‘Many Positive Measures But Much Left To Do’

Homi Aibara

The Indian hospitality industry has been witness to some major ups and downs in the last decade. One of the most positive measures has been the withdrawal of expenditure tax, which has a huge impact because the tax was levied both on the rooms and all services offered by the hotel to its guests. In fact, the impact has been so positive that India now ranks as one of the countries which levy’s minimum taxes on the tourism industry as per a study conducted by WTTC.

The negative side is that tourism is still on the state list and not on the concurrent list of taxes. Owing to this each state treats tourism differently and the taxes are levied accordingly. Implementation of the Value Added Tax (VAT) in the tourism sector down the line could play a major role in bringing tourists (business and leisure) out of this nightmarish situation. However, how effective it will be in achieving this objective is still the million dollar question.

The biggest single bottleneck to genuine foreign tourists has been the air-seat capacity and that is something tourism has been fighting for. A study that we did for the Ministry of Tourism (MoT), numerically proves the multiplier effect that tourism would see with increased an air-seat capacity.

We have 4.5 million Indians going abroad and less than three million foreigners coming into the country, so there is a major imbalance here. If we were to allow more air-seat capacity, prices would come down, destinations would get more affordable and tourism would actually see a boom. In fact, the boom we are witnessing in the Indian hospitality industry and the current season being so good is to a great extent attributed to the fact that seat capacity has been increased in both domestic and international front.

Once the new low cost carriers come into the domestic sector and constraints on the larger airlines are relaxed, there is going to be a huge increase in the air-seat capacity which is very good for the country.

What has also made a huge different to the Indian hospitality industry is the growth witnessed by the IT/ITES (Information Technology/Information Technology Enabled Services) and BPO (Business Process Outsourcing) segments, which generate more room nights than any other sector. Thus, the increase in air-seat capacity will certainly help in offering a further boost to the industry.

On the negative side, even though countries with security problems like Sri Lanka have managed to issue visa on arrival, we are still contemplating the possibility for many years. Though some efforts of simplifying the visa process have been put in place a more concrete solution is needed.

On hotel financing and interest rates, till about five years ago we were talking about interest rates, which went into the range of 15 to 18 per cent depending on the strength of the borrower. We are now talking of interest rates ranging from 8.5 per cent to 11 per cent for rupee borrowers. For foreign currency borrowers the interest rate is even lower than that. Thus, the ability to financially structure hotel projects has become far more doable than it was earlier. On the minus side our financial institutions work on very staid, old and archaic formulae where funding is available during the project period, with a 18 or 24 month moratorium where one pays the interest and then the money in six years quarterly installments, which was not feasible for hoteliers. Another good option would be to adopt the mortgage formulae for hotels.

Thus, to offer a conclusion, the last decade has been a major learning process for both the industry and policy makers alike. Many positive steps have been taken to boost the hospitality and tourism sectors, however, there is still much left to be achieved.

(Homi Aibara is partner & consultant, Mahajan & Aibara (M&A), Management Consulting Division) (As told to Ashish K Tiwari)

The Evaluation Criteria

The award for the ‘Best Premier Hotel Brand’ was evaluated on the following criteria:

• A list of current operational hotel properties in the in the form of property, name, location, government star class, number of rooms and year of establishment.
• Gross revenue from operations such as room revenue, F&B revenue and other revenue. (This receipts had to pertain to only the hotel properties listed in the Annexure and did not include receipts from other ancillary business. It pertained to the period 1st April 2003 to 31st March 2004.)
• The total available room inventory across all properties. (The total number of rooms in operation as on 31st March, 2004).
• The number of room nights sold last year across all properties between 1st April 2003 to 31st March 2004.
• Average Room Rate (ARR) across all properties between 1st April 2003 to 31st March 2004.
• The number of employees (excluding contract) across all properties as on 31st March, 2004.
• Cumulative Net Profit/Loss (after Taxes) across all properties between 1st April 2003 to 31st March 2004.

In addition to the above, all financial statements submitted were certified by the Chartered Accountant of the nominee.

The award for the ‘Best First-Class Hotel Brand’ was evaluated on the following criteria:

• A list of the current operational hotel properties in the form of property, name, location, government star class, number of rooms and year of establishment.
• Gross revenue from operations such as room revenue, F&B revenue and other revenue. (This receipts had to pertain to only the hotel properties as listed in the Annexure and did not include receipts from other ancillary business. It pertained to the period 1st April 2003 to 31st March 2004.)
• Total available room inventory across all properties. (The total number of rooms in operation as on 31st March, 2004).
• Number of room nights sold last year across all properties between 1st April 2003 to 31st March 2004.
• Average Room Rate (ARR) across all properties between 1st April 2003 to 31st March 2004.
• The number of employees (excluding contract) across all properties as on 31st March, 2004)
• Cumulative Net Profit/Loss (after Taxes) across all properties between 1st April 2003 to 31st March 2004.

In addition to the above, all financial statements submitted were certified by the Chartered Accountant of the nominee.

The award for ‘Best Franchise Hotel Brand’ was evaluated on the following criteria:

• A list of the current operational hotel properties in the form of property, name, location, government star class, number of rooms and year of establishment.
• Gross revenue from operations such as room revenue, F&B revenue and other revenue. (This receipts had to pertain to only the hotel properties as listed in the Annexure and did not include receipts from other ancillary business. It pertained to the period 1st April 2003 to 31st March 2004.)
• The total number of room nights sold between 1st April 2003 to 31st March 2004.
• Number of room nights generated by the franchiser for their member properties in India through their systems
• The number of sales offices in India
• The number of own employees (excluding contract) for the operator in India (do not include members of the franchised properties)
• Details of their new properties. They also had to provide a list of hotel properties which have been made operational during the year 1st April 2003 to 31st March 2004. The information had to be provided in the form such as property, name, location, government star class, number of rooms and year of establishment.

In addition to the above, all financial statements submitted were certified by the Chartered Accountant of the nominee.