Project on International business

To Prof. Jyotinder Chaddha

Topic: Hotel Industry

Presented by:

Amarprit kaur bharaj – 05

Rohan parkar – 39

Shweta singh – 52

PEST Analysis

Political/Legal

1. Due to the possible impacts on the Environment from the operations of a hotel, there is a need to comply with Environment related regulations.

2. Industry specific taxes Eg: bed tax

3. Difficulties in obtaining travel visas to this region (especially by non-European and non-US nationals) can be a deterrent to such tourists entering this region.

4. The current ‘war on terror’ situation may reduce non-essential leisure based travel, which will have a negative impact on the hotel industry.

Economic

1. Both hotel stays and spa treatments essentially appeal to one’s discretionary income, thus a growth in discretionary income would become favorable to an organization such as Solberri.

2. The competition for an organization such as Solberri need not necessarily come from similar hotels/spa facilities only; it could even arise from other sources such as other competing forms of expenditure for one’s discretionary income. Eg: a new suite of furniture

3. Due to the seasonal nature of demand, revenues and room occupancy can vary significantly during peak and non-peak periods.

4. As hotels generally provide free food and lodging especially at the operational level, their salaries are not that attractive compared with that of certain other industries. This may make it difficult to attract employees for such positions.

5. Due to the non-essential nature of this type of service to a potential customer, this would be one of the first areas that would be cut back at a time of recession or economic downturn.

6. The higher end of the hotels (Eg: ‘Premier’ category at Solberri ) would essentially target the higher end of the market which is a relatively smaller group where high margins can be earned.

7. The ownership models of hotels have witnessed some new realities in recent years.( Eg: individuals/investors owning hotel rooms, sell and leaseback, moving towards managing the hotel as opposed to owning them.

Social/Cultural

1. The patronizing of spas can be seen as a lifestyle change which is growing among certain sections of the middle class as well as the upper class.

2. As hotels benefit from holidaying the extent to which people take holidays and their ability to get off from work for such holidays will have a direct bearing on the demand experienced by an organization such as Solberri.

3. As hotels consume a large amount of resources such as water, soap, detergents as well as cause a fair amount of pollution (from water, leftover food, use of strong detergents),there exists a fair amount of pressure to be ‘green’ especially by Environmental pressure groups.

4. The supply of lower level staff is seen as being directly related to seasonal unemployment in the region.

5. As traveling for a holiday is seen as non-essential travel. Some may opt not to engage in leisure travel especially where air travel is involved.

Technological

1. The hotel industry is seen as utilizing an increasing amount of technology with a view of achieving greater customer satisfaction. Eg: Ritz Carlton’s customer information management.(CRM)

2. It can be seen that customers, even potential customers extensively use online information sources including reviews and comments by previous customers when making their own choice about holidays and places to visit.

3. The use of technology and other advanced techniques can be useful in managing the consumption of resources such as water and electricity which are resources that are extensively used in this industry. Eg: Power Factor Corrections, recycling water

4. The increasing use of IT/IS can help in improving the information available for management decision making which will also allow the organization to better plan its future activities and events.

Import challenges:

Things have not really turned around just yet for the hotel industry as a whole. As reality begins to set in, the industry comes face-to-face with other challenges beyond discounting and hotel supply levels. Positive developments, however, have already started to trickle in.

Like tourism, the hospitality industry has not taken it "easy" since the recession started. Taxes levied solely against the lodging industry are unfair to us, said Jonathan M. Tisch, chairman and CEO, Loews Hotels and co-chair of the board and office of the president, Loews Corporation. Addressing the audience during the 32nd Annual NYU International Hospitality Conference held in New York last week, Tisch added that as an industry, they have to deal with the oil spill in the Gulf, compelling them to send a committee to assess the impact or effect on most businesses as guests have already abandoned some destinations. He said their analysis will have to be taken up to the congressional levels.

Furthermore, the immigration issue in Arizona has unintended consequences like the travel boycotts, which will be felt by the lodging industry and related industries supporting travel. “It is important that we spread the message that they can debate the issue, but not harm our industry. Don’t harm the people that have worked for so many years in travel and tourism with your boycott,” added Tisch.

Andrew Coslett, CEO, IHG (InterContinental Hotels Group) remains "quite" optimistic about the hotel industry’s performance through the rest of 2010. “Demand for us has come back. Although group business will be seen as only preparing for the future, transient business is doing quite well,” he said. Understanding the potential impact of the oil slick in the Gulf, Coslett said his chain is forging ahead regardless with their 2010 programs.

Coslett sees strong growth in Asia, especially China, in the periods ahead. “China is a prospect that’s growing bigger,” he added.

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation, stays bullish in the market for 2010. Hyatt has expanded with 459 hotels last year despite a soft

economy. “Demand has definitely come back. Year 2011 will catch up with demand,” he said adding that they will soon see double-digit growth.

Outside the US, China, Brazil, and a number of countries in Europe have shown positive results for the Hyatt brand in terms of investments.

David Kong, CEO, Best Western International expects a positive summer season ahead. He believes the economy is improving. “There will be room nights improvement and increase in occupancy,” he said adding that their focus will be on Asia, India, Europe, and South America, especially Brazil, in the months ahead.

“The industry has come back. But while there are fabulous facilities out there, the ones that are hurting the most are the ones that cannot drive rates,” said Arne Sorenson, president and CEO, Marriott International Inc., adding Asia is "incremental" for his flag currently. Room business is now setting the pricing for the future. “Group business will come back, however, transient is doing well,” he said.

According to Mark Lomanno, president, Smith Travel Research, ADR (average daily rate) has seen some growth. His actual forecast for 2010 sees supply growth growing only 2 percent versus demand growth rising at 5.7 percent. He said that in 2009, occupancy saw a very low 54 percent across the country. With this occupancy level, it was obviously difficult to raise rates. “However, the global hotel industry is recovering; demand is definitely back but pricing isn’t,” said Lomanno.

Transaction volumes will be low this year, but will pick up significantly in 2011 and 2012. “We are still indeed at the bottom of the cycle; supply growth will be limited over the next 4 years. Don’t sell now – ride the wave of recovery. 2012 is the best time to sell,” said Steve Rushmore, president and founder, HVS Global Hospitality Services. Expect a lot of buyer competition from all the "cash on the sidelines." Rushmore said, “Now is the best time to buy. Today is the best buying opportunity since 1991."

Advised Rushmore, “Look to buy in high-volatility markets where values will increase significantly over the next 5 years.” Such cities are New York, Miami,

Los Angeles, Las Vegas, Anaheim, Omaha, Austin, San Jose, San Diego, and Washington DC.

TECHNOLOGY OF PRODUCTION AND DISTRIBUTION

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 capital2. Preference share capital3. Equity share capital4. Borrowed capital5. Debenture6. Mortgage7. Loan from commercial bank8. Loan from financial institution9. Trade debt- credit guaranteed by supplier10. Intercompany loans11. Provision for taxation12. 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%.

A hotel project requires money under the following heads:1. Cost of land and building2. Cost of civil works3. Cost of electrics installation and fixtures

4. Cost of sanitary work and fixtures5. Cost of furniture fixture and fitting6. Cost of carpet7. 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 manpower12. Misllinious cost

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 fornight halts (i.e. is for 8 to 10 hours) thus enjoying the chance to rent same room to other customers for 24 hours.

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 city’s performance. As regards Jaipur, the recent announcement by a major IT company to set up a base outside Jaipur, as well as

the state government’s 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).

Labor:

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 Money Exchange 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.

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 provide 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.

INNOVATION:

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. Manyhotels have a category of rooms which are different in the space and facilitieseach one having their own specialties and range of price. Hoteliers are now running their business according to the taste and preferences of the customerscontinuous 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 customer’s 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. In addition 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 ecommerce 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 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.

Major players in the hotel industry:

Public Sector Players:

ITDC hotels Hotel Corporation of India

Private Sector Players:

ITC Hotels Indian Hotels Company Ltd.(The Taj Hotels Resorts & Palaces) Oberoi Hotels(East India Hotels) Hotel Leela Venture Asian Hotels Ltd. Radisson hotels & Resorts