the hotels enjoy the economies of labor and fixed cost is distributed over large number of rooms effecting in the increase of the revenue and the various other costs like maintenance will remain same what ever the occupancy, if the occupancy is high the expenses are distributed occupied rooms resulting in the increase of revenue. Other than the savings in cost many hotels charge 24hours rent on rooms used for night halts (i.e. is for 8 to 10 hours) thus enjoying the chance to rent same room to other customers for 24 hours.

4.2 Economies of Scale

4.3 Economies of Scope Opportunities for the Indian hotel sector continue to be in the budget and mid-market segment. Anticipation for huge growth and expansion, in the next year or two. The luxury segment is set to perform extremely well over the next few years until the supply- demand gap is bridged. New opportunities lie in the extended stay segment, which many potential developers are currently shying away from. . Agra, while having seen highest improvement, has still a long way to go (citywide occupancy 47%). There also some unfinished hotel projects in Agra, which will continue to put pressure on the city’s performance. As regards Jaipur, the recent announcement by a major IT company to set up a base outside Jaipur, as well as the state government’s initiative to promote IT-related activity in the city, means that Jaipur can look forward to some additional room night demand from the business segment. These developments in the leisure segment including the strong performance in Goa leads to believe that the leisure segment is clearly benefiting from the increase in foreign tourist arrivals and growth in domestic travel. Hotels in metro cities, with an average rate of Rs 2,600-3,000, and hotels in non-metro cities, with an average rate of Rs 1,800-2,400, are likely to experience rapid growth in demand in the next year or two. Cities to watch out for, in terms of development opportunity, are Pune, Goa, and certain pockets in major cities like Delhi (west) and Mumbai (mill lands).

4.4 Labour Department of Hotels that are available for guest 24 X 7:Hotel Industry Kitchen/ Food Production: Kitchen & food production is a department of hotel that responsible for food . Even hotels having Coffee Shop provides 24

hour services to the guest. Hotel Industry Engineering:- If any problems come in room, bulb fuse, A/C not working , then need to contact Hotel Engineers, they are also available 24 hours. Hotel Industry Front desk:- Front desk is 1st impression on guest, if guest like this section then only he will go for other option like restaurant, laundry, etc. Front desk consists of young and energetic staff who is always (24 x 7) be there to help guest, they are also responsible for Business Centre, Internet Access. Front office desk responsible for making C-Form for Foreigner Clients, providing safety lockers to the guest. Taking Reservation by Telephone, E-Mails, and Fax from the guest. Also providing guest Money Exchange Services. Hotel Industry Housekeeping:- Housekeeping are available 24 X 7 for guest, making their bedroom, bathroom, etc. Providing guest Laundry services also do day to day room cleaning for guests. Hotel Industry Food & Beverage Service:- They include providing guest the services whether in rooms, Restaurants or Banquets, or in Conference rooms.

Hotel Industry Travel Desk:- They are responsible for arranging day to day travels for the guest. They also do the ticket confirmation work, and also provides the information for sightseeing to the guests. Gym/ Health Club/ Sports:- Medium and large hotels are providing Gyms, Swimming Pool, Health Club, Beauty Parlor, Saloon, games like Billiards, Pool, etc facilities to their guests. Most of the Hotels are providing these facilities complimentary with the rooms. Parking/ Shops:- Few Star hotels providing big parking space, shops in the restaurant itself for the guest conveyance, so that they can get the things in hotel itself.



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 Category No. of Hotels No. of Rooms 5-star Deluxe 82 18764 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 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 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.

Market Sgmentation

Mid-Market Segment This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure travelers. This segment also caters to the middle level business travelers 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 travelers. 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.

5.2 Market Strategies Branding During the 1980s, the hotel industry saw an explosion of new brands, , Market segmentation has served as one of the most powerful drivers in the creation of more and more branded products a trend that became a popular marketing concept in the 198Os and remains so today. Seen as a vehicle for growth by a number of hotel companies that tapped a virtually limitless supply of capital in those years. Large hotel chains assumed that they could create new markets by establishing niche products in a variety of segments. With the benefit of hindsight, however, some hotel chains that started out in a mid-market segment have tried to move up-market by creating new brand concepts to do so. As hotel companies fine-tune their identities, reposition their products and promote growth through aggressive franchising programs. Technology In the hospitality industry, as in all arenas of commerce, technology represents one of the strongest forces for change, while having had a significant impact on brand marketing. Hotel reservation systems have been shifting from voice to electronic Global Distribution Systems and are now on the verge of consumer access via the Internet. The increasing role played by the

Internet should slowly affect booking patterns in the future as inexpensive consumer access to hotel product becomes available. This, of course, has potential implications for the benefits associated with the branding of hospitality products..

5.3 Market practices PRICING STRATEGIES One of the single greatest challenges facing independent hotels today is pricing. Pricing the inventory effectively can lead to profitability and helps lay the foundation for long term success. But, pricing the inventory ineffectively can lead to disaster. During the last decade; two simultaneous factors impacted the market place and customer buying practices: (1) the dramatic drop in demand (2) and the widespread use of the Internet for booking rooms. Capitalizing on this situation, third party Internet companies seized the opportunity to grow their businesses. Hotels were eager to work with them, and customers were eager to use them as confidence and security in buying goods and services on-line increased. • Rack Rates: Without any affiliations to warrant discounts, the Rack Rated customer paid the published rate, which was the highest rate. • Consortia Rates: This was the same customer who booked through a travel agent using the GDS and received a 5%-10% discount off Rack Rates. • Corporate Rates: Having met the hotel’s qualifying criteria, such as volume, businesses were guaranteed discounted rates. • Group Rates: With a block of rooms, rates varied based on time of year and the nature of the group. • Weekend Rates: Individual leisure travelers, usually within a drive distance to the hotel. • Promotional rates: These rates were originally used sparingly and used as a means to stimulate business by using discounted rates to anyone, regardless of affiliation.


Service Innovation

Hotel industry is continuously using the concept of technology to develop its image and occupancy ratio. Though the hotel industry is a service industry it is continuously innovating the way the services are provided. Many hotels have a category of rooms which are different in the space and facilities each one having their own specialties and range of price. Hoteliers are now running their business according to the taste and preferences of the customers continuous feed back from the customers are helping the management to innovate in the services provided by the. Few hotels are providing an services in their unique way to get into moonlight. Offering special services respecting the customer’s traditions and customs and providing the service in their way is new innovation to attract the customers. Technological Innovation The advent of the Internet has opened up many avenues for the hotel industry, most importantly the ability to book clients. Most if not all of the hotel chains offer some sort of online reservation enabling the hotel management and staff to focus their efforts in a variety of different places. It is reported that 25 percent of all reservations are made online making it a key tool in room occupancy fulfillment. In addition to room booking, most hotel chains today utilize the Internet by offering online deals and major advertising campaigns. Electronic advertisement accompanied with the ability to make reservations online has made the Internet tremendously valuable. Adapting to ecommerce transitions such as the implementation multi-purpose computer software are necessary to cater to the clientele of the next generation. A higher understanding of market needs will ensure a larger portion of it. Information processing management is another key element that has contributed to hotel industry success. Understanding and acting on the needs of clientele will lure travelers away from competitors. Again, most if not all hotel chains today are utilizing some sort of customer pattern tracking. Complete client pleasure is dependent upon what you can offer differently from the other guy. The color of the sheets, the position of an ice machine, the softness of toilet paper; targeting the very core needs of clientele means they will return to what they are comfortable with.


7.1 Internal Rivalry The degrees of internal rivalry consist of competitors in the hotel industry that differentiates their strengths, cost, product offering, and positioning within the industry. In the hotel industry there is a lot of competition that takes place between different providers. Each company finds their strengths and does everything in their power to be acknowledged by the customer. Once they uncover how they can serve their consumers better than leading competitors they position themselves in the industry that better serves the consumers. 7.2 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 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 it’s international. • Only 97,000 hotel rooms are available in India today. • Only limited value added services • Slow implementation 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. 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


Porters Five Forces Model

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. 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. 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%.

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. COMPETATIVE POWER OF RIVALRY 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


PESTAL Model Political factors Rules and laws are apart of citizens everyday life. We have to abide by certain rules and regulations in order to remain in society. This goes for corporations as well. All corporations have to face some sort of rules and regulations. Although each corporation has to face rules and regulations, each industry faces different rules and regulations. Of course, it would only make sense to believe that all regulations are negative for corporations because it takes away from the bottom line. However, there can be positive affects of the regulations. For example, a ruling in favor of anti-trust laws will take away from the monopolistic company, but at the same time, the barriers of entry will become easy leaving opportunity for other companies to increase their bottom line. An analysis of the hotel industry has revealed that there are environmental, labor, and food & safety regulations as well as regulations for merging, which must be looked at before entering into the industry. Environment is one aspect the government will always have their eye on, and they will introduce laws that will protect the environment. Such laws will need to be looked at as a player in the hotel industry. Hotels are could be liable for clean up of contamination and other corrective action under various laws, ordinances and regulations relating to environmental matters. Such laws referring to keeping the environment in good shape can be quite costly to hotels in the industry. In Europe, North America, Australia and New Zealand, such prosecutions can now result in heavy financial penalties, considerable clean-up costs or in worst instances, jail sentences Another political factor that can impose a concern for a member in the hotel industry is the laws regarding labor. For instance, there are laws that govern minimum wage. Although this might not seem to be a concern, but anytime you are forced to pay a wage not in plans, which are taking away bottom line. Another law that can be quite costly is treatment of employees. For example, there are laws that prevent discrimination, and sexual harassment. If a hotel company violates these laws, it can lead to severe lawsuits, and at the same time the hotel will be slicing their revenues. The labor laws are pretty strait forward, but must be obeyed in order to keep on going profits. Social Cultural Factors Social cultural factors are a big issue to look into for hotel industry because it deals with a lot of consumers who have different demographic, ethnic, cultural backgrounds. By satisfying each consumers or generalizing the way to hospitalize, hotel industry can have chance to expand more. Technological factors In order for a hotel to prevent obsolescence and remain technologically advanced, the hotel must be up to date with all the latest technological changes that are taking place that might have an impact on the industry. As it moves through the twenty-first century, it is evident, that there is a strong focus on technology. Today, the Internet is increasingly being used. Consumers are shopping on the Internet, from music to travel and anything one can think of. For the hotel industry, they need to take this into consideration. The reason is that if hotels don’t have a well developed website, they will possibly loose potential consumers. Not only do they need to alternate their distribution channels of information, they also need to advertise aggressively on the Internet. Discussing in further

detail of what the computer has brought is using it for organizing the hotel operation. The day of having everything on paper is obsolete. So, in order for a hotel to have a competitive advantage, they need to have a very high tech information system. While the computer is changing the way hotels in the industry can offer information to their potential consumers and the way a hotel organizes their operations, materials supplied to the hotel are starting to become obsolete. For example, in most hotels, you will still find stereos, VCRs, and regular televisions. However, things have changed in the way people access music, movies, and of course T.V. Today’s society, individuals have moved away from those big boxes and adopted the use of digital technology. So, for a hotel to prevent obsolescence the must change from the suppliers that are supplying them with stereos, VCRs, and regular TVs and look for suppliers that will offer them ipods, DVDs, and digital HDTV for room use. Moving in this direction will make the hotel much more attractive, thus the revenues will increase. The final technological factor that needs to be looked at is the rising costs of energy. These are uncontrollable costs, thus the only thing that can be done to limit the impact of these increasing costs is for hotels to manage the use of energy efficiently. A strategy of how to manage it would be one thing; however, a hotel must also look at the alternatives of energy that are coming into the world. For example, with high-energy costs some businesses are thinking innovation. Solar Cities will be the successes of the 21st century. Ecological factors Environment is something we as human beings come in contact with everyday. The condition of the environment will often guide decisions. For instance, if it is really smoggy outside, the chances of going for a hike or to an amusement park are very small. So, it would only make sense as a member of an industry that is looking to increase the demand of consumers to fully understand what environmental factors for their industry might impose an impact on the customer’s decision. For example, during hurricane season, the customer decision to stay in a hotel on the east coast is not as likely as it was before these natural disasters. Global warming is another ecological factor calls for concern. The ozone is slowly being exhausted by human actions while leaving the earth degrees warmer. The uncertain climate can have a direct impact on hotels that are in areas of ski resorts. However, even though this is a definite concern, it should be a concern for long term planning the time frame for such effects is more likely to happen in the future. A way that could allow this not to be an impact for other hotels is to build a strong image in the consumers mind. Such image would come from being ecoefficient by improving resources to prevent pollution.


9.1 Factors influencing Success in the Industry 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.

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: 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 Travelers 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. 9.2 Identifying Critical Success Factors (CSF) For the Industry 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 traveling for business purposes. This segment includes corporate, 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. 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 lowyield 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.


The hotel industry in India having a tremendous opportunity in the future because of increasing trends in the tourism industry and government promoting the “Incredible India” campaign and other tourism promotion measures. The hotel industry in India is mix of many brand internationally established hotels having the scope to attract shares in the brand hotels which will help to expand the industry and the innovations in the industry is helping the hotels to retain the customers with them. Though the industry is having opportunities in future it is suffering with the cost of land which is costing 50% of the total cost and the taxes are main drawbacks for the industry. Industry is opening gates for the foreign investment which is a good sign for the industry and industry is working toward the fulfillment of the demand and supply gap.

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