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A year of hope, a year to look forward to…

The past 12 months have witnessed India's travel universe register some notable success and be dogged, if only, by the usual suspects of bureaucratic lethargy and infrastructure bottlenecks. World attention and domestic ambitions, however, promise to make 2007 a year of interesting trends and continual growth across all sectors, finds Bhisham Mansukhani

India's tourism and travel trade has never had it good. While the immense potential has stayed intact for the better part of this decade, its realisation is far from done, ensuring that India retains its tag of massive underperformer for another 12 months.

That said, the vital signs of a build up are mushrooming across sectors that come under the broad ambit of this near pervasive industry. To begin with, inbound tourism continues its steady, albeit modest, climb which although remains abysmal in context of its South and South-east Asian peers, is promising in context of the infrastructure bottlenecks the country is buffeted with. Jammu & Kashmir's slow but sure recovery to a relatively safe tourism destination figures as one of the year's biggest gains apart from a generally secure outlook of India as a long-haul destination.

Innovative campaigns with budgets to boot for individual states have also helped matters with even smaller states like Jharkhand vying for international attention. The finance minister's earnest allocations towards further road and airport development as well as the strengthening of special interest tourism - namely medical and wellness - and a nascent but certain inbound cruise tourism market promise to make 2007 a year of possibly rich harvest. The United Nations-affiliated World Tourism Organisation reported that India - with a population of 1.1 billion - is a fast growing outbound tourist market which stands to reach 50 million by 2020.

The travel agent also made considerable headway in 2006, diversifying his revenue streams and reducing his dependency on air ticket revenue. The full-fledged launch of the domestic BSP may now pave the way for an integration of domestic and international ticketing under the IATA ambit although the apex body has much to do to calm the creeping scepticism about its role in mediating issues like ADMs and commissions on fuel surcharge. Moreover, single-location agents, in spite of accreditation, have increasingly and willingly become part of consolidator networks, prompting observers to ask the core question of relevance of accreditation as an operational pre-requisite.

TAFI's landmark decision to initiate discussions to induct retail (read non-IATA) agents as affiliate members could also mark the first major attempt by the industry to align itself as a single, formidable block rather than a fragmented one. The eventual merger of the OTA in 2006 is being viewed as one of the biggest challenges for the traditional travel agent. Makemytrip.com, which rates as the country's leading OTA by a fair distance, accounted for maximum ticket sales for any agent, online or otherwise - the clearest indication so far of the assertion of this new breed of travel agent and one that is beginning to fill up with more start-ups.

Airlines, not in the least, have been keenly observing it all. Themselves keen to consolidate their online presence, they see the OTA as not just its typical route of distribution but a perpetuator of the online booking culture which they hope will someday boost their own ticket sales. They, however, needn't only focus on OTAs. SpiceJet and Air Deccan have set veritable benchmarks for website sales, proving that they can, at least for now, do without the GDS. Domestic airlines, overall, have had a mixed year which owes itself to that single yet most striking statistic of collective losses they have endured in the fiscal so far. Kingfisher Airlines alone has racked up losses of over Rs 350 crore since it took off the second half of 2005. The full service carrier (FSC) which aims to become India's leading carrier by 2010, blames ‘unrealistic pricing’ for its and the industry's profuse financial bleeding. The low-cost carriers are merely calling it free market competition.

Whatever this pricing strategy may be termed, it is being perceived as the chief culprit, fuelled further by constant capacity addition - a situation that more fleet augmentations will only exacerbate. For now, the government's intent to facelift the current airport infrastructure as well as create more of it on the presumption of an increased propensity of flight on part of the Indian domestic traveller constitute the silver lining in what is otherwise quite simply a loss-copping enterprise.

Room for more

By comparison, the one sector that has revelled in a purple patch all on its own over some two years now without relenting is the hotel industry. The artificial shortage of room supply that was created much earlier in part due to a preceding lean period and currently, land shortage has meant that ARRs remain steep purely owing to supply falling woefully short of demand during concentrated periods that are becoming longer. However, hospitality consultants expect a timeline cap on this boom in key metros, specifically Bangalore where inventory, several fold above the current base, is expected to be added. However, the timeline itself could be protracted, depending on how individual projects pan out.

The increasing interest that this sector is attracting from global, traditional and non-traditional hotel companies, however, points towards fresh waves of demand on the inbound tourism and the real estate front. The former may not necessarily be music to the travel agents' ears, as many of them have cried foul over what they term ‘excessive' pricing by hotels during seasonal peaks. Succinctly, it's been a expectantly busy 12 months, made distinct by some events that could go down as part of the defining history of one of the world's most biggest travel, hospitality and aviation markets.

A year for mixed skies

India's aviation industry has resumed its robust growth pace of 30 per cent for 2006, adding to the collective and expected fleet, frequencies, route networks, et al. They have also unfortunately, added to their individual mountains of losses, been frustrated by the blockage of international airline equity to their thinning resources and watched the rising price of oil sink any incremental revenue.

The above inference points to the oft-ran tale of mixed fortunes. But the story suddenly looks a lot better when peppered with very interesting international trends. While the first attempt at consolidation came unstuck, the second one is firmly on track and another one has just crept out of the undergrowth. Airport refurbishment and expansion has begun in earnest and more metro and tertiary city terminals are being brought into priority fold for a facelift or even greenfield projects. The low-cost carrier segment is getting the recognition it enjoys in more developed markets, already having seized more than 35 per cent market share and betraying a hint of consolidation with just four players and none in the immediate horizon, although two regional carriers have quietly entered the market in the south and north. There hasn't been a full-service carrier launched since Kingfisher more than 18 months ago and its unlikely there will be one. This clearly indicates a settling of a largely misplaced though fashionable rush to launch into civil aviation and a cognizance of the massive losses they entail. The strain of infrastructure shortfalls, however, is creating undesirable friction between the aviation ministry and private domestic carriers.

Kingfisher was the first to fire the salvo with a congestion surcharge of Rs 150 to add to a Rs 750 fuel surcharge, both of which the airline and industry in general, blame on poor infrastructure and high state taxes on ATF, respectively. The aviation ministry did not take kindly to the surcharge and while it has not directly instructed airlines to roll it back, it has been compelled yet again to face the snarl of aircraft traffic at key urban terminals.

Another interesting trend was the incipience of the Federation of Indian Airlines (FIA), although the members’ private competitive agendas have all but wrecked its sanctity with the congestion surcharge figuring as the FIA's only significant achievement thus far. While it has illustrated solidarity in approaching the Ministry of Finance for relief on withholding tax on leasing of aircraft and seeking greater transparency from the Ministry of Petroleum on ATF pricing, the poaching of pilots and timely undercutting of prices on trunk routes to enhance load factors have curiously been left out. The initial murmurs about a quasi cartel didn't bode well for the FIA either. The most notable milestone of the year, however, was the successful launch of the domestic BSP encompassing all IATA agents and prompting a minor exodus of retail agents to IATA accreditation and offering an extensive distribution network to low-cost carriers, both start-ups and existing, which they ignored. Kingfisher was the only addition to the clique of domestic carriers that had been part of the initial pilot.

Indian aviation, is however, not restricted to the low-cost carriers sector. International airlines have continually augmented capacity, including the likes of British Airways, Singapore Airlines, Lufthansa and Sri Lankan Airlines. Air India is poised to add several more long-haul flights to its network on the back of new aircraft as part of the historic 60-aircraft order it placed with Boeing. Indian is eyeing a larger international profile with the massive fleet addition it will enjoy with a similar order it cinched with Airbus. The two leading aircraft manufacturers have also respectively announced their commitments towards setting up MRO facilities, clearly provisioning the critical mass and more that this market will generate by way of aircraft orders and maintenance demand for the same. On the distribution end, airline-agent relationships remain prickly at best. While commission levels haven't touched ground zero as some controversial suggestions ran, agents allege that airlines have found a convenient way to reduce the base on which commissions are calculated by ostensibly reducing the commissionable component of the fare and recovering the same by way of surcharges.

The confrontation over Access Debit Memos (ADMs) came to a head as travel agents globally called for a review of IATA statutes pertaining to the same. The ensuing status quo has all but guaranteed that ADM disputes may see off most of next year as well. Airlines and GDS companies haven't enjoyed constant peace together either. Lufthansa put Galileo on notice by informing agents they would be liable to pay a segment fee in the event of booking their seats through the said GDS. Though the airline later deferred the decision, general airline discontent over mounting GDS cost is largely expected to manifest itself through the segment fee regime as well as a buffing up of airline portals as well as direct OTA links at negotiated rates that are far lower than those charged by the GDS. That process though, observers point will probably spill over from the current decade.

Year 2006 will stand prominent in the annals of aviation history for representing a year where domestic aviation, despite the criticism of irrational approach and mounting losses, held on to a vision of future, boundless growth, and a government standing in respectful acknowledgment of the same. It will also be the year remembered famously for the first salvo fired towards consolidation, even though it came unstuck and the immediate one after that just might stick. Media attention, too, which is viewed as a fashionably healthy sign for any industry has grown many fold this year. This has added to the increasing recognition and importance of aviation in everyday life, changing mindsets about the possibilities of shorter travel. While that realisation isn't a new one, 2006 will be remembered as one where it was extended to many more verticals as a way of life.

Incredibly well-placed

While India's inbound story is still grounded in a perpetually modest realm, at least the numbers have not receded. In fact, there have been some months that have shown some noted, exponential growth, underlining periods of unprecedented prosperity. That period specifically was April 2006 when the inbound tourist figure touched a historic 3,25,249 as compared to 2,60,825 (in 2005) and 2,23,884 (in 2004), indicating a 24.7 per cent growth over the same month in 2005.

Foreign exchange for the same month touched Rs 2127.44 crore in 2006, translating into a 28.9 per cent increase over the same returns for the month last year. Total India inbound until August 2006 touched 2,785,328. Recent history too has indicated that India inbound has registered a growth of 26.8 per cent in 2004 and 13.2 per cent in 2005, taking India's tourist arrivals from 2.73 million in 2003 to 3.92 million in 2005, indicating a robust growth of 43.6 per cent in the period 2003-2005. Foreign exchange earnings from tourism have also shown phenomenal growth, achieving an increase of 35 per cent in 2004 and 20 per cent in 2005 over the previous year (in dollar terms), taking India's foreign exchange earnings from US $3.5 billion in 2003 to US $5.7 billion in 2005.

World Travel & Tourism Council has estimated that demand for India tourism will grow annually at 8.8 per cent over the next decade, which will be the highest in the world. Revival of tourism in J&K has been taken up as one of the top priorities of the government and it has announced special packages for this. A number of projects have also been declared at a total cost of Rs 279.50 crore, which include setting up of 50 tourist villages, financial support to 12 tourism authorities, and establishing a new tourism circuit (covering Lakhanpur-Basoli-Bani-Bhaderwah-Kishtwar-Sinthan-Srinagar). It also includes assistance to travel agents for marketing, training in tourism industry and developing skills of youths for employment in the tourism industry. In view of the huge development potential of tourism, 71 rural tourism projects have been sanctioned to spread tourism and its socio-economic benefits to identified rural sites having tourism potential.

In order to meet the rising demand of accommodation due to increased growth in tourist arrivals, the department of tourism brought out guidelines for classification of apartment hotels, time share resorts and guest houses. The department also sanctioned capital subsidy for 21 budget category hotels and interest subsidy for 160 budget category hotels during the last two years. In all, 276 hotels in different categories were classified and 230 hotels were re-classified. Approval was granted for 109 hotel projects with 7, 206 rooms. In addition, 23 foreign technical collaboration in the hotel industry and nine cases of foreign investments were cleared.

Initiatives have been launched to promote medical tourism, in partnership with the private sector, to make India a global healthcare destination. The accreditation norms, price banding for identified hospitals and identified specialised medical services along with a list of hospitals, which could be used for health tourism purposes have been prepared by Indian Healthcare Federation, an NGO affiliated to CII, on advice of the government. A new category of visa - medical visa - has been introduced, which can be given for specific purpose to foreign tourists coming to India for medical treatment.

Cruise tourism is emerging as a fast-growing sector globally with huge spin-offs because it generates large-scale business in all areas of the travel trade. A draft concept and policy has been drawn up to make India an attractive cruise tourism destination with state-of-the-art infrastructural and other facilities at various ports and to achieve a target of six lakh cruise passengers per year by the end of 2010. Star Cruises has launched its operation in India due to proactive policy of the government to promote cruise tourism and norms and standards to be followed by land, air and water-based adventure activities for tourism have been developed.

Tourism infrastructure development projects worth Rs 984.81 crore were sanctioned for 570 tourism projects in states across India. The scheme of promoting public-private partnership for large revenue generating tourism projects has been finalised. Major thrust has been given for tourism infrastructure development in North-east, including Sikkim, with 82 projects amounting to Rs 193.71 crore sanctioned with the objective of developing it as a sustainable destination with community participation. Infrastructure upgradation of Buddhist circuits has been taken up in a big way through identification of 22 important Buddhist sites throughout the country. The government has sanctioned 14 projects amounting to Rs 57.22 crore for development of tourism infrastructure in 12 sites. Atithi Devo Bhavah - a nationwide campaign aimed at sensitising key stakeholders towards tourists, through a process of training and orientation was launched. It re-instilled a sense of responsibility towards tourists and re-enforced the confidence of the foreign tourist towards India as a preferred holiday destination.

The Incredible India campaign was given a new dimension with the 'Colors of India' and 'Wellness Campaign' in global markets, which made its impact through growth of 26.8 per cent in tourist arrivals and 31.5 per cent in foreign exchange earnings. This campaign also went on to win several awards internationally. Union minister for tourism and culture, Ambika Soni, recently launched the ‘Incredible India Bed & Breakfast Scheme' to augment the availability of rooms for tourists. Under the scheme, house owners can offer up to five rooms or 10 beds with working space, air-conditioning facilities as well as attached western toilets.

The Ministry of Tourism has worked out specific proposals, which have been forwarded to the Ministry of Surface Transport for upgradation of roads to world heritage, Buddhist heritage and key tourism sites. Fifteen key destinations have also been identified for connectivity through the widening and upgradation of existing roads. The ministry has also requested the Ministry of Railways to look into the possibilities of introducing tourist trains in public-private partnership to connect the identified circuits and destinations. While all of this will take an endearing level of optimism and conviction to translate all the afore-mentioned efforts into actual results, the sheer attention and priority that Brand India is receiving from its own custodians - the kind that was never even foreseen by the predecessors of the current powers-that-be - indicate that Indian inbound will inevitably continue to gather momentum.

The great Indian hotel boom

In the words of a thorough visionary, late Lalit Suri, 'If you are in the hotel business, India is the place to be in right now'. Indeed, India has caught everyone's attention, more specifically its hospitality and tourism industries. While 2005 saw a steady upward climb, this year the performance of Indian hotels seemed to remain at a consistent high. Occupancies soared and room rates broke unheard of records across Indian cities. While the impractically high room rates didn't go down well with the doomsday advocates, hotel companies themselves paid a deaf ear to all future predictions and consequences, lapping on the philosophy of 'make hay while the sun shines'.

Investors in the Indian market turned more bullish, especially with the entry of non-traditional hotel players like real estate and pharmaceuticals companies. Year 2006 also saw the appearance of big guns from the Middle East like Emaar, Kingdom Hotel Investments, Al Rostamani Group and, Al Ghurair Group in India. Also, international fund companies like Blackstone, Morgan Stanley, Sun Apollo, Walton Street Capital, Starwood Capital, Merrill Lynch, Westbridge Capital and Dawnay, Day Group solidified their interest in the hotel sector. Their approach, like the Middle East companies, has been to tie up with Indian real estate developers. And Indian companies both traditional hotel companies and real estate companies with hotel portfolios latched on to the much-needed fund with mere offloading of equity in some cases and joint ventures in most. All this being possible on account of the proactive stance taken by the central government in relaxing the norms stipulated for FDI into the real estate sector.

Taking cue from the overseas fund houses' optimistic attitude towards investments in India, international hotel companies like InterContinental, Accor, Starwood and Movenpick have also shed their inhibitions about investing in the Indian market, and are doing so with nearly 26 per cent of the total project costs on certain hotel projects.

Interestingly, while the leisure hotel segment coupled with mixed-use development concepts has been making all the noise in the Indian hotel segment in terms of attractive money flowing, the budget segment (better known as the no-frills segment) has garnered much interest. However, its growth seems stunted on account of the buoyant real estate market with land prices going through the roof, making this much-needed concept a near impossible prospect.

While concepts like service apartments, spa hotels and boutique hotels were the talk of the industry in the past year, the mall boom was really the cream on the cake as it provided fuel for the growing restaurant sector in India. This phenomenon though was not only in major cities but secondary cities as well. Pundits predict that the great Indian mall boom has arrived and it's bustling with activity both in metros and two-tier cities. Estimates indicate that over 280 malls are expected to come across the country by the end of 2006, a number expected to more than double by 2010, according to a recent survey conducted by KSA Technopak which predicts India to be home to up to 600 malls. While 'Mall-O-Tels' will certainly be on the rise, more and more restaurants have mushroomed across the country on account of the mall boom. Another interesting progression in the last year has been the marriage between hospitals and hotels. Companies that have been focusing on developing hospitals in India have also, on the parallel, opted to set up hotels. Still nascent though, the burgeoning medical tourism market in India has given rise to a new concept in the hospitality business, literally termed 'hospitel'.

So, going by all the trends and the level of momentum that each vertical has, in its own right, generated, 2007 may just be the year when it may all come together for India's tourism and travel sector. While that used to be a courteous assumption at the end of each calendar year, preceding this one, a combination of consistent growth in peaceful times, relentless enterprise and an overall favourable economic climate that isn't about to relent any time soon, have all positively conspired to make the prospect of 2007, the most hopeful since those heady days of liberation, same time, last decade. And this time, all the effort might just come good.