The hotel industry - an overview

In the long term, the hotel industry in India has a latent potential for growth. This is because India is an ideal destination for tourists as it is the only country with the most diverse topography. India attracts approximately 2.5 million tourists every year that is just 0.4 per cent of the world tourist arrivals. Countries like Thailand and Malaysia attract thrice as many tourists.

Sector comments:
In recent times, any discussion on the hotel industry only veers around the falling occupancy rates and average room rates and the trying times that the Indian hotel industry is going through. Also, room supply in the five-star segment has grown by only 3 per cent over the last five years and consequently this has not been an area of concern in the past as new capacity additions in the five-star segment in the metro cities have been slow. It is expected that in the metro cities, after three to four years, the hotel industry is expected to face major problems on the supply side. However, we would regard these as a long-term concern.

The slow growth in room supply in the past can be attributed to the high land costs, long gestation periods, license problems and the scarcity of good locations. The hotel sector boomed from 1992 to 1996. Led by the lure of easy money and missed perception that hotels can be a simple business, profitable (especially the five-star segment) and is easy to get a foreign tie-up prompted many companies in the construction and real estate business to enter the arena. Since the past two years, almost all major hotel chains have unveiled plans to expand into the three- and four-star segments in smaller towns. As the growth in metro cities is getting saturated, hotel chains are looking on to this segment for future growth.