26045363 indian hotel industry analysis

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CHAPTER - 1

INTRODUCTION

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1.1 History & Evolution

The hotel industry that exists today can be traced back to 3000 B.C. where the

earliest inns were homes with rooms provided for travelers. Conditions improved in

1700s England when the renaissance sparked the desire to travel. The United States saw

its hotel industry created a century later. By this time they had revolutionized many

firsts in the industry including private rooms with locks and doors, free soap, a trained

staff, and a pitcher of water in each room. Indoor plumbing and the creation of the lobby

followed shortly thereafter. The business of providing strangers with hospitable means

has come along way. What once was a service to fellow man is now the foundation

numerous economies throughout the world.The modern era of the hotel industry saw its beginnings in 1794 New York where

the first ever hotel was built. Profit potential was recognized with the inception of the

industrial revolution. Stock companies invested in hotels seeking profit from property

value appreciation and room occupancy revenue. Surrounding communities were

promised increase in sales by means of higher volume of people passing through., the

industry creates a multitude of opportunities that now saturate the industry in the form

of spin-offs of these top four hotel companies creating the most common chains we know

of today. History has proven that the success of this industry has largely to do with two

factors, location and innovative integration, the combination of these two has created a

margin between the larger chains and those who operate on a smaller scale. Soap and

locks on doors were the innovation for their day. Strategic placement and product

differentiation once again guide the success of this industry.

The word hotel is derived from the French htel (coming from hte meaning

host), which referred to a French version of a townhouse or any other building seeingfrequent visitors, rather than a place offering accommodation. A hotel is an

establishment that provides paid lodging on a short-term basis.

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The provision of basic accommodation, in times past, consisting only of a

room with a bed, a cupboard, a small table and a washstand has largely been replaced by

rooms with modern facilities, including en-suite bathrooms and air conditioning or

climate control. Additional common features found in hotel rooms are a telephone, an

alarm clock, a television, and Internet connectivity; snack foods and drinks may be

supplied in a mini-bar, and facilities for making hot drinks. Larger hotels may provide a

number of additional guest facilities such as a restaurant, a swimming pool or childcare,

and have conference and social function services. Some hotels offer meals as part of a

room and board arrangement.

Hotel Industry in India has witnessed tremendous boom in recent years.

Hotel Industry is inextricably linked to the tourism industry and the Growth in the

Indian tourism industry has fuelled the growth of Indian Hotel industry. The thriving

economy and increased business Opportunities in India have acted as a boon for Indian

hotel industry. The Arrival of low cost airlines and the associated price wars have given

domestic tourists a host of options.

The 'Incredible India'destination campaign and the recently launched'Atithi Devo Bhavah' (ADB) campaignhave also helped in the growth of domestic and

international tourism and consequently the hotel industry. According to a report, Hotel

Industry in India currently has supply of 110,000 rooms and there is a shortage of

150,000 rooms fuelling hotel room rates across India. According to estimates demand is

going to exceed supply by at least 100% over the next 2 years. The future scenario of

Indian hotel industry looks extremely rosy. It is expected that the budget and mid-

market hotel segment will witness huge growth and expansion while the luxury segment

will continue to perform extremely well over the next few years.

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1.2 List of players in the industry

Taj Group

Inter Continental

Le Meridien Group of Hotels

Oberoi Group of Hotels

The Park Group of Hotels

Welcome Heritage Group of Hotels

ITC Welcome group of Hotels

1.3 Categorization of players in the industry

Based on location

City center: Generally located in the heart of city within a short distance from

business center, shopping arcade. Rates are normally high due to their location

advantages. They have high traffic on weekdays and the occupancy is generally

high.

Motels: They are located primarily on highways, they provide lodging to highway

travelers and also provide ample parking space. The length of stay is usually

overnight.

Suburban hotels: They are located in suburban areas, it generally have high traffic

on weekend. It is ideal for budget travelers. In this type of hotel rates are

moderately low.

Airport hotels: These hotels are set up near by the airport. They have transit guest

who stay over between flights.

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Resort hotels: They are also termed as health resort or beach hill resort and so

depending on their position and location. They cater a person who wants to relax,

enjoy themselves at hill station. Most resort work to full capacity during peak

season. Sales and revenue fluctuate from season to season.

Floating hotels: As name implies these hotels are established on luxury liners or

ship. It is located on river, sea or big lakes. In cruise ships, rooms are generally

small and all furniture is fixed down. It has long stay guest.

Boatels: A house boat hotels is referred as boatels. The shikaras of Kashmir and

kettuvallam of kerala are houseboats in India which offers luxurious

accommodation to travelers.

Rotels : These novel variants are hotel on wheel. Our very own "palace on wheels"

and "Deccan Odessey" are trains providing a luxurious hotel atmosphere. Their

interior is done like hotel room. They are normally used by small group of

travelers.

Based on Size of Property

The main yardstick for the categorization of hotel is by size the number of rooms

available in the hotel.

Small hotel: hotel with 100 rooms and less may be termed as small hotels.

Medium sized hotel: hotel which has 100-300 rooms is known as medium sized

hotel.

Large hotels: hotel which have more than 300 rooms are termed as large hotels.

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Mega hotels: are those hotels with more than 1000 rooms.

Chain hotels: these are the groups that have hotels in much number of locations in

India and international venues.

Based on the Level of Service

Hotels may be classified into economy, and luxury hotels on the basis of the level of

service they offer.

Economy/ Budget hotels: These hotels meet the basic need of the guest by

providing comfortable and clean room for a comfortable stay.

Mid market hotels: It is suite hotel that offers small living room with appropriate

furniture and small bed room with king sized bed.

Luxury hotels: These offer world class service providing restaurant and lounges,

concierge service, meeting rooms, dinning facilities. Bath linen is provided to the

guest and is replaced accordingly. These guest rooms contains furnishing, artwork

etc. prime market for these hotels are celebrities, business executives and high ranking

political figures. Example: Hyatt Regency, New Delhi

Based on the Length of Stay

Hotel can be classified into transient, residential and semi residential hotels depending

on the stay of a guest.

Transient Hotel: These are the hotel where guest stays for a day or even less, they

are usually five star hotels. The occupancy rate is usually very high. These hotels

are situated near airport.

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Residential hotels: These are the hotel where guest can stay for a minimum period

of one month and up to a year. The rent can be paid on monthly or quarterly basis.

They provide sitting room, bed room and kitchenette.

Semi residential hotels: These hotels incorporate features of both transient and

residential hotel.

Based on Theme

Depending on theme hotel may be classified into Heritage hotels, Ecotels, Boutique

hotels and Spas.

Heritage hotel: In this hotel a guest is graciously welcomed, offered room that

have their own history, serve traditional cuisine and are entertained by folk artist.

These hotels put their best efforts to give the glimpse of their region. Example: Jai

Mahal palace in Jaipur.

Ecotels : these are environment friendly hotels these hotel use eco friendly items in

the room. Example: Orchid Mumbai is Asia first and most popular five star Ecotels.

Boutique hotels: This hotel provides exceptional accommodation, furniture in a

themed and stylish manner and caters to corporate travelers. Example: In India the

park Bangalore is a boutique hotel.

Spas: is a resort which provide therapeutic bath and massage along with other

features of luxury hotels in India Ananda spa in Himalaya are the most popular

Spa.

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Based on Target Market

Commercial hotel: They are situated in the heart of the city in busy commercialareas so as to get good and high business. They cater mostly businessmen.

Convention hotels: These hotels have large convention complex and cater to

people attending a convention, conference

Resort hotels : These leisure hotels are mainly for vacationers who want to relax

and enjoy with their family. The occupancy varies as per season. The atmosphere is

more relaxed. These are spread out in vast areas so many resorts have solar

powered carts for the transport of guest.

Suite hotels: These hotel offer rooms that may include compact kitchenette. They

cater to people who are relocating act as like lawyers, executives who are away

from home for a long business stay.

Casino hotels: Hotel with predominantly gambling facilities comes under this

category, they have guest room and food and operation too. These hotels tend to

cater leisure and vacation travelers. Gambling activities at some casino hotels

operate 24 hours a day and 365 days.

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1.4 Brief profile of players in the Industry

Best Hotel Chains Of India

Mentioned below are the significant hotel chains of India,

Taj Group of hotels in India: The most popular name that is almost synonymous to

hospitality in India is that of the Taj Group. Offering the best hotels across various

genres like business hotels, heritage resorts, luxury hotels and even sea resorts, the Taj

Group is definitely the best in the field.

The Oberoi Group of Hotels in India: One of the most prominent names among the hotel

chains of India is the Oberoi Group. It also owns several properties in exotic places like

Australia and Mauritius. With its world class facilities and efficient staff to manage and

play the perfect Indian hosts, the Oberoi hotels is no doubt a great feather on the grand

cap of tourism in India.

Le Meridien Group of Hotels: The Le Meridien Group of Hotels has played an

instrumental role in playing the perfect host to the millions of tourists and guests coming

here. It is a luxury brand of great fame and reflects the inherent Le Meridien touch of

elegance and class through all its properties in India. It is no wonder one of the exclusive

hotel chains of India.

Best Western Group: A world famous name when it comes to hospitality and service, the

Best Western Group owns several properties across India. Each of the hotels has been

equipped with numerous features to enable a cozy comfortable stay to the guest.

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CHAPTER - 2

PRODUCT LINES AND CONSUMER BEHAVIOUR

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2.1 Products

Rooms : The rooms in hotels are based on the Category of the hotel. The facilities in the

rooms are based on the type of hotel and price of the rooms are based on the type and

facilities provided in the room.

Conference Rooms: The conference rooms are provided by hotels for the meetings and

other requirements as per the request by the customers. The price depends on the

facilities, space and time utilized.

Banquets & Halls: Banquet halls are provided by hotels for parties and functions. These

halls provide extra revenue for the hotels.

Restaurants & Bar : Along with the rooms hotels provide restaurants and bars which

are charged separately. This adds revenue as well as a facility for the customers who are

staying in hotels.

Recreation facility

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2.2 Product Description

There are several types of rooms provided by the hotels based on their category. Few

types of rooms are explained below

STANDARD: This category usually means the most basic room type offered by the hotel.

It has basic, standard amenities and furnishings. Standard rooms in hotels with higher

categories often have no view or have a poor view over the dumpster or parking lot.

MODERATE: Usually a slight bit better than standard, but still not deluxe. It may refer

to the room view as well as the size and type of furnishings offered.

SUPERIOR: This category is always subject to interpretation. It's supposed to mean

superior to a standard room in both size and furnishings, but it often refers to just the

view. Some hotels have only Superior rooms; the categories then are defined by the view

and location of the room.

DELUXE: These rooms are supposed to be Deluxe in every way: View, location,furnishings and size.

JUNIOR SUITE: A "junior" suite is typically a larger room with a separate seating

area. Sometimes it's got a small divider between the part of the room that the bed is in

and the seating area, but it is not two separate rooms.

SUITE: A Suite is usually two or more rooms clearly defined; a bedroom and a living or

sitting room, with a door that closes between them. Many hotels use the word "suite" to

define any room with a sofa in it so be sure to check thoroughly if what you really want

are the two or more separate rooms.

STUDIO : This is usually configured like a Junior Suite, but has the added advantage of

a "kitchenette," or cooking facilities

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2.3 Complimentary Products

Swimming pool, , Fitness Centre

Meeting Rooms, Business Centre

Complimentary High Speed Internet, Free Local Calls

Superstar Hot Continental Breakfast, Complimentary morning newspaper

Guest Laundry, Dry Cleaning

Coffee/tea Maker, Mini fridge, Microwave

Complimentary Valet Parking

Wake Up Service

Bike rental at the reception desk

Fitness centre

Tenis court

Beauty parlour Lucie: lifting cure, regeneration cure, manicure, pedicure

Hairdresser

Private car park on the hotel premises

Travel agent

Air port pick up and drop

Guide facilities

Banquit halls

Meeting rooms

Swimming pools

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2.4 Substitutes

Friends or relative houses,

Youth hostels,

Paying guests

Dormitories

Resorts Motels

Lounges in airports, railway stations, bus shelters.

Private guest houses and R&B guest houses

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CHAPTER - 3

GROWTH OF THE INDUSTRY

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3.1 Rate of Growth

According to a report, Hotel Industry in India currently has supply of

10,000 rooms and there is a shortage of 150,000 rooms fuelling hotel room rates across

India. According to estimates demand is going to exceed supply by at least 100% over

the next 2 years. Five-star hotels in metro cities allot same room, more than once a day to

different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage.

With demand-supply disparity, hotel rates in India are likely to rise by 25% annually

and occupancy by 80%, over the next two years. This will affect the competitiveness of

India as a cost-effective tourist destination. To overcome, this shortage Indian hotel

industry is adding about 60,000 quality rooms, currently in different stages of planning

and development, which should be ready by 2012. Hotel Industry in India is also set to

get a fillip with Delhi hosting 2010 Commonwealth Games. The future scenario of Indian

hotel industry looks extremely rosy. It is expected that the budget and mid-market hotel

segment will witness huge growth and expansion while the luxury segment will continue

to perform extremely well over the next few years.

The hotel industry in India is going through an interesting phase. One of the

major reasons for the increase in demand for hotel rooms in the country is the boom inthe overall economy and high growth in sectors like information technology, telecom,

retail and real estate.

Rising stock market and new business opportunities are also attracting hordes

of foreign investors and international corporate travelers to look for business

opportunities in the country. The arrival of low cost airlines and the associated price

wars have given domestic tourists a host of options. The opening up of the aviation

industry in India has led the way for exciting opportunities for the hotel industry as it

relies on airlines to transport 80% of international arrivals.

Moreover, the governments decision to substantially upgrade 28 regional airports

in smaller towns and privatization and expansion of Delhi and Mumbai airport will

improve the business prospects of hotel industry in India. Substantial investment in

tourism infrastructure is essential for Indian hotel industry to achieve its potential.

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The upgrading of national highway connecting various parts of India has

opened new avenues for the development of budget hotels here. The Government of

Indias Incredible India destination campaign and the Atithi Devo Bhavah campaign

have also helped the growth of domestic and international tourism and consequently the

hotel industry.

In order to increase the stock of hotel rooms, the Federation of Hotel and

Restaurant Associations of India suggested to the government that the floor area ration

of the existing hotels should be increased. This was a couple of years before and will help

create additional rooms in the existing properties and ease the burden of shortage of

hotel rooms in the country. The proposal is yet to be implemented.

3.2 Pattern of Growth (Seasonal & cyclic)

Pattern of growth in hotel industry is both seasonal and cyclical as

hotel industry is inter related and based on the tourism industry. As the industry is

related and run on the demand based on the location in some regions like historicalplaces and business centers (ex: Delhi, Hyderabad, Tirupathi, etc) the demand for the

hotels are cyclical and for few places the demand is seasonal. Seasonal demand is depend

on the climate and location (ex: beaches in India are mostly visited in summer because of

climate and vacations)

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3.3 Growth Determinants

Location

Location is a critical consideration because if affects hotels ability to draw

customers. It is important that hotel location be visible, accessible, convenient and

attractive to market. Surrounding land uses are important for all types of lodging

operations. Aesthetics of the area, noise, safety and other factors should be considered.

Commercial Locations

By location along major highways or in business or industrial districts,

hotels and motels benefit from high visibility and proximity to generators of room night

demand. Local colleges, hospitals, attractions, services and entertainment are examples

of room night demand generators.

Resort Locations

Hotels and motels in resort areas generate most of their business form

leisure travelers who see the lodging facility and surrounds area as their destination.

Access and visibility, while important, are secondary to the quality of the facility,

services, amenities, and nearby attractions.

Local Market Area

A lodging facility must be located in a market area that attracts overnight

visitors.

Business Climate

Hotels and motels that primarily serve business travelers usually rely on

the strength of the local business community.

Tourism Activity

Hotels and motels in resort areas typically rely on local attractions to

bring in customers. Attractions can include both natural and man-made places of

interest.

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Business Travelers:

Business travelers represent a large portion of lodging demand in many

market areas. They include people traveling on business representing commercial,

industrial and governmental organizations. Peak business demand is usually experienced

Monday through Thursday nights.

Leisure Travelers:

Leisure travelers may visit an area for a vacation, to attend sporting or

social events, to shop, or to visit friends and relatives. They might be staying over simply

because they are traveling to other destinations. Leisure travelers may be individuals,

couples, families, or small groups. Travelers visiting hospitals and universities are

typically included in this market segment. Leisure room demand is often seasonal. In

larger, more urban market areas, leisure room demand may be limited to weekends,

summer months and holiday periods.

Other Travelers:Various lodging customers cannot be classified under the categories of

business, leisure, or group. These travelers may include construction workers, truckers,

utility crews and others.

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CHAPTER - 4

TECHNOLOGY OF PRODUCTION AND

DISTRIBUTION

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4.1 Cost structure

SOURCE OF FINANCE

The source of finance available to a hotel development is similar to those

available to real estate developers of others kind of project. The following are usual

method of rising finance for the hotel Industries:-

1. Share capital

2. Preference share capital

3. Equity share capital

4. Borrowed capital

5. Debenture

6. Mortgage

7. Loan from commercial bank

8. Loan from financial institution

9. Trade debt- credit guaranteed by supplier

10. Inter company loans

11. Provision for taxation

12. Public fixed deposit13. IPO

FUND ALLOCATION FOR THE PROJECT

Hotel industries displays an investment characteristic with Distinguishes

it for other industries. The industry can be classified as one among those which are

highly capital intensive. Most of the Hotel represented by land, building, furniture

furnishing and Equipment. A study of the balance sheet of the leading hotel companies

shows that bulk capital is 90%.

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A hotel project requires money under the following heads:

1. Cost of land and building

2. Cost of civil works

3. Cost of electrics installation and fixtures

4. Cost of sanitary work and fixtures

5. Cost of furniture fixture and fitting

6. Cost of carpet

7. Cost of providing facilities like air-conditioning, boilers, water treatment plant,

filtration plant, water pump, drainage system.

8. Cost of providing swimming pool, land scaping, land development,

9. Shopping arcade.

10. Cost of kitchen ware.

11. Cost of manpower

12. Misllinious cost

4.2 Economies of Scale

The hotel industry enjoys the economies of scale based on the occupancy

rate. When the occupancy rate is high the hotels enjoy the economies of labor and fixed

cost is distributed over large number of rooms effecting in the increase of the revenue

and the various other costs like maintenance will remain same what ever the occupancy,

if the occupancy is high the expenses are distributed occupied rooms resulting in the

increase of revenue. Other than the savings in cost many hotels charge 24hours rent on

rooms used for night halts (i.e. is for 8 to 10 hours) thus enjoying the chance to rent same

room to other customers for 24 hours.

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4.3 Economies of Scope

Opportunities for the Indian hotel sector continue to be in the budget and

mid-market segment. Anticipation for huge growth and expansion, in the next year or

two. The luxury segment is set to perform extremely well over the next few years until

the supply- demand gap is bridged.

New opportunities lie in the extended stay segment, which many potential

developers are currently shying away from. . Agra, while having seen highest

improvement, has still a long way to go (citywide occupancy 47%). There also some

unfinished hotel projects in Agra, which will continue to put pressure on the citys

performance. As regards Jaipur, the recent announcement by a major IT company to set

up a base outside Jaipur, as well as the state governments initiative to promote IT-

related activity in the city, means that Jaipur can look forward to some additional room

night demand from the business segment. These developments in the leisure segment

including the strong performance in Goa leads to believe that the leisure segment is

clearly benefiting from the increase in foreign tourist arrivals and growth in domestic

travel.

Hotels in metro cities, with an average rate of Rs 2,600-3,000, and hotels in

non-metro cities, with an average rate of Rs 1,800-2,400, are likely to experience rapid

growth in demand in the next year or two. Cities to watch out for, in terms of

development opportunity, are Pune, Goa, and certain pockets in major cities like Delhi

(west) and Mumbai (mill lands).

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4.4 Labour

Department of Hotels that are available for guest 24 X 7:-

Hotel Industry Kitchen/ Food Production: Kitchen & food production is a department of

hotel that responsible for food . Even hotels having Coffee Shop provides 24 hour

services to the guest.

Hotel Industry Engineering:- If any problems come in room, bulb fuse, A/C not

working , then need to contact Hotel Engineers, they are also available 24 hours.

Hotel Industry Front desk:- Front desk is 1st impression on guest, if guest like this

section then only he will go for other option like restaurant, laundry, etc. Front desk

consists of young and energetic staff who is always (24 x 7) be there to help guest, they

are also responsible for Business Centre, Internet Access. Front office desk responsible

for making C-Form for Foreigner Clients, providing safety lockers to the guest. Taking

Reservation by Telephone, E-Mails, and Fax from the guest. Also providing guest MoneyExchange Services.

Hotel Industry Housekeeping:- Housekeeping are available 24 X 7 for guest, making

their bedroom, bathroom, etc. Providing guest Laundry services also do day to day room

cleaning for guests.

Hotel Industry Food & Beverage Service:- They include providing guest the services

whether in rooms, Restaurants or Banquets, or in Conference rooms.

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Hotel Industry Travel Desk:- They are responsible for arranging day to day travels for

the guest. They also do the ticket confirmation work, and also provides the information

for sightseeing to the guests.

Gym/ Health Club/ Sports:- Medium and large hotels are providing Gyms, Swimming

Pool, Health Club, Beauty Parlor, Saloon, games like Billiards, Pool, etc facilities to their

guests. Most of the Hotels are providing these facilities complimentary with the rooms.

Parking/ Shops:- Few Star hotels providing big parking space, shops in the restaurant

itself for the guest conveyance, so that they can get the things in hotel itself.

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CHAPTER - 5

MARKETING

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5.1 Market Sgmentation

Hotels in India are broadly classified into 7 categories (five star deluxe,

five-star, four star, three star, two star, and one-star and heritage hotels) by the Ministryof Tourism, Government of India, based on the general features and facilities offered.

The ratings are reviewed every five years. As of December 2005 (latest available figure)

there are following number and category of hotels.

Star Category No. of Hotels No. of Rooms

5-star Deluxe 82 18764

5-star 92 11332

4-star 132 9401

3-star 704 31039

2-star 587 19031

1-star 212 695

Heritage 83 2216

To be 50 5127

Total 1934 103973

Source: Ministry of Tourism, Government of India

The table excludes hotels in the unorganized sector that have a significant

presence across the country and cater primarily to economy tourists. Premium and

Luxury Segment this segment comprises the high-end 5-star deluxe and 5-star hotels,

which mainly cater to the business and up market foreign leisure travelers and offer a

high quality and range of services. The segment accounted for 29per cent of the total

hotel rooms in the country in December 2005.

Mid-Market Segment

This segment comprises 3 and 4 star hotels, which cater to the average foreign

and domestic leisure travelers. This segment also caters to the middle level business

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travelers since it offers most of the essential services of luxury hotels without the high

costs since the tax component of this segment is lower compared with the premium

segment.

Budget Segment

These comprise 1 and 2 star hotels referred to as Budget Hotels. These

categories do not offer as many facilities as the other segments but provide inexpensive

accommodation to the highly price-conscious segment of the domestic and foreign leisure

travelers.

Heritage Hotels

In the past four decades, certain architecturally distinctive properties such as

palaces and Forts, built prior to 1950, have been converted into hotels. The Ministry of

Tourism has classified these hotels as heritage hotels.

Others

At any point in time, applications for classification are usually pending with

the Ministry of Tourism because of which such properties remain unclassified. The

number of hotel rooms pending classification has declined from historical 15-20per centto 5per cent of the total rooms available in the recent past.

5.2 Market Strategies

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Branding

During the 1980s, the hotel industry saw an explosion of new brands, , Market

segmentation has served as one of the most powerful drivers in the creation of more and

more branded products a trend that became a popular marketing concept in the 198Os

and remains so today. Seen as a vehicle for growth by a number of hotel companies that

tapped a virtually limitless supply of capital in those years. Large hotel chains assumed

that they could create new markets by establishing niche products in a variety of

segments. With the benefit of hindsight, however, some hotel chains that started out in a

mid-market segment have tried to move up-market by creating new brand concepts to

do so. As hotel companies fine-tune their identities, reposition their products and

promote growth through aggressive franchising programs.

Technology

In the hospitality industry, as in all arenas of commerce, technology

represents one of the strongest forces for change, while having had a significant impact

on brand marketing. Hotel reservation systems have been shifting from voice to

electronic Global Distribution Systems and are now on the verge of consumer access via

the Internet. The increasing role played by the Internet should slowly affect booking

patterns in the future as inexpensive consumer access to hotel product becomes

available. This, of course, has potential implications for the benefits associated with the

branding of hospitality products..

5.3 Market practices

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PRICING STRATEGIES

One of the single greatest challenges facing independent hotels today is

pricing. Pricing the inventory effectively can lead to profitability and helps lay the

foundation for long term success. But, pricing the inventory ineffectively can lead to

disaster. During the last decade; two simultaneous factors impacted the market place

and customer buying practices: (1) the dramatic drop in demand (2) and the widespread

use of the Internet for booking rooms. Capitalizing on this situation, third party Internet

companies seized the opportunity to grow their businesses. Hotels were eager to work

with them, and customers were eager to use them as confidence and security in buying

goods and services on-line increased.

Rack Rates : Without any affiliations to warrant discounts, the Rack Rated

customer paid the published rate, which was the highest rate.

Consortia Rates : This was the same customer who booked through a travel agent

using the GDS and received a 5%-10% discount off Rack Rates.

Corporate Rates : Having met the hotels qualifying criteria, such as volume,

businesses were guaranteed discounted rates.

Group Rates : With a block of rooms, rates varied based on time of year and the

nature of the group.

Weekend Rates : Individual leisure travelers, usually within a drive distance to the

hotel.

Promotional rates : These rates were originally used sparingly and used as a

means to stimulate business by using discounted rates to anyone, regardless of

affiliation.

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Service Innovation

Hotel industry is continuously using the concept of technology to develop its

image and occupancy ratio. Though the hotel industry is a service industry it is

continuously innovating the way the services are provided. Many hotels have a category

of rooms which are different in the space and facilities each one having their own

specialties and range of price. Hoteliers are now running their business according to the

taste and preferences of the customers continuous feed back from the customers are

helping the management to innovate in the services provided by the. Few hotels are

providing an services in their unique way to get into moonlight. Offering special services

respecting the customers traditions and customs and providing the service in their way

is new innovation to attract the customers.

Technological Innovation

The advent of the Internet has opened up many avenues for the hotel

industry, most importantly the ability to book clients. Most if not all of the hotel chains

offer some sort of online reservation enabling the hotel management and staff to focus

their efforts in a variety of different places. It is reported that 25 percent of all

reservations are made online making it a key tool in room occupancy fulfillment. Inaddition to room booking, most hotel chains today utilize the Internet by offering online

deals and major advertising campaigns. Electronic advertisement accompanied with the

ability to make reservations online has made the Internet tremendously valuable.

Adapting to e-commerce transitions such as the implementation multi-purpose computer

software are necessary to cater to the clientele of the next generation. A higher

understanding of market needs will ensure a larger portion of it.

Information processing management is another key element that has contributed

to hotel industry success. Understanding and acting on the needs of clientele will lure

travelers away from competitors. Again, most if not all hotel chains today are utilizing

some sort of customer pattern tracking. Complete client pleasure is dependent upon

what you can offer differently from the other guy. The color of the sheets, the position of

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an ice machine, the softness of toilet paper; targeting the very core needs of clientele

means they will return to what they are comfortable with.

CHAPTER - 7

STRATEGIES AND COMPETITION IN THE

INDUSTRY

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7.1 Internal Rivalry

The degrees of internal rivalry consist of competitors in the hotel industry that

differentiates their strengths, cost, product offering, and positioning within the industry.

In the hotel industry there is a lot of competition that takes place between different

providers. Each company finds their strengths and does everything in their power to be

acknowledged by the customer. Once they uncover how they can serve their consumers

better than leading competitors they position themselves in the industry that better

serves the consumers.

7.2 SWOT Analysis

STRENGTHS

A very wide variety of hotels is present in the country.

There are international players in the market such as Taj and Oberoi &

International Chains

A manpower cost in the Indian hotel industry is one of the lowest in the world.

India offers a readymade tourist destination with the resources

Natural and cultural diversity

Demand-supply gap

Government support

WEAKNESSES

The cost of land in India is high at 50% of total project cost as against 15%

abroad.

The hotel industry in India is heavily staffed.

High tax structure in the industry makes the industry worse off than its

international.

Only 97,000 hotel rooms are available in India today.

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Only limited value added services

Slow implementation

OPPORTUNITIES

Demand between the national and the inbound tourists can be easily managed

due to difference in the period of holidays.

In the long-term the hotel industry in India has latent potential for growth.

Unique experience in heritage hotels.

Rising income.

THREATS

Guest houses replace the hotels.

Political turbulence in the area reduces tourist traffic and thus the business of

the hotels

Changing trends in the west demand similar changes in India

The economic conditions of a country have a direct impact on the earnings in

hotel industry.

Lack of training man power in the hotel industry.

Fluctuations in international tourist arrivals.

Increasing competition

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7.3 Porters Five Forces Model

BARGAINING POWER Of SUPPLIERS

The term 'suppliers' comprises all sources for inputs that are needed in order to

provide goods or services.

The high class hotels are operating by few hotel chains like-TAJ,EIH,ITC&THE

LEELA PALACE so they have a control over the industry.

There are no substitutes for spas and five star hotels.

The hotels customers are fragmented, so they have to reduce their bargaining

power to attract the customers.

The Taj, ITC& Oberoi are having various rates and tariffs. Because they are

having their own brand image.

The hotel chains are operating different services like Spas, Boatels, Resorts, City

Centers, Heritage HOTELS, etc.

BARGAINING POWER OF CUSTOMERS

Similarly, the bargaining power of customers determines how much customers

can impose pressure on margins and volumes.

The hotel industry is one of the most invested in its fixed assets. So they are

trying to recover their amount quickly.

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The suppliers are providing better information about them to attract the

customers .Here the buyers are highly informed.

If the hotel price changes are moderate, the Customers have low margins and

are price-sensitive.

Some unseasoned timings the hotels are offering discounts and incentives to

reduce the bargaining power of buyers.

THREAT OF NEW ENTRANTS

The competition in an industry will be the higher; the easier it is for other

companies to enter this industry. In such a situation, new entrants could change major

determinants of the market environment (e.g. market shares, prices, customer loyalty) at

any time. There is always a latent pressure for reaction and adjustment for existing

players in this industry.

The foreign hotel chains are tied up with Indian hotels to reduce the initial cost

and using the latters brand name.

Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new

entrants.

Access to raw materials and Distribution channels are controlled by Existing

players like TAJ, ITC, and LEELA PALACE.

The cost of land in India is high at 50% of total project cost as against 15%

abroad. This acts as a major deterrent to the Indian hotel industry.

In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over

30%. Effective tax in the South East Asian countries works out to only 4-5%.

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THREAT OF SUBSTITUTES

A threat from substitutes exists if there are alternative products with lower prices

of better performance parameters for the same purpose. They could potentially attract a

significant proportion of market volume and hence reduce the potential sales volume for

existing players. This category also relates to complementary products.

Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the

substitutes.

The hotel relationship with customer and costs also the reasons to switching to

substitutes.

The price variation of same class hotel services from various brands is one of the

reasons to choose a substitute.

The present demand and supply of hotel rooms is one of the reasons to choose a

substitute.

More fixed cost and switching costs affects the business.

COMPETATIVE POWER OF RIVALRY PLAYERS

This force describes the intensity of competition between existing players(companies) in an industry. High competitive pressure results in pressure on prices,

margins, and hence, on profitability for every single company in the industry.

The top competitors in hotel industry are having the same services like five star,

spas, boatels and motels, heritage hotels and palaces.

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The healthy competition among the all players is helping to increase the industry

growth.

Intense in metro cities, slowly picking up in secondary cities

CHAPTER - 8

BUSINESS ENVIRONMENT

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PESTAL Model

Political factors

Rules and laws are apart of citizens everyday life. We have to abide by certain

rules and regulations in order to remain in society. This goes for corporations as well. All

corporations have to face some sort of rules and regulations. Although each corporation

has to face rules and regulations, each industry faces different rules and regulations. Of

course, it would only make sense to believe that all regulations are negative forcorporations because it takes away from the bottom line.

However, there can be positive affects of the regulations. For example, a ruling in favor

of anti-trust laws will take away from the monopolistic company, but at the same time,

the barriers of entry will become easy leaving opportunity for other companies to

increase their bottom line. An analysis of the hotel industry has revealed that there are

environmental, labor, and food & safety regulations as well as regulations for merging,

which must be looked at before entering into the industry.

Environment is one aspect the government will always have their eye on, and

they will introduce laws that will protect the environment. Such laws will need to be

looked at as a player in the hotel industry. Hotels are could be liable for clean up of

contamination and other corrective action under various laws, ordinances and

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regulations relating to environmental matters. Such laws referring to keeping the

environment in good shape can be quite costly to hotels in the industry. In Europe, North

America, Australia and New Zealand, such prosecutions can now result in heavy

financial penalties, considerable clean-up costs or in worst instances, jail sentences

Another political factor that can impose a concern for a member in the hotel

industry is the laws regarding labor. For instance, there are laws that govern minimum

wage. Although this might not seem to be a concern, but anytime you are forced to pay a

wage not in plans, which are taking away bottom line. Another law that can be quite

costly is treatment of employees. For example, there are laws that prevent

discrimination, and sexual harassment. If a hotel company violates these laws, it can lead

to severe lawsuits, and at the same time the hotel will be slicing their revenues. The labor

laws are pretty strait forward, but must be obeyed in order to keep on going profits.

Social Cultural Factors

Social cultural factors are a big issue to look into for hotel industry because it

deals with a lot of consumers who have different demographic, ethnic, cultural

backgrounds. By satisfying each consumers or generalizing the way to hospitalize, hotel

industry can have chance to expand more.

Technological factors

In order for a hotel to prevent obsolescence and remain technologically advanced,

the hotel must be up to date with all the latest technological changes that are taking place

that might have an impact on the industry. As it moves through the twenty-first century,

it is evident, that there is a strong focus on technology.

Today, the Internet is increasingly being used. Consumers are shopping on the

Internet, from music to travel and anything one can think of. For the hotel industry, they

need to take this into consideration. The reason is that if hotels dont have a well

developed website, they will possibly loose potential consumers. Not only do they need to

alternate their distribution channels of information, they also need to advertise

aggressively on the Internet. Discussing in further detail of what the computer has

brought is using it for organizing the hotel operation. The day of having everything on

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paper is obsolete. So, in order for a hotel to have a competitive advantage, they need to

have a very high tech information system.

While the computer is changing the way hotels in the industry can offer

information to their potential consumers and the way a hotel organizes their operations,

materials supplied to the hotel are starting to become obsolete. For example, in most

hotels, you will still find stereos, VCRs, and regular televisions. However, things have

changed in the way people access music, movies, and of course T.V. Todays society,

individuals have moved away from those big boxes and adopted the use of digital

technology. So, for a hotel to prevent obsolescence the must change from the suppliers

that are supplying them with stereos, VCRs, and regular TVs and look for suppliers that

will offer them ipods, DVDs, and digital HDTV for room use. Moving in this direction

will make the hotel much more attractive, thus the revenues will increase.

The final technological factor that needs to be looked at is the rising costs of

energy. These are uncontrollable costs, thus the only thing that can be done to limit the

impact of these increasing costs is for hotels to manage the use of energy efficiently. A

strategy of how to manage it would be one thing; however, a hotel must also look at the

alternatives of energy that are coming into the world. For example, with high-energy

costs some businesses are thinking innovation. Solar Cities will be the successes of the21st century.

Ecological factors

Environment is something we as human beings come in contact with everyday.

The condition of the environment will often guide decisions. For instance, if it is really

smoggy outside, the chances of going for a hike or to an amusement park are very small.

So, it would only make sense as a member of an industry that is looking to increase the

demand of consumers to fully understand what environmental factors for their industry

might impose an impact on the customers decision.

For example, during hurricane season, the customer decision to stay in a hotel on the

east coast is not as likely as it was before these natural disasters. Global warming is

another ecological factor calls for concern. The ozone is slowly being exhausted by

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human actions while leaving the earth degrees warmer. The uncertain climate can have a

direct impact on hotels that are in areas of ski resorts. However, even though this is a

definite concern, it should be a concern for long term planning the time frame for such

effects is more likely to happen in the future. A way that could allow this not to be an

impact for other hotels is to build a strong image in the consumers mind. Such image

would come from being eco-efficient by improving resources to prevent pollution.

CHAPTER - 9

CRITICAL SUCCESS FACTORS

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9.1 Factors influencing Success in the Industry

Demand Drivers.

The hotel and restaurant industry of India was Rs. 658.89 billion during 2007-

08.

Travel & Tourism Industry of India was valued at US$35.73 billion in 2007, contributing

3.56% to Indias GDP. The number of foreign tourists arriving to India reached 5.08

million compared with 4.45 million in the year 2006, showing growth of 14.16%. Indias

share in international tourist arrivals at global level gradually improved from 0.46% in

2004 to 0.49% in 2005 and further to 0.52% in 2006 and 0.56% in 2007.

The number of domestic tourists in India was 526.57 million compared with

461.76 million in 2006, showing growth of 14.03%. There are 1,437 hotels approved and

classified by the Ministry of Tourism, Government of India, with a total capacity of

84,327 hotel rooms as on December 31, 2007. Indian hotel industry is currently adding

about 60,000 quality rooms, which are expected to be ready by 2012.

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International Tourist Traffic

The foreign tourist arrivals in India increased at CAGR of 5.5per cent from

2.29

Million in 1996 to 3.92 million in 2005. Significantly, the bulk of international arrivals

into India, both in 2004 and 2005, have been business travelers. Main reason for this

increase has been following fundamental factors:

Indias strong GDP growth.

Opening of sectors of the economy to private sector/ foreign investment.

Strengthening of ties with the developed world.

Also, introduction of low cost airlines also contributed to the demand.

The increase in international flights, seat capacity and frequency into the country and

the decision to allow private airlines like Jet Airways and Air Sahara to fly overseas has

had a positive impact on tourist and business arrivals into India, by way of providingadditional seats to:

Key destinations.

Development of infrastructure by the Government

Indias emergence as an outsourcing hub.

Success of Incredible India campaign and other tourism promotion measures.

Indias growing recognition as an exciting place to visit (The Readers Travel Awards

2006, conducted by Cond Nast Travelers has recently placed India at number four

among the worlds must-see countries, up from number nine in 2003) has helped boost

its image as a leisure destination.

9.2 Identifying Critical Success Factors (CSF) For the Industry

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The market for the hotel industry can be divided into the following key

consumer segments based on purpose of visit:

The Business Traveler

The Business Traveler is a businessman or a corporate executive traveling for

business purposes. This segment includes corporate, both domestic and foreign, who

open offices in the hotel premises during start-ups, corporate executives who make

extended stay either for long duration projects or while waiting for permanent

accommodation (primarily expatriates) and convention arrivals. While the senior

executives usually stay in 5 star hotels, the middle level executives, who are much larger

in number, stay in the budget hotels. This segment offers better realizations, as they

demand relatively smaller discounts on room rents (about 10per cent-15per cent), use

more of facilities such as PCs, fax multi-media, conference halls. Also, the Food &

Beverage (F&B) revenues are better as they usually eat in the hotel itself due to their

busy schedules.

The Leisure Traveler

The Leisure Traveler could either be a foreigner or a domestic traveler

whose Primary purpose of visit is holiday or site seeing. Among non-business foreigntourists the primary motivation for visiting India is largely cultural attraction followed

by conferences and conventions, tourist attractions like beaches, wild life, hill resorts etc.

Usually, leisure travelers are part of a package run by a tour operator. The margins

offered by leisure travelers tend to be lower because of two reasons. Firstly, they seek

higher discounts and also provide less F&B revenues as they usually eat out. The

business offered by this segment is highly seasonal and tends to peak in the September to

March period.

Airline Cabin Crew

Airline Cabin Crew forms another important segment because of the

repetitive and guaranteed nature of the business that they provide. Usually, these are a

part of an annual contract whereby, in return for a fixed rate, a certain number of

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rooms are provided on demand for cabin crews. With discount rates in the range of

40per cent and 50per cent, this represents a low-yield segment for hotels in general.

Premium and Luxury Segment

This segment comprises the high-end 5-star deluxe and 5-star hotels,

which mainly cater to the business and up market foreign leisure travelers and offer a

high quality and range of services. The segment accounted for 29per cent of the total

hotel rooms in the country in December 2005.

CONCLUSION:

The hotel industry in India having a tremendous opportunity in the

future because of increasing trends in the tourism industry and government promoting

the Incredible India campaign and other tourism promotion measures. The hotel

industry in India is mix of many brand internationally established hotels having the

scope to attract shares in the brand hotels which will help to expand the industry and the

innovations in the industry is helping the hotels to retain the customers with them.

Though the industry is having opportunities in future it is suffering with the cost of land

which is costing 50% of the total cost and the taxes are main drawbacks for the industry.

Industry is opening gates for the foreign investment which is a good sign for the industry

and industry is working toward the fulfillment of the demand and supply gap.

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26045363 indian hotel industry analysis

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