Potential of Hotel and Tourism Industry in India

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Hotel industry going places, eyes 10m foreign visitors by 2010

The long-term outlook for the domestic hotel industry remains upbeat as the country's tourism industry experiences unprecedented growth, according to the latest Indian hotel market outlook report, 'India Digest 2008', by Jones Lang LaSalle Hotels, one of the leading hotel investment and advisory service providers. 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. While domestic tourism is expanding in India owing to an increasingly affluent and growing population, greater consumption and the introduction of low cost airline carriers, the government is looking to grow foreign visitation to 10 million international visitor arrivals by 2010, the year of the Commonwealth Games in Delhi. Over the last five years, India has seen a double-digit growth in foreign visitors to a 10-year high of five million arrivals in 2007. Foreign exchange earnings for the same year soared in tandem to $12 billion (Rs 48,000 crore), a year-on-year increase of 34%. The strong performance of the corporate sector and the growth in the economy has led to an unprecedented surge in business travel. “While the Indian economy has been affected by the current challenges faced by the global economy, the impact is expected to be short term,” said Sudeep Jain, executive vice-president (India), Jones Lang LaSalle Hotels. Aggressive growth in revenue per available room (RevPAR) has been recorded in the three key cities of Delhi/NCR, Mumbai and Bangalore over the past five financial years. “In India, if you look at from medium to long-term, the fundamentals are very promising. In a global context, given the size of the economy, the population and the future potential of India as a tourist destination, the demand fundamentals are very good. We expect that continued economic growth, increased interest in the Indian markets and improved international access, combined with the modernisation of major airports, will boost inbound travel in India,” Jain added. The long-term demand for India will mean that the country requires a lot more hotels to service the future demand. With a current supply of around 1,00,000 rooms, stifled stock growth over the last five years is leading to a demand-supply mismatch. “Based on the government target for 2010, India will need to add at least 1,50,000 new rooms in the next four years. The total known supply in the pipeline for major Indian cities (as of March 2008) through to 2011 stands at just over 29,000 rooms and some of this supply will be delayed given the turmoil in the global financial markets,” Jain said. The report also notes that during FY2006-2007, the five-star deluxe and five-star hotel segment in key Indian cities recorded a strong growth in revenue per available room with year-on-year average room rate (ADR) growing by 40% reported in Delhi/NCR and Mumbai and almost 20% growth in Bangalore. Such growth is not sustainable over the long term as room rates are expected to adjust to more realistic levels as new supply come online, it added. According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fueling 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...
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