Witnessing double digit growth in India, global hospitality players are now bullish on expansion to tap the utmost potential of this market
The dynamics of the Indian hospitality industry has seen a major metamorphosis in the last decade. Today, the nation has some of the best international hotel chains, who are now further eyeing to tap the potential to its fullest. According to a report by HVS, India is growing consistently since 1995/96 from just 120 hotels with about 18,000 branded or organised rooms to a record 887 hotels with a room count of 113,622 in 2015/16.
Most of the major hospitality players present in India have witnessed a healthy growth in terms of occupancy. On a nationwide basis, new branded and/or organised supply grew by 9.9 per cent last year. Demand outpaced it considerably to increase by almost 16.4 per cent in the same period. The resultant market wide occupancy of 63.4 per cent in 2015/16 was thus a healthy six per cent higher than the preceding year. When broken down by positioning, the improved occupancies are evident across all star categories. Overall, this is the third consecutive year of occupancy growth.
However, the pipeline for proposed supply totalled 114,466 rooms back in 2007/08 – the highest in a decade, whereas in 2015/16 it contracted significantly to 56,912 rooms.
One of the major growth stories for the hospitality chains are the Tier II and III cities in India. The ever-changing demographics of these smaller cities are making a huge difference for the hotel chains. Today most of the bigger chains have their footprint in these smaller cities.
Over the next five years, Noida (194 per cent) and Kolkata (119 per cent) are anticipated to have the highest increase in future supply among the 13 major cities tracked by HVS. “Other cities” too may have a robust 87 per cent growth in supply during this period. However, that the absolute number of proposed rooms is higher in Bengaluru and Mumbai owing to them being larger hotel markets. That being said, the highest percentages of supply actively under development are in Chennai (100 per cent), followed by New Delhi (92 per cent) and Goa (90 per cent).
Current scenario
2016 has emerged as a good year for the Indian hospitality. India has been a growth story for most of the chains in terms of high demand and occupancy. Also a lot of new brands have forayed into India market. But on the contrary, last year there has been an insignificant or marginal growth in terms of ARRs.
Speaking about the India market, Christopher J Nassetta, President and CEO, Hilton said, “We have 16 hotels in India currently and some more in pipeline. India is a great market for us; we see tremendous growth potential here. India is also very important as a source market for Hilton.”
In the last couple of years, RevPars have grown in the India market. Also the share of domestic travellers to the hotels has seen a significant rise and is still booming. Vikram Oberoi, Managing Director and CEO, The Oberoi Group said, “The Prime Minister of India believes in tourism as a key pillar of our economy. Tourism segment creates tremendous employment which is the need of the hour. I am optimistic and think that there is immense potential in India. The domestic travel has been increasing very rapidly. In 1997, we had occupancy of eight per cent from the domestic market for the Mumbai property. Today over 40 per cent of our guests are domestic travellers. Indian guests understand the meaning luxury travel. They seek value and experience and have a lot of expectations.”
Speaking about the Indian market Jean-Michel Cassé, Chief Operating Officer – India and South Asia, AccorHotels said, “2016 has been a good year globally and also in India market. Globally for us the occupancy has been above 63 per cent which was a very good sign. We were higher than the average. It was good in terms of growth and occupancy and marginally good in terms of ARR increase. In 2017 our focus will definitely be to grow the ARRs, because the ARRs for many reasons have not been growing in the last three to four years. Now that the occupancy is back the market is strong enough and the market is now ready to absorb an increase in the ARR.”
Voicing similar opinion Ramesh Daryanani, Vice President, Global Sales – Asia Pacific (excluding Greater China), Marriott International said, “We have seen double digit growth when it comes to RevPar in India market. So it is a very important market for us. It’s the second most after china. We see tremendous potential in this market both in terms of expansion and also as a source market. Indians travel globally, a lot of our hotels rely on Indians as the spending power of the middle class has increased. Even the five per cent of the luxury travellers continue to travel and want more new experiences; we are striving to cater to this segment.”
While international hospitality players are always striving to introduce newer brands in the India market to target more segments of travellers, The Indian Hotels Company (IHCL) has recently restructured its brand architecture and has discontinued brands like The Gateway Hotels and Resorts and Vivanta by Taj. Now the group has one single brand Taj Hotels Palaces Resorts Safaris. Speaking about the strategy Rakesh Sarna, Managing Director and CEO, Taj Hotels Palaces Resorts Safaris said, “Internally we spoke to our owners, guests, stakeholders about this brand restructure and there was a common decision taken. This will help us give a better experience to our guests. We wanted to keep it simple. We strongly believe in the future of the Indian market. Our focus is to grow responsibly. And India will always remain our main focus market. We are also looking at markets like South East Asia and GCC.”
Mergers & Acquisitions
In the recent years, one of the routes taken by the hospitality industry for growth has definitely been the mergers & acquisitions. One of the most talked about acquisition, ‘Marriott acquiring Starwood’ has potentially made Marriott the largest hospitality chain globally. Even the AccorHotels acquiring FRHI has been a significant one. With these developments, a lot of big players in the industry are eyeing acquisition rather than organic growth. Interestingly, a lot of these players are eying the regional chains to grow in particular regions. One of the classic examples is the acquisition of Sarovar Hotels by Louvre Hotels Group, which has given them a major boost in the Indian market.
Manav Thadani, Chairman, HVS Asia Pacific said, “We expect this trend to continue. HVS was very proud to be part of one of the biggest transactions to have taken place earlier this year with Louvre Hotels acquiring Sarovar. We hope to be involved in a few more and are working with some parties on this. I think 2017 will see another 7-8 hotels change hands.”
Marriott is now further eyeing more regional expansions by acquiring smaller chains. Daryanani said, “In terms of launching new brands or acquisition is always on our cards. Considering our dynamic CEO, there is no surprise that we will be looking at more acquisitions. But as of now there is nothing concrete we are making sure to create distinction and smooth integration.”
Speaking about the FRHI acquisition and impact on India Cassé said, “We are delighted to have the Fairmont Jaipur and Swissôtel Kolkata in our network, adding 346 rooms to our portfolio in India and strengthening our position in the luxury and upscale sector. The addition of these brands will enable us to expand more quickly in India by providing a more diverse portfolio of brands. At this point in time there is no plan to change the management and brand of these hotels and for our guests it will continue to be business as usual. The full integration of our newest brands will take some time and our first priorities will be to see where we can add value for our guests, our partners, owners and other stakeholders.”
Speaking about the impact of the Marriott- Starwood acquisition, industry leaders have mixed opinion. Oberoi said, “The merger is quite significant in the hospitality industry. But I don’t think it will affect us. Our priority focus is our guests and their experience. It’s still too early to speak about the effects of the merger.”
Voicing similar opinion Nassetta said, “We are very happy with the portfolio we have. Our larger strategy is to grow organically. Also we are very customer centric and we don’t focus much on what the other players are doing. Time will tell the effect of this merger.”
Some of the hospitality tycoons believe that the merger has made no difference as the inventory remains the same only the name has changed. Mark Hoplamazian, President and CEO, Hyatt Hotels Corporation said, “If scale was the only thing that mattered, we wouldn’t have been in the industry. Growth size doesn’t dictate success. With the merger, they are bigger now, but there won’t be any impact as the numbers have not increased the hotels is still the same. Fundamentally we don’t see any difference. If we are smaller as a group, the focus is extensive on growth of our brands.”
Prospective development
In 2017, hospitality chains across India are eying to increase the ARRs. Last year there was no significant increase in terms of rates increase. Also, rapid expansions are on cards for most of the brands.
Speaking about the pipeline for India market Hoplamazian, “We have a long time presence in India. We have seen some phenomenal growth over the years in India market. Currently we have a strong pipeline for the India market. We recently introduced the Andaaz brand in India. It’s a very exciting launch for us. Globally we had a growth of over 10 per cent last year and India is one of our fastest growing markets.”
Speaking about the expansion Cassé said that in 2016 the group opened up 10 hotels. This year again they have a pipeline of another 10 hotels. He further said, “So from 8700 rooms today we would be crossing 10000 rooms by mid of this year. For the last few years we have been opening an average of eight hotels per year in the India market. We have set the pace now. We are now present in most of the key cities. Now what we are doing is not necessarily bring new brands but to densify the existing brands. Our priority will still be the Novotel and Ibis. This is our objective as of now. By end of the year, we plan to have a network of 45 hotels in the country and by 2020, we aim to reach the 80 hotels milestone.”
The Oberoi group plans to grow its Trident brand in the India market in the coming years. Oberoi said, “We strive hard to provide exceptional experiences. India is a very interesting market. This market has immense potential. As of now we want to grow the Trident brand in India.”
Marriott group currently operates around 86 hotels in India and is looking to increase its portfolio in this market. The group is focusing to open up hotels in the Tier II and III cities as these are high potential markets. According to Daryanani, “Tier II and Tier III markets have massive potential; we have major expansion plans to these cities. We are opening up a hotel in Belgaum, Fairfield in Coimbatore and Amritsar this year. There will be a key expansion by Marriott in secondary and tertiary cities in India. For Asia Pacific we are opening close to 100 hotels this year. In the India market currently we have 86 hotels and have a strong pipeline of 80 hotels under development and construction.”
Overall this year there will be launch of some new brands in the Indian market. Singapore based GMH Group has announced the entry of The Chedi hotel in India. Also, recently G6 Hospitality has partnered with Auromatrix Holdings to introduce Motel 6, Studio 6 and Hotel 6 brands to India.
Alternate accommodations
In the last couple of years, a lot of travellers have shifted loyalties from hotel to other alternatives. The concept of alternate accommodations has now picked up in India. Some of the start-ups have disrupted the Indian hospitality space and are doing well in the market.
OYO has today grown as one of India’s largest branded network of hotels with over 7,000 hotels and 70,000 rooms in more than 200 Indian cities. The start-up has seen some substantial growth in the Indian market with over five million check-ins since inception. The group has inventory in all major metros, regional hubs, leisure destinations as well as pilgrimage towns. With over 22,000 listings in India, Airbnb has also got a fair share of the market. Globally, Airbnb provides access to millions of unique accommodations from apartments and villas to castles and treehouses in more than 34,000 cities and 191 countries.In India the company is largely catering to foreign and leisure travellers who are looking for local Indian experience.
Both these brands are a direct competition to the hospitality players, especially the economy and the budget brands.
