Feature

Giving wings to hospitality

Buoyancy is not the only commonality that the aviation and hospitality sector share. A stellar collection of industry experts believe that the two do much to complement each other, finds Bhisham Mansukhani

Indispensable to the business of travel, airlines and hotels have their prospects intertwined in more than the obvious ways. For years, until the relatively recent good run, both these capital-intensive cogs of tourism have suffered greatly from geo-political tumult outside their scope of control and have compared notes on damage control.

Today, however, they are comparing profit warnings and forecasting unabated growth. And although there is little doubt that the two sectors complement each other, the pattern and pace of hotel occupancies and development shows that aviation is spurring the growth of hospitality, which some may argue is only temporary owing to the sudden cranking up of the sector by the government, stoked by daring enterprise.

Be that as it may, the rise of hospitality is visibly following the footprints of international and domestic carriers within India and their constant capacity addition that the government has allowed in a staggered format since 2003. One tends to get the feeling that, for a change, commercial progress is finally driving government policy and the real potential of its economic landscape is the only focus with no blunt advisories dissuading travel to India; that for a change, the assurance of capacity into and within India has begun to stack up room nights for Indian hotels, or so claims the head of an international hotel company with the maximum Indian properties.

Accessibility for business

The simple problem according to Le Meridien CEO, Robert Riley, when he spoke to Express Hospitality in 2005, was accessibility - from outside and within India. "The certainty of flights into India and efficient movement within needs to precede the demand that is waiting to set in. An efficient and growing air transport service is the backbone of the hotel industry and when it is growing at the pace that it is in India, it makes hotel companies very confident. While room occupancies are up right now, there needs to be more airline capacity added to the mix to allay any fears of the downside cycle that many have been predicted," he said.

India, in recent times, has signed several new bilateral services agreements with the US, the UK, Australia, Singapore, France, China and New Zealand. And it is being soaked up just as quickly; in 2004-05, international passenger movements were recorded at 19.45 million while the domestic passenger movements were 40.09 million in the same period. These figures increased in 2005 - by 24.2 per cent and 18 per cent in the domestic and international segments respectively.

Let's then consider revenue per available room (REVPAR) from 2002 through to 2005 which encapsulates Indian hospitality's turnaround period, parallel to aviation's script. According to HVS India, the REVPAR, after taking the average for eight cities in India, increased by eight per cent, 13 per cent and 35 per cent in 2002-03, 2003-04 and 2004-05, respectively.

The current inventory of hotel rooms is expected to increase by 70 per cent within the next five years. While that might indicate a drop in REVPARs, Riley's point finds relevance in the speculation of whether that might happen or whether adequate development in aviation infrastructure may continue to free up more demand. In any case, industry analysts are forecasting a 25 per cent increase in REVPARs for Q3 2005-06.

Airports anyone?

How about those airports? Prem Subramanium, head (Tourism infrastructure) IDFC, laments, "Even though Indian aviation has never experienced such growth before, the current state of metro airports is a big let down. How can we have aircraft hovering over airports at peak hours for over 20 minutes on an average? Currently, scheduled low-cost and non-scheduled operations are consolidated at one terminal while it is the precise opposite for developed markets. If the current growth rate of 25 per cent is maintained, all of these three will suffer, presuming that airport infrastructure is not improved." He also points out that poor airport infrastructure may not only put off international tourists, but, perversely, affluent domestic travellers as well who wouldn't mind flying out to other countries in light of the plummeting international air fares. The Delhi and Mumbai airports, the largest and most advanced in the country, can handle only 30 aircraft an hour, compared with the global standard of over 75. Passenger terminals at these two airports cannot handle more than 1,000 passengers at a time while major airports around the world handle passengers many times over.

The protracted process of modernising airports through the private route was at long last finalised earlier this year. GMR-Fraport was selected for modernising the Delhi airport while GVK-South African Airports was chosen for the Mumbai one. A major plan is also afoot to develop the Thiruvananthapuram airport. The first phase of the development of 10 non-metro airports is already well underway, with Tiruchi on the list.

An 'in principle' decision has also been taken to modernise the Chennai airport through the JV route. A greenfield airport at Hyderabad is set to be operational by 2008 Q1, prompting many industry analysts to anoint the city as the new Bangalore.

Benefits, all

According to Rono Dutta, president of Air Sahara, "The Indian economy in general has never reaped the benefits of the growth and sophistication of international aviation. Its failure to mature into a hub and remain a feed provider has left it vulnerable to large international carriers that fly out and consolidate Indian passengers in their hubs, thereby denying Indian metros of crucial passenger spend and anticipatory infrastructure investments and employment perhaps to the tune of US $35 billion. All major financial centres across the world are first and foremost aviation hubs. There is no financial hub anywhere between London and Singapore and this huge economic terrain should logically belong to India."

If the scale of development that Dutta envisages were to materialise, the windfall for hotels would be an exercise in bullish guesswork. The aviation minister though goes beyond guesswork. "'By 2012, aviation promises to attract investments totaling US $30 billion,'' civil aviation minister Praful Patel said. And part of this investment will be made by hotels themselves.

According to Lalit Suri, CMD of The Grand group, "The airport is nowadays a far more attractive location for a hotel than the CBD. Airlines play a crucial role in cutting down travel time and airport hotels add to this time utility, particularly in metros. I am looking at the prospect of airport hotels in all major metros”. IHCL is building one near Mumbai's international airport as is Mars Hospitality and The Raintree Ecotel near the Chennai airport. Anil Madhok, MD, Sarovar Park Plaza and Chander K Baljee, founder and CMD, Royal Orchid Hotels have already expressed keen interest to site plots for hotel projects near other metro airports. The airline catering business is also set to receive new players, namely the Maredias. And with the aviation ministry set to develop 10 non-metro airports and incentivise their use by waiving landing charges for the same, India's budget hotel segment could get its much-needed fillip since land rates in those cities are still relatively low while the demand for room nights is seen rising.

The biggest contribution of the aviation industry to hotels, according to Subramanium, is the dispersal of traffic to tertiary cities thereby reducing concentrations in few metro cities. That, he says, will have a two-pronged benefit - of easing congestion at the gateway terminals and boost development in tertiary cities. So, India is expected to have more airports, more aircraft (500 by 2010, up from 190 in 2004) and more hotel rooms (70 per cent off current base). With such a universal theme going around, this intrinsic correlation that for years had been reason for woe, is now coming around.