Spotlight

Making room for flexibility

India, the land of diversity, is also a land of extremes. For years it has attracted both the hippie wayfarer who lives on Rs 100 per day and the luxurist who shells out nearly US$ 1000 per night. The Golden Triangle at one time was literally worth gold to hoteliers. Domestic tourists, now, are making a dash to South East Asia rather than exploring their own backyard.

While hoteliers made hay while the sun shone and kept room rates as high as possible in the face of high demand, this buoyancy has now disappeared due to various factors. A telling example is a city like Bengaluru, where once-skyrocketing rates plummeted when the inventory increased and the airport moved to the city outskirts. Suddenly the travel industry is reeling under the weight of its own short sightedness as occupancies sag.

Downward spiral

R Parthiban

Mukesh Jagga

Flexibility is the key, said a Middle East based hotelier when asked why it decided to slash room rates in the face of the current economic crisis. "To fill rooms rather than hold on to rates in the face of abysmal occupancies," he added. So rates have crashed the world over. According to FHRAI, the room rates have been slashed by approximately 20 to 25 per cent over the last few months. This, with no substantial increase in occupancies. A reason being that prices have fallen to the same or to a greater extent across the world, hence not allowing a competitive advantage to India. If we are cheap, they are cheaper. According to the latest Hotel Price Index from global hotel specialist Hotels.com, the average price of a hotel room, globally, fell by 12 per cent last year (for the period October to December 2008, compared to the same period the year before). Mumbai topped the list of biggest falls in hotel prices around the world, with a drop of 41 per cent, in the wake of a sharp fall in demand for the city's hotels following the terrorist attacks.

Other cities around the world too experienced substantial declines (see table). The key question that emerges here is whether the decrease in tariff by hotels is enough to save the tourism sector?

Reasons… and excuses

Patu Keswani

Himmat Anand

Hotel development in India for decades has focused only on the luxury segment, with inns, guesthouses and local hotels left to cater to the middle segment. The concept of upscale and no-frills hotels was practically non-existent in the country till a couple of years back. "The gap between the five-stars and guesthouses in the country has always been enormous. It is only of late that the upscale and mid-market model has evolved in the country," says Patu Keswani, chairman, Lemon Tree Hotels.

Over the years, we have lost traffic to countries like Thailand, Malaysia or Singapore, primarily because of their competitive pricing. The middle-class segment, which forms a bulk of travellers in most of the countries, has remained practically untapped in India.

The glaring mismatch in demand and supply has also been a perennial reason to justify high room rates. Himmat Anand, MD of Diethelm Travel India, feels that in the past hotels have got away with this reason. "Most of the hotels in the country do not offer quality for what they charge. As compared to the neighbouring destinations, Indian hotels charge 30 to 40 per cent more. We have got away in the past because of the gap between demand and supply. But now, when the demand is down, the strength of character of the hotels will be tested."

Param Kannampilly

Rajeev Kohli

However, Param Kannampilly, chairman, Concept Hospitality, feels that hotels, alone, are not to be blamed. He explains, "Let's take a case. Leela won a bid for a plot of land in Delhi for Rs 611 crores. It will be impossible for one to break-even in a project like this unless you charge a tariff of US$300-400 per day. Hotels have no other option but to go for a high tariff, otherwise it will take ages for them to break-even." But how about those hotels that have been present for decades before the realty bubble, charging exorbitant rack rates even today?

However, the onus does not lie on the hoteliers alone. A tough visa regime, lack of tourist friendly infrastructure as other countries scramble to build man made wonders and dole out visas on arrival to visitors, and the prevailing volatile political and security situation are further hindrances.

Lost opportunities

S P Jain

Many in the trade are of the opinion that the hospitality sector did not take a strong stand on room rates, when it was the need of the hour (in December 2008, post attacks). Only after the Visit India Year was initiated, did hoteliers come together and announce cuts in rates and packages to attract inbound traffic. But, the reality is that the promotions are a case of too little too late. Rajeev Kohli, director, Creative Travels, and VP, Indian Convention Promotion Bureau (ICPB), says that hotels lost an opportunity to counter the low occupancies by not slashing the rates immediately after the attacks. "They played a wait and watch game and realised only after two months that it is imperative for them to slash the rates. However, by then it was too late as the off-season was about to begin."

The Indian Premier league (IPL) was a golden opportunity for hoteliers to cash in on the lean season- an ultimately, which withered away for no fault of the industry. SP Jain, chairman, Pride Hotels, and president, Hotel And Restaurant Association (Western India), feels that the shift of the IPL from India to South Africa will have an adverse effect on the hotel sector. “Due to the cancellation of the IPL, I foresee a further 15 to 20 per cent downfall in inbound tourism," he says.

What is the intrinsic factor that caused this heartburn? "We have a tendency to wait till the last minute and react only when our backs are against the wall. For the current off-season we started acting only in January or February. Instead, we should have put a strategy in place by September last year," says Anand. He adds, "One needs to market packages much in advance. We have a tendency to announce the packages a few days before we actually begin to offer them. A proper planning and perception is required on an immediate basis."

Visit India- a hype?

The much-hyped Visit India 2009 scheme promised attractive packages to foreign tourists visiting the country from April to December 2009. The scheme mentioned that it would provide a one night complimentary stay in the hotel that the tourist books.

Is this the panacea that can help the industry tide over this year? Most of the tour operators are far from happy with the scheme. "There is a lack of clarity in the conditions laid down in the scheme," says R Parthiban, director, Swagatam Tours. It is still not clear about which hotels will be included in the scope- more importantly, which category. Moreover, the number of rooms that a particular tour operator can book in a hotel for an international group varies in every hotel.

Also, lack of price integrity exacerbates the situation. A renowned tour operator in Mumbai who did not wish to be named, claims, "There is no consistency in the prices quoted by the hotels. Numerous hotels set artificially high rack rates on which they offer discount. It has been often observed that the discounted price offered by hotels doesn't differ much from the bargained rate prevailing in the market." Therefore, even the discounted prices do not cater to the masses. In such a scenario, occupancies are bound to suffer and the scheme might not save the tourism sector.

The hotel industry has to pull up its socks to prepare for the season ahead. According to Jain, the chief focus of the hotels should be on domestic tourists during this off-season. "It is important to please domestic tourists. We need to take a leaf out of China's booklet, where tourism has done extremely well owing primarily to domestic tourists," he says.

The new government also needs to step in to take a decisive role, rather than push the tourism ministry on the backburner. Jain adds, "We are willing to offer a further 15 to 20 per cent on tariff but for that we need active support from the Government. Even after paying high prices to acquire land, we need to obtain many licenses, which involves cost and time. The Government must smoothen the process of permissions first."

According to Kannampilly, the need of the hour is to have proper infrastructure in place. "If the Government can put proper infrastructure in place, the project costs and costs of operation will drastically come down, which will surely bring a fall in tariff," he says.

From the lessons learnt in the past six months, there is a need to sacrifice earnings in the short term for survival in the long-term. Mukesh Jagga, former president, Association of Domestic Tour Operators of India (ADTOI) and chairman of Viva Holidays Tours and Travels feels that the key is to be consistent. "The prevailing rates should be intact even during the peak season. If we go back to the same old ways in October, then both the hotels and the tour operators will lose the trust of the travellers." And it is this trust that will build a strong foundation for the future.