EXECUTIVE SUMMARY

Hotel operators and observers often employ industry-wide averages as ke

y points of comparison and analysis for room rates, occupancy, and revenues. The
use of simple averages, however, can be misleading if one does not take into ac
count the possibility that a mean will be pulled in one direction or another by
extreme values. This analysis of three industry averages shows that those averag
es are, indeed, subject to distortion, or skew. The analysis, which examines fig
ures for virtually all brand-name hotels in the United States, determined that t
he means for average daily rate (ADR) and revenue per available room (RevPAR) ar
e skewed in a positive direction by hotels with extremely high rates. On the oth
er hand, occupancy is skewed in a negative direction by a group of hotels with i
nordinately low occupancy levels.
Many of the extreme values are found in the top-25 markets, which have h
otels with inordinately high ADRs. Analysis of those markets shows that, once ag
ain, the overall statistics are distorted by a relatively small set of hotels wi
th exceptional ADRs and occupancies. However, each of the top markets shows a di
stinctive rate and occupancy pattern.
The pattern of skewed operating statistics carries over into individual
lodging segments. The greatest distortions arise in the luxury and upscale segme
nts, while economy and budget hotels record more consistent (normally distribute
d) statistics.
Finally, the analysis shows that although the events of created much tur
moil for the industry, the hotel business had already cooled substantially from
its record pace of a year earlier. In conclusion, managers must be careful in ap
plying overall industry statistics to their own situation and should take into a
ccount the factors that distort operating statistics.
Scope of the report
At the backdrop of such a conducive business atmosphere 'Pre-feasibility Report
on Five-star Hotel Industry' attempts to examine such critical factors which wil
l provide vital inputs in general to the potential investors and estimation of c
ommercial viability of such an investment.
- It presents the market analysis of Indian hotel industry in terms of structure
& segmentation, market size, major hotels etc.
- It analyses the steps involved in setting up a hotel describing the technical
aspects in terms of locational details and land requirement.
- It assess the manpower planning and financial estimate involved in setting up
a hotel.
- Brings an insight into the procedure for setting up a hotel, type of machinery
& floors space required, requirement of regulatory permissions & clearances.
-Analysis of porter’s five forces and SWOT of the industry.
INTRODUCTION
Global travel increased by 6% in 2007 compared with 2006, crossing tourism forec
asts for the fourth year in succession. Among the various regions, the Middle Ea
st registered the highest growth in arrival of international tourists with 46 mi
llion tourists compared with 41 million in 2006, a growth of 12.2%.The opening u
p of the aviation industry in India has resulted in exciting opportunities for t
he hotel industry.
- The share of Travel & Tourism industry to the global GDP was 6.48% in the year
2007 with value of US$ 3,493.19 billion and industry demand contributed to 13.2
1% of global GDP in 2007.
- Middle East was the fastest-growing region in terms of arrivals of internation
al tourists during 2007.
- According to the report by World Travel and Tourism Council, India currently r
anks 18th in business travel and will be among the top 5 nations by the end of 2
010.
- ASSOCHAM has projected that Medical Tourism is likely to become the leading fo
reign exchange earner for India
- India is now emerging as one of the hot destinations for medical
- tourism after Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia
A touch of tenderness, a helping hand, a welcoming visage... the Indian hospital
ity sector is certainly the most apt replication of the belief ‘ATITHI DEVO BHAVA
.
Good quality products and services at affordable prices should be the USP of an
y successful venture - and hotels in the country boast of exactly this!
According to the world travel and tourism council, the growth in the hospitality
industry is pegged at 15% every year, and with 2, 00,000 rooms (both luxury and
budget) needed in the country, the segment is poised for a stupendous growth.
Travel tales
While the high influx of foreign tourists has ensured huge footfalls for the sec
tor over the years, internal tourism too has, off late, begun offering great pot
ential. With travelers taking new interests in the country, players in the hospi
tality sector have had to offer the best of services, at affordable prices. Also
, with the USD 23 billion software services sector pushing the Indian economy sk
ywards, more and more IT professionals are flocking to Indian metro cities, thus
signaling a boom time for the hotel and hospitality segment. Several other fact
ors such as Commonwealth Games in Delhi are fueling the need further.
The best bet
The Indian hospitality industry is projected to grow at a rate of 8.8% between 2
007-16, placing India as the second-fastest growing tourism market in the world.
Initiatives like massive investment in hotel infrastructure and open sky polici
es made by the government are all aimed at propelling growth in the hospitality
sector.

"Hotel and hospitality industries are among the biggest employment generators in
the country. Towards propelling its growth, while the government should confer
infrastructure status to the hotel industries, several taxation issues also need
to be rationalized. Further permits and licenses required for the hotel operati
ons need to be rationalised by offering a "single window" mechanism," says Sanja
y Gupta, CMD, Neesa Leisure Ltd - the Group which boasts of providing state-of-t
he-art facilities and services at its hotels.
Be it Cambay Sapphire - the elegant 3 star business hotel at Ahmedabad o
r The Cambay Grand - the upcoming 5 star hotel in Ahmedabad that takes contempor
ary luxury to new heights with opulent rooms and suites, exotic spa, virtual gol
f, and multi cuisine fine dinning, redefining luxury is the perennial mantra in
each of Cambay s hospitality projects.
Some of the Group s forthcoming ventures include The Cambay Spa & Resort
at Neemrana, Rajasthan - a proposed five star business hotel boasting of one of
the largest conference and convention facilities, another venture of Neesa Leis
ure Ltd in Dahej (SEZ) to have 100 rooms including apartment and conference faci
lities and Cambay Sapphire, Jodhpur - a business hotel. Exclusive and innovative
initiatives like the Cambay projects certainly focus on ensuring a bright futur
e for the Indian hotel industry.
The government s decision to substantially upgrade 28 regional airports in small
er towns and privatization & expansion of Delhi and Mumbai airport has improved
the business prospects of hotel industry in India. Also, the upgrading of nation
al highways connecting various parts of India has opened new avenues for the dev
elopment of budget hotels in India. Couple this with the availability of qualifi
ed human resources and the hospitality sector has already got great growth prosp
ects!
BACKGROUND OF THE HOTEL INDUSTRY
The Hotel Industry comprises a major part of the Tourism industry. Historically
viewed as an industry providing a luxury service valuable to the economy only as
a foreign exchange earner, the industry today contributes directly to employmen
t (directly employing around 0.15 million people), and indirectly facilitates to
urism and commerce.
Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consi
sting
primarily of relatively static, single-hotel companies.
However, the Asiad, held in New Delhi in 1982, and the subsequent partial libera
lization of the Indian economy generated tourism interest in India, with signifi
cant benefits accruing to the hotel and tourism sector, in terms of improved dem
and patterns. Growth in demand for hotels was particularly high during the early
1990s following the initiatives taken to liberalize the Indian economy in FY199
1, as per the recommendations of the International Monetary Fund (IMF).
The euphoria of the early 1990s prompted major chains, new entrants and internat
ional chains to chalk out ambitious capacity additions, especially in the metrop
olitan cities. However, most of these efforts were directed towards the business
travelers and foreign clientele. In recent years, the hotels sector has grown a
t a faster rate than GDP. As a result, the share of hotels & restaurants in GDP
at current prices has increased from 1.2per cent in FY2000 to 1.5per cent in FY2
005.
In constant (1999-2000) prices, the GDP from hotels and restaurants has increase
d from Rs. 222.65 billion in FY2000 to Rs. 335.49 billion in FY2005. As a result
, the share of hotels and restaurants in total GDP at constant prices has increa
sed
from 1.24per cent in FY2000 to 1.40per cent in FY2005.

STRUCTURE OF THE INDUSTRY

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
Ministry of Tourism, Government of India, based on the general features and fac
ilities 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
classified 50 5127
Total 1934 103973
Source: Ministry of Tourism, Government of India
The table excludes hotels in the unorganized sector that have a significant pres
ence across the country and cater primarily to economy tourists. Premium and Lux
ury 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 travellers and
offer a high quality and range of services. The segment accounted for 29per cen
t 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 a
nd domestic leisure travellers. This segment also caters to the middle level bus
iness travellers since it offers most of the essential services of luxury hotels
without the high costs since the tax component of this segment is lower compare
d 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 accommoda
tion to the highly price-conscious segment of the domestic and foreign leisure t
ravellers.
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 Tou
rism has
Classified these hotels as heritage hotels.
Others
At any point in time, applications for classification are usually pending with t
he Ministry of Tourism because of which such properties remain unclassified. The
number of hotel rooms pending classification has declined from historical 15-20
per cent to 5per cent of the total rooms available in the recent past.

CURRENT SCENARIO OF HOTEL INDUSTRY

Over the last decade and half the mad rush to India for business opport
unities has intensified and elevated room rates and occupancy levels in India. E
ven budget hotels are charging USD 250 per day. The successful growth story of
Hotel Industry in India seconds only to China in Asia Pacific.
Hotels in India have supply of 110,000 rooms. According to the tourism ministr
y, 4.4 million tourists visited India last year and at current trend, demand wil
l soar to 10 million in 2010 – to accommodate 350 million domestic travelers. Hot
els in India has a shortage of 150,000 rooms fueling hotel room rates across In
dia. With tremendous pull of opportunity, India is a destination for hotel chain
s looking for growth.
The World Travel and Tourism Council, India, data says, India ranks 18th in bus
iness travel and will be among the top 5 in this decade. Sources estimate, deman
d is going to exceed supply by at least 100% over the next 2 years. Five-star ho
tels 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 de
mand-supply disparity, Hotel India room rates are most likely to rise 25% annu
ally and occupancy to rise by 80%, over the next two years.
Hotel Industry in India is eroding its competitiveness as a cost effective de
stination. However, the rating on the Indian Hotels is bullish. India Hotel I
ndustry is adding about 60,000 quality rooms, currently in different stages of
planning and development and should be ready by 2012.
MNC Hotel Industry giants are flocking India and forging Joint Ventures to earn
their share of pie in the race. Government has approved 300 hotel projects, nea
rly half of which are in the luxury range. Sources said, the manpower requiremen
ts of the hotel industry will increase from 7 million in 2002 to 15 million by 2
010.
With the USD 23 billion software services sector pushing the Indian econ
omy skywards, more and more IT professionals are flocking to Indian metro cities
. Hotel Industry in India is set to grow at 15% a year. This figure will skyro
cket in 2010, when Delhi hosts the Commonwealth Games. Already, more than 50 int
ernational budget hotel chains are moving into India to stake their turf. Theref
ore, with opportunities galore the future Scenario of Indian Hotel Industry lo
oks rosy. It is expected that the budget and mid-market hotel segment will witne
ss huge growth and expansion while the luxury segment will continue to perform e
xtremely well over the next few years.
The roles of the multinational companies are significant with their incr
easing contribution to the Economy. Basically Services are intangible deeds, pro
cesses and performances that cannot be touched, seen or felt but can be experien
ced. The Service sector is characterized by its diversity. Global opportunities
are growing due to accelerated growth of the service economy.
In the hospitality industry, Average room rate (ARR) and occupancy are t
he two most critical factors that determine the profitability, since most of the
marginal revenue gets added to the bottom-line. ARR in turn depends upon locati
on, brand image, star rating, quality of facilities, pricing of value added serv
ices, complementary services offered and the seasonal factor. The hotels to mana
ge and invest their fund in India adopt many business strategies to establish th
eir place of business and create innovative service packages to their custom. In
a long-term perspective, these measures bring significant financial returns.
The hotel industry in India has a latent potential for growth. This is
because India is an ideal destination for tourists as it is the only country wit
h the most diverse topography and relative political stability. At present India
attracts approximately 2.5 Million tourists every year, which is just 0.4% of t
he world tourist arrivals.
Normally the Multi national hotels operated In India can be owned, lease
d or acquired under management contract basis. Hotel operators want the leverage
on their management expertise and brand equity without making enormous capital
investment. In management contract agreements a fee calculated as a percentage o
f revenue and/or operating profit is charged. Typically, the management fee is t
o the tune of 3% of the total revenue and 7% of gross operating profits.
Most players, with the exemption of IHCL and EIH, have entered into a m
arketing tie-up with major international hotel chains. Thus we have Hyatt Regenc
y a renowned international hotel chain having tied up with AHL, Leela having tie
d up with Kempinski and ITCH having a franchisee agreement with ITT Sheraton to
use the latter s brand name.
For the Indian hotel owners and the international hotel chains the benef
it is mutual, tie-up with an international hotel chain puts the hotel on the glo
bal map with access to chain s reservation network worldwide. For the internatio
nal hotel chain they can ride on the boom of the industry without making enormou
s capital investments on infrastructure and facilities. Associations with intern
ational brand also play a major role in image building and attracting foreign to
urists. However the value of the international brand gets diluted if a foreign e
ntity enters an agreement with several Indian companies.
Luxury hotels operate under single tariff structure whereby the foreign
tourists are charged in dollar terms whereas the domestic guest is charged the e
quivalent amount in rupees. The luxury hotels earn about two-thirds of their rev
enue from foreign tourists. Leisure travelers constitute approximately 76.5% of
the total tourist arrivals whereas business travelers constitute 21% of the tota
l arrivals. The remainder is accounted by students. The hotel industry is the se
cond largest foreign exchange earner and between 1991 and 1998 there has been a
100% growth in foreign tourists.
Hotels benefit from rupee depreciation as over 60% of revenues in the lu
xury hotel segment are in foreign currencies. Thus any depreciation of the rupee
goes directly to the bottom line (FOREX income is also fully tax exempt), as no
ne of the costs are directly linked to the exchange rate. The hotel debt e
nvironment is also improving. While many countries are hampered by a still slugg
ish economy, those with a low interest rate environment with relatively stable-b
anking conditions will provide opportunities for hotel investors to raise capita
l. For hotel lenders, from a risk/return basis, there has never been a better ti
me to provide new capital to this industry in India
FEATURES OF HOTEL INDUSTRY
The hospitality industry consists of companies within the food services,
accommodations, recreation, and entertainment sectors.
The hospitality industry is a several billion dollar industry that mostl
y depends on the availability of leisure time and disposable income. A hospitali
ty unit such as a restaurant, hotel, or even an amusement park consists of multi
ple groups such as facility maintenance, direct operations (servers, housekeeper
s, porters, kitchen workers, bartenders, etc.), management, marketing, and human
resources.
Usage rate is an important variable for the hospitality industry. Just a
s a factory owner would wish to have his or her productive asset in use as much
as possible (as opposed to having to pay fixed costs while the factory isn t pro
ducing), so do restaurants, hotels, and theme parks seek to maximize the number
of customers they "process".
In viewing various industries, "barriers to entry" by newcomers and comp
etitive advantages between current players are very important. Among other thing
s, hospitality industry players find advantage in old classics (location), initi
al and ongoing investment support (reflected in the material upkeep of facilitie
s and the luxuries located therein), and particular themes adopted by the market
ing arm of the organization in question (such as a restaurant called the 51st fi
ghter group that has a WW2 theme in music and other environmental aspects). Very
important is also the characteristics of the personnel working in direct contac
t with the customers. The authenticity, professionalism, and actual concern for
the happiness and well-being of the customers that is communicated by successful
organizations is a clear competitive advantage
This significant growth of the tourism industry is the direct result of
changes in international consumer behaviors as well as economic prosperity and p
olitical stability within the region. Historically, the supply of lodging facili
ties within the region has proved to be both inadequate in terms of product qual
ity as well as insufficient in quantity for meeting the increasing levels of dem
and.
These elements of supply and demand have created a favorable investment
climate for development within the region, resulting in a real estate boom in b
oth tourism and residential development. The growth in residential real estate d
evelopment has been primarily driven by foreign demand for vacation and retireme
nt homes in both urban and resort destinations within the region. Investment and
development has been further supported by the variety of financial incentives f
or investment in tourism projects offered by national governments as well as the
availability of local capital for the financing of large projects.
 The first goal is to find ways to operate the hotel according to the ide
a of a “triple bottom line,” which embodies profitable operation combined with atten
tion to the people who use and work in the hotel and a focus on careful stewards
hip of resources. While that goal is important, even more vital is to use the ho
tel’s position as an industry leader in the nation’s capital to demonstrate to the h
otel industry, customers, and vendors that sustainable operation is the best str
ategy to ensure successful hotel operation. The sustainability initiative goes b
eyond such well-known ideas as reusing guest linens, recycling waste materials,
and changing to compact fluorescent lamps.
CLASSIFICATION OF HOTELS:
Classification is based on many criteria and classifying hotels into dif
ferent types is not an easy task. The hotel industry is so vast that many hotels
do not fit into single well defined category. Industry can be classified in var
ious ways, based on location, size of property etc. The main hotel chains of Ind
ia are: The Taj Group of Hotels, the Oberoi Group and ITC Welcome group.
Some of the international chains are Hyatt, Marriott, and Le Meridian et
c. these properties have also come up in India now.
1. 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 h
igh.
Example: Taj Mahal, Mumbai
• 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 ov
ernight.
• Suburban hotels: They are located in suburban areas, it generally have high traf
fic on weekend. It is ideal for budget travelers. In this type of hotel rates ar
e moderately low.
• Airport hotels: These hotels are set up near by the airport. They have transit g
uest who stay over between flights.
• 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 rela
x, enjoy themselves at hill station. Most resort work to full capacity during pe
ak season. Sales and revenue fluctuate from season to season.
• Floating hotels: As name implies these hotels are established on luxury liners o
r ship. It is located on river, sea or big lakes. In cruise ships, rooms are gen
erally 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 accommodat
ion 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 i
nterior is done like hotel room. They are normally used by small group of travel
ers.
2. Based on Size of Property
The main yardstick for the categorization of hotel is by size the number of room
s
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.
• 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.
3. Based on the Level of Service
Hotels may be classified into economy, and luxury hotels on the basis of the lev
el of
service they offer.
• Economy/ Budget hotels: These hotels meet the basic need of the guest by providi
ng comfortable and clean room for a comfortable stay.
• Mid market hotels: It is suite hotel that offers small living room with appropri
ate 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, a
rtwork etc. prime market for these hotels are celebrities, business executives a
nd high ranking political figures. Example: Hyatt Regency, New Delhi.
4. 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, t
hey are usually five star hotels. The occupancy rate is usually very high. These
hotels are situated near airport.
• Residential hotels: These are the hotel where guest can stay for a minimum perio
d of one month and up to a year. The rent can be paid on monthly or quarterly ba
sis. They provide sitting room, bed room and kitchenette.
• Semi residential hotels: These hotels incorporate features of both transient and
residential hotel.
5. Based on Theme
Depending on theme hotel may be classified into Heritage hotels, Ecotels, Boutiq
ue
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 ar
tist. These hotels put their best efforts to give the glimpse of their region. E
xample: Jai Mahal palace in Jaipur.
• Ecotels: these are environment friendly hotels these hotel use eco friendly item
s in the room. Example: Orchid Mumbai is Asia first and most popular five star E
cotels.
• Boutique hotels: This hotel provides exceptional accommodation, furniture in a t
hemed and stylish manner and caters to corporate travelers. Example: In India th
e park Bangalore is a boutique hotel.
• Spas: is a resort which provide therapeutic bath and massage along with other fe
atures of luxury hotels in India Ananda spa in Himalaya are the most popular Spa
.
6. Based on Target Market
• Commercial hotel: They are situated in the heart of the city in busy commercial
areas so as to get good and high business. They cater mostly businessmen.
• Convention hotels: These hotels have large convention complex and cater to peopl
e attending a convention, conference
Example: Le meridien, Cochin, is a hotel with largest convention center
in south India.
• 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 cat
egory, they have guest room and food and operation too. These hotels tend to cat
er leisure and vacation travelers. Gambling activities at some casino hotels ope
rate 24 hours a day and 365 days

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, con
tributing 3.56% to India’s GDP. The number of foreign tourists arriving to India r
eached 5.08 million compared with 4.45 million in the year 2006, showing growth
of 14.16%. India’s share in international tourist arrivals at global level gradual
ly 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 461.7
6 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 capaci
ty of 84,327 hotel rooms as on December 31, 2007. Indian hotel industry is curre
ntly adding about 60,000 quality rooms, which are expected to be ready by 2012.
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 internation
al arrivals into India, both in 2004 and 2005, have been business travelers. Mai
n reason for this increase has been following fundamental factors:
•India’s strong GDP growth.
•Opening of sectors of the economy to private sector/ foreign investment.
•Strengthening of ties with the developed world.
•Reforms in aviation sector which led to better connectivity with many countries (
such as
ASEAN) and created additional capacity on existing routes (for e.g. USA, Middle
East).
Also, introduction of low cost airlines also contributed to the demand. The incr
ease 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 ov
erseas has had a positive impact on tourist and business arrivals into India, by
way of providing additional seats to

Key destinations.
•Development of infrastructure by the Government
•India’s emergence as an outsourcing hub.
•Success of “Incredible India” campaign and other tourism promotion measures.
•India’s growing recognition as an exciting place to visit (‘The Readers Travel Awards
2006’, conducted by Condé Nast Travellers has recently placed India at number four
among the world’s must-see countries, up from number nine in 2003) has helped boos
t its image as a leisure destination.
Foreign Tourist Arrivals
Foreign Tourist Arrival (Nos.) Percentage Change
Months 2005 2006* 2007* 2006/05 2007/06
January 385977 444260 514453 15.1 15.8
February 369844 407198 462578 10.1 13.6
March 352094 390824 443976 11.0 13.6
April 248416 309775 334558 24.7 8.0
May 225394 258527 271454 14.7 5.0
Total 1581725 1810584 2027019 14.5 12.0
Foreign Exchange Earnings
Foreign Exchange Earnings (in Rs. billion) Percentage Change
MONTHS 2005 2006* 2007* 2006/05 2007/06
January 23.26 27.22 33.00 17.0 21.2
February 23.43 26.36 30.04 12.5 14.0
March 22.11 24.34 27.99 10.1 15.0
April 16.50 21.27 23.41 28.9 10.0
May 14.53 16.74 18.59 15.2 11.0
Total 99.83 15.94 133.03 16.1 14.7

KEY SUCCESS FACTORS

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 travelling for b
usiness purposes. This segment includes corporates, both domestic and foreign, w
ho open offices in the hotel premises during start-ups, corporate executives who
make extended stay either for long duration projects or while waiting for perma
nent accommodation (primarily expatriates) and convention arrivals. While the se
nior 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, con
ference halls. Also, the Food & Beverage (F&B) revenues are better as they usual
ly 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 pr
imary purpose of visit is holiday or site seeing. Among non-business foreign tou
rists the primary motivation for visiting India is largely cultural attraction f
ollowed by conferences and conventions, tourist attractions like beaches, wild l
ife, 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 becaus
e 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 o
f an annual
contract whereby, in return for a fixed rate, a certain number of rooms are prov
ided 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 mainl
y 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 tota
l hotel rooms in the country in December 2005.
ENVIRONMENTAL ISSUES
International Society of Hospitality Consultants (ISHC) represents a sig
nificant part of the lodging industry s brain power; it was disheartening that r
ising energy costs and other environment-related issues. Is it any wonder that t
he lodging industry has such a long way to go to become sustainable? Keeping in
mind that there are a lot of positive things happening in the industry, and that
there are a lot of industry leaders who do recognize the importance of environm
ental protection, here is my own list for the New Year: The Environmental Issues
Facing the Hospitality Industry in 2009.
Staying ahead of rising energy costs. Yes, the industry did get a breather from
skyrocketing energy costs in the second half of 2008, but prices were still high
er than the previous year for the fifth straight year.
Climate change. As evidence continues to mount regarding the reality of global w
arming, how will the lodging industry react? What companies will demonstrate the
greatest leadership?
Indoor air quality. Last year saw Marriott, Westin and others transition to 100
percent nonsmoking environments. What chains will be next? Increasingly, voters
and travelers are clamoring for clean air.
At the association level, the lodging industry is hungry for leadership: individ
uals to take the lead in pushing the industry toward sustainability. Who will st
ep forward?
Meeting planners increasingly will require green practices as they select their
meeting destinations. What hotel companies and cities will be best positioned to
take advantage of this trend?

There is a need for a greater environmental presence at the lodging industry s l

argest trade shows. Will that happen in 2009? The National Restaurant Assn. show
in Mumbai will feature a Green Restaurant Products Pavilion for the second year
. It will be 40 percent larger than last year. Other major industry shows -- the
International Hotel/Motel & Restaurant Show and the many large hotel chain conf
erences -- should consider similar setups.
Green lodging certification programs are popping up at the state level around th
e country. National level programs also continue to grow in India. Will 2009 be
the year when stakeholders in these programs start to talk to one another with t
he goal of establishing one green hotel rating system?
Greenhouse gas/carbon offsetting programs are becoming more common. In 2008, Vai
l Resorts announced it will offset 100 percent of its energy use by purchasing n
early 152,000 megawatt-hours of wind energy. What other companies will join Vail
Resorts and others in doing this in 2009.
These are just some of the environment-related issues the lodging industry will
face in the New Year. As you meet with your management teams this month, be sure
to set measurable, green goals and make the environment a priority. If you do s
o, you can be sure that 2009 will be a much more profitable year for everyone

DOMESTIC PLAYERS
Major players in the Indian Hotel Industry:
Hotel Chains
They comprise major players including Indian Hotels Company Limited (the Taj Gro
up) and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited
(the ITC Welcome Group), Indian Tourism Development Corporation (ITDC) and Hotel
Corporation of India (HCI) (the latter two being under the Public Sector). Most
of these chains had an established presence in one or more metro cities prior t
o the tourism boom of the 1980s. Subsequent to the tourism boom, these chains ag
gressively expanded their
presence in other locations. The private players among the hotel chains are indu
stry leaders and have well-established brand identities across the different ind
ustry segments.
Small Chains
They are companies that have come up after the tourism boom of the 1980s and 199
0s. Due to lack of prior experience in the hotel industry, these players have pr
eferred to opt for operating/management arrangements with international players
of repute.
Some of the companies in this category are Hotel Leela Venture (with Kempinski),
Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Ho
liday Inn and Hilton and now with Intercontinental). As late entrants, most of t
hese hotel companies have fewer properties, compared with the big chains. Howeve
r most of these players have initiated expansion plans during the late 1990s.
Public Sector Chains
ITDC and HCI boast of some of the best locations in major cities but are relativ
e underperformers, as compared with their private sector counterparts Internatio
nal Hotel Chains They are also looking at India as a major growth destination. T
hese chains are establishing themselves in the Indian market by entering into jo
int ventures with Indian partners or by entering into management contracts or fr
anchisee arrangements. Some of the players who have already entered or plan to e
nter the Indian market include Marriott, Star wood, Berggren Hotels, Emaar MGF.
Most of these chains have ambitious expansion plans especially with a strong foc
us on the budget segment and tier II cities.
Localized Hotel Companies
They are mainly comprise early entrants who have an established localize
d presence and who preferred not to expand during the tourism boom but focus on
building and catering to a loyal customer base.
PROFILES OF SOME OF THE MAJOR PLAYERS IN THE HOTEL INDUSTRY
The Indian Hotels Company
The Indian Hotels Company and its subsidiaries are collectively known as Taj Hot
els Resorts and Palaces, recognized as one of Asia s largest and finest hotel co
mpany. Incorporated by the founder of the Tata Group, Jamsetji N Tata, the compa
ny opened its first property, The Taj Mahal Palace Hotel, Bombay, in 1903. The T
aj, a symbol of Indian hospitality, completed its centenary year in 2003. Taj Ho
tels Resorts and Palaces comprises 59 hotels at 40 locations across India with a
n additional 17 international hotels in the Maldives, Mauritius, Malaysia, Unite
d Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East
and Australia.
The company has had a long-standing commitment to the continued development of t
he Indian tourism and hospitality industry. From the 1970s through the 1990s, th
e Taj played an important role in launching several of India s key tourist desti
nations. Working in tandem with the Indian government, the Taj developed resorts
and retreats while the government developed roads and railways to India s hidde
n treasures.

ITC/ Sheraton Corporation

ITC s Hotel division was launched on October 18, 1975, with the opening of its f
irst hotel -Chola Sheraton in Chennai. ITC – Welcome group Hotels, Palaces and Res
orts, is today one of India s finest hotel chains, with its distinctive logo of
hands folded in the traditional Namaste is widely recognized as the ultimate in
Indian hospitality.
Each of the chain s hotels pays architectural tribute to ancient dynasties, whic
h ruled India from time to time. The design concept and themes of these dynastie
s play an important part in their respective style and decor. With more and more
hotels being added at strategic destinations, the group has joined hands with t
he Sheraton Corporation to strengthen its international marketing base. A succes
sful marketing franchise for almost 25 years now, there are currently 10 ITC – Wel
come group Sheraton hotels, and more in the pipeline
The Leela Group
Founded in 1957 by Capt. C.P. Krishnan Nair, the Rs.4.5 billion Leela Group is e
ngaged in the business of ready-made garments and luxury hotels and resorts. The
Leela Kempinski, Mumbai and The Leela, Goa are two of the best hotels in India,
and have also won Considerable international acclaim. For this to have been ach
ieved in 12 short years is Nothing short of remarkable. Recently in 2001 Capt. N
air fulfilled his longstanding dream of constructing a palace hotel in the garde
n city of Bangalore.
The Leela Palace Kempinski, Bangalore is built in art deco style recreating the
grandeur of The Mysore Maharajas Palace. It is set amidst 8 acres of landscaped
garden and waterfalls. It is a palace with the heart of a modern hotel. Its 254
Kovalam is Kerala’s largest resort, built on a rock face cradled between two wide
sweeping Beaches with a stunning view of the famous Kovalam coastline.

The Bharat Hotels Group

The Bharat Hotels group is a major player in India’s tourism and hotel sector. It
operates its hotels under ‘THE GRAND’ banner and its present portfolio of hotels inc
orporates 14 luxury hotels in the five-star deluxe segment. These include Interc
ontinental ‘The Grand’ hotels in New Delhi, Mumbai, Goa & Srinagar and The Grand Ash
ok Bangalore, The Grand Laxmi Vilas Palace Udaipur and The Grand Temple View Kha
juraho. Additionally, soon to open hotels in 2008-09 are – The Grand Great Eastern
Kolkata, The Grand Jaipur, The Grand Resort Bekal, The Grand Ahmedabad, The Gra
nd Chandigarh, The Grand Noida and The Grand Fort Dubai. By 2009, the company pl
ans to open hotels in Hyderabad, Amritsar and other key locations.
The EIH Ltd (The Oberoi Group)
Asian elegance is the key to running hotels, if you ask EIH (better known as The
Oberoi Group). The company owns and operates about 20 luxury hotels, about 10 m
id-range hotels, and two inland cruises; The Oberoi Group operates primarily in
India, but also in Australia, Egypt, Indonesia, Mauritius, and Saudi Arabia. Mos
t of the company s luxury properties bear the Oberoi banner.
The company in 2004 joined forces with Hilton International to rebrand most of
its mid-range hotels as Trident Hiltons (the former Oberoi Towers is now known a
s the Hilton Towers Mumbai). The Oberoi Group also operates luxury cruises of th
e Nile River and India s Kerala region.
Jaypee Hotels Ltd.
Jaypee Hotels Limited primarily engages in the ownership and operation of hotels
in India. The company owns three Five Star Deluxe Hotels, namely Jaypee Palace
Hotel at Agra, and Jaypee Vasant Continental and Jaypee Siddhartha Hotel at New
Delhi. It also manages the operation of the hotels Jaypee Residency Manor at Mus
soorie and Jaypee Green Resorts. In addition, Jaypee Hotels involves in construc
tion operations. The company is headquartered in New Delhi, India. Jaypee Hotels
Limited is a subsidiary of Jaiprakash Associates Limited.
India Tourism Development Corporation (ITDC) / The Ashok Group:
India Tourism Development Corporation (ITDC) was established in 1966 as an auton
omous public sector corporation, entrusted with the task of helping develop tour
ism infrastructure and promoting India as a tourist destination.
The ITDC Ashok Group of hotel chains manages some of the best five star and luxu
ry tour hotels in the Indian hospitality industry. The hotels run by the ITDC As
hok Group of hotel chains may be divided into different categories; these are el
ite hotels, comfort hotels and classic hotels. The ITDC Ashok Group of hotel cha
ins manages 33 hotels in 26 different tourist destinations all over India. The m
anagement of Ashoka Group believes in offering the best in the hospitality indus
try and the staff at each of the hotels run by the group is especially trained t
o be courteous and efficient.
The Ashok Group of hotel chains boasts of running some of the best hotels in the
Indian hotel industry. The hotels that are a part of the elite and classic cate
gory of the ITDC Ashok Group are the Ashok Hotel in New Delhi, the Kovalam Ashok
Beach Resort in Kovalam, Kerala, the Agra Ashok in Agra, Hotel Jaipur Ashok in
New Delhi and the Qutab Hotel in New Delhi. Most of the hotels managed by the IT
DC Ashok Group have had the privilege of playing host to several international a
nd national dignitaries.
The Hotel Corporation of India (HCI)
The Hotel Corporation of India Limited (HCI) is a public limited company wholly
owned by Air India Limited and was incorporated on July 8, 1971 under the Compan
ies Act, 1956 when Air India decided to enter the Hotel Industry in keeping with
the then prevalent trend among world airlines. The objective was to offer to th
e passengers a better product, both at the International Airports and at other p
laces of tourist interest, thereby also increasing tourism of India.
GOVERNMENT POLICIES
Tourism being a concurrent subject under the Indian constitution, both the centr
al and state governments regulates the hotel industry. The regulations include s
tatutory and regulatory sanctions (or approvals and licenses) from the Central a
nd State departments or agencies. This includes license to operate a restaurant,
 a hotel license (issued by municipal authorities), license from police (issued
by local police) and a bar license (issued by excise department).
Tourism Policy
In order to develop tourism in India in a systematic manner, position it as a ma
jor engine of economic growth and to harness its direct and multiplier effects f
or employment and poverty eradication in an environmentally sustainable manner,
the National Tourism Policy was formulated in the year 2002. Broadly, the “Policy” a
ttempts to:
• Position tourism as a major engine of economic growth
• Harness the direct and multiplier effects of tourism for employment generation,
economic development and providing impetus to rural tourism
• Focus on domestic tourism as a major driver of tourism growth
• Position India as a global brand to take advantage of the burgeoning global trav
el trade
And the vast untapped potential of India as a destination
• Acknowledges the critical role of private sector with government working as a pr
o-active facilitator and catalyst
• Create and develop integrated tourism circuits based on India’s unique civilizatio
n, heritage, and culture in partnership with States, private sector and other ag
encies
• Ensure that the tourist to India gets physically invigorated, mentally rejuvenat
ed, culturally enriched, spiritually elevated and “feel India from within”.

The Government’s major policy initiatives include:

• Liberalization in aviation sector
• Pricing policy for aviation turbine fuel which influences internal air fares
• Rationalization in tax rates in the hospitality sector
• Tourist friendly visa regime
• Immigration services
• Procedural changes in making available land for construction of hotels
• Allowing setting up of Guest Houses
The Indian Ministry of Tourism has identified 31 villages across the country to
be developed as tourism hubs. The states in which these villages have been ident
ified include Himachal Pradesh, Gujarat, Maharashtra, Bihar, Karnataka, Madhya P
radesh, Andhra Pradesh, Kerala, Tamil Nadu, Orissa, Assam, Sikkim, Rajasthan and
West Bengal.
Government’s Open Skies Policy
The Government’s Open Skies policy, permission for domestic airlines to commence I
nternational flights, start-up of various low-cost carriers, and fleet expansion
by domestic players have created a huge incentive for domestic travelers to exp
lore far-off destinations within and outside India. The booming aviation busines
s is bringing an ever-increasing number of passengers to India, and pulling Indi
ans out of their homes and into hotels. The numbers, according to the Ministry o
f Tourism, speak for themselves:
• The number of domestic and international passengers has increased fifteen-fold t
o 73.34 million in 2005/06 since 1970.
• Domestic air passenger traffic grew by 16.8 per cent in 2005/06 compared to 2004
/05.
• International passenger traffic observed a growth of 16.9 per cent in the same p
eriod.
• Private airlines accounted for 77.0 per cent of the total domestic traffic.
Foreign Trade Policy
The Foreign Trade Policy announced in April, 2006, offered following incentives
to the hospitality industry:
Hotels and Restaurants are allowed to import duty free equipment and other items
including liquor, against their foreign exchange earnings under the Served from
India Scheme. As in previous years, this entitlement is 5per cent of previous y
ear’s foreign exchange earnings for hotels of one-star and above (including manage
d hotels and heritage hotels) approved by the Department of Tourism and other se
rvice providers in the tourism sector registered with it.
The stand-alone restaurants will be entitled to duty credit equivalent to 10pe
r cent of the foreign exchange earned by them in the preceding financial year (i
nstead of the earlier 20per cent). Service exports in Indian Rupees, which are o
therwise considered as having been paid for in free foreign exchange by RBI, wil
l now qualify for benefits under the Served from India Scheme. Also, foreign exc
hange earned through International Credit Cards and other instruments as permitt
ed by RBI for rendering of service by the service providers shall be considered
for the purposes of computation of entitlement under the Scheme. Benefits of the
Scheme earned by one service provider of a Group company can now be utilized by
other service providers of the same Group Company including managed hotels.
The measure aims at supporting the Group service companies not earning foreign e
xchange in getting access to the international quality products at competitive p
rice and providing services of international standards. This new initiative allo
ws transfer of both the script and the imported input to the Group Service Compa
ny. The earlier provision allowed transfer of imported material only.

FDI in Hotel and Tourism Sector

100 per cent FDI is permissible in the sector on the automatic route. The term h
otels Include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related i
ndustry include travel agencies, tour operating agencies and tourist transport o
perating agencies, units providing facilities for cultural, adventure and wild l
ife experience to tourists, surface, air and water transport facilities to touri
sts, leisure, entertainment, amusement, sports, and health units for tourists an
d Convention/Seminar units and organizations.
For foreign technology agreements, automatic approval is granted if:
• Up to 3 per cent of the capital cost of the project is proposed to be paid for t
echnical and
Consultancy services including fees for architects, design, supervision, etc.
• up to 3 per cent of net turnover is payable for franchising and marketing/public
ity
Support fee, and up to 10 per cent of gross operating profit is payable for mana
gement
fee, including incentive fee.
Other Government Initiatives
Government has undertaken following initiatives to attract both inbound and outb
ound Tourists:
• Incredible India - Under this program the Government promotes India through vari
ous integrated marketing programs.
• Atethie devo bhava (guests are equal to god) - Under this program the Government
create awareness among Indian people who come in contact with the tourist.
• Various Infrastructure building initiatives
• Encourage religious tourism for instance promotes various places in India as Bud
dhist abodes.
• Other projects are the Rs. 5,400 million National Highways Development Project,
the 5,846 km Golden Quadrilateral and the 7,300 km north-south and east-west cor
ridors. Sagarmala project which intends to create a network of seaports, which w
ill change the way people discover and experience real India.

FISCAL REGULATION
India s credit-starved hotel industry can now afford to heave a sigh of
relief. In a move that promises to make credit easily available to the sector, t
he Union tourism ministry has permitted the hotel industry to go in for external
commercial borrowings up to $100 million during the current financial year. Mea
nwhile, the Reserve Bank of India too has removed hotels from the commercial re
al estate classification.
This two-pronged push will make larger credit available to the capital-i
ntensive and credit starved hospitality industry at lower rates of interest, thu
s bringing down the high cost of the hotel projects.
Tourism ministry sources have that said that efforts are on to obtain in
frastructure status for hotel projects and the RBI s approval is being sought fo
r this. This will help the interest rate to go down further to single-digit leve
ls for hotels. Sources said yet another proposal of the ministry pending with RB
I is to provide fiscal amenities for creation of additional hotel room capacity
to meet the surge in demand in the tourism sector.
The ministry has been canvassing that the hotel segment of the tourism industr
y is highly capital-intensive and has a long gestation period. India is already
facing acute shortage of quality accommodation for both international as well as
domestic tourists. With the delinking of hotels from commercial real estates, p
romoters will be able to seek capital loans from banks and ease out the liquidit
y issues particularly to the new hotel projects, the sources added.
Food processing in India covers a spectrum of products from agriculture,
horticulture, plantation, animal husbandry and fisheries. While India has an ab
undant supply of food, the food processing industry is still nascent with only t
wo per cent of fruit and vegetables, and 15 per cent of milk produced being proc
essed.
• The processed food industry food industry ranks fifth in size in the country, re
presenting 6.3 per cent of GDP. It accounts for 13 per cent of the country s exp
orts and 6 per cent of total industrial investment.
• The industry size is estimated at US$ 70 billion, including US$22 billion of val
ue added products.
• FDI in the Food Processing Sector has witnessed over two and a half times increa
se from Rs 174 crore in 2005 to Rs 441 crore in 2007. It is expected that FDI in
flow into the processed food sector would be in the region of Rs 1,300 crore in
2009. This sector is emerging as one of the fastest growing sectors with interna
tional retailers like Wal-Mart, Carrefour and Woolworth taking interest in the I
ndian market.
Policy initiatives
• The Indian government has abolished licensing for almost all food and agro-proce
ssing industries.
• Automatic investment approval (including foreign technology agreements within sp
ecified norms), up to 51 per cent foreign equity or 100 per cent for NRI and Ove
rseas Corporate Bodies (OCBs) investment, is allowed for most of the food proces
sing sector.
• Wide-ranging fiscal policy changes have been introduced progressively. Excise an
d Import duty rates have been reduced substantially. Many processed food items a
re totally exempted from excise duty.
Hospitality industry in India
The hospitality Industry in India is poised for major growth. 20,000 mor
e hotel rooms are required for the Commonwealth Games. To cater to the demand fo
r rooms five-year tax holiday for two, three and four-star hotels, as well as, c
onvention centers. Hospitality India which encases various categories of equipme
nt being used, offers a platform for the manufacturers and suppliers to display
the latest state of the art equipment manufactured by them. For achieving intern
ational standards, investment is being made by manufacturers on improving skills
of manpower, in quality machinery and tools and latest technology. Areas which
have seen remarkable change in these years are bakery, laundry and food service
equipment.
AAHAR 2009
AAHAR 2009 will offer a segmentised platform for showcasing the developm
ents and progress achieved in the processed food and hospitality sectors, throug
h a wide ambit of display covering products, technologies and services, and the
scope embodied by them for investment and tech up gradation. On display will be
all kind of foods, processed food, alcoholic (subject to obtaining prior permit
from the office of Excise Commissioner of NCT of Delhi) and other beverages, foo
d processing, packaging, mill machinery and equipment; poultry and farm equipmen
t and supplies, dairy and confectionery equipment, air-conditioning, refrigerati
on and cold storage systems, air and water pollution control equipment and acces
sories, hotel and kitchen equipment and tableware, laundry, interior and house k
eeping, health and fitness equipment, consultancy services and hospitality suppl
ies.
This exposition helps the visitors from the hospitality sector to find a one win
dow solution to their need to provide hygienic environment at back of the house
(kitchen), good quality food and higher level of productivity. AAHAR also brings
together potential business partners from India and abroad and provides a platf
orm for implementing in government schemes for infrastructural development like
establishing food parks, packaging and value-added centres, integrated cold-chai
n facility, irradiates and modernized abattoir. It also offers a reliable and ti
me tested forum for B2B transactions, exploration of joint venture and technolog
ical up-gradation and sourcing opportunities.
Significantly, with 20 per cent rise in participation, the forthcoming edition o
f
the fair will be divided into two independent shows viz.

FOOD INDIA covering food and food processing sector and HOSPITALITY INDIA re
presenting hotel and restaurant equipment and supplies.

INTERNATIONAL SCENARIO
Tourism has suddenly become a booming sector. During 2007, an estimated
4.4 million tourists visited the country, registering a growth of 14 per cent. W
ith this robust trend in tourism, the hotel industry has also witnessed a rise i
n the growth and over the last decade and half, there has been a mad rush to Ind
ia for business opportunities, elevating room rates and occupancy. The Hotel Ind
ustry in India is second only to China in Asia Pacific.
India is a destination for hotel chains looking for growth. According to
the World Travel and Tourism Council, India ranks 18th in business travel and w
ill be among the top 5 in this decade.
Hotels in India have a supply of 110,000 rooms. At the current trend, de
mand will soar to 10 million in 2010. With a shortage of 150,000 rooms, likely t
o result in demand-supply disparity, room rates will see a rise to 25 per cent a
nnually and occupancy would rise by 80 per cent over the next two years. The ind
ustry seems to be fast getting rid of competition when it comes to being a cost-
effective destination.
The industry is adding about 60,000 quality rooms, currently in different stage
s of planning and development and should be ready by 2012. Government has approv
ed 300 hotel projects, nearly half of which are in the luxury range. The manpowe
r requirements will increase from 7 million in 2002 to 15 million by 2010.The ho
tel industry is set to grow at 15 per cent a year.
This figure will skyrocket in 2010, when Delhi hosts the Commonwealth Games. Alr
eady, more than 50 international budget hotel chains are moving into India to st
ake their turf. Therefore, the future scenario of the Indian hotel industry look
s rosy.
The government of India has taken a number of steps to promote tourism.
An amount of Rs 0.6 bn is to be allocated for the Commonwealth Games. Income tax
exemption for 5 years is granted to two, three or four star hotels established
in specified districts having UNESCO-declared World Heritage Sites.
The hotel should be constructed and start functioning during the period April 1,
2008 to March 31, 2013. The industry wants it to be treated at par with other i
nfrastructure sectors such as roads, ports and telecommunications and be granted
full tax benefits.
The slowdown in the global economy, rising crude prices and higher airfa
res has affected the hotel sector to a certain extent. Due to rising costs, comp
anies are facing pressure on their earnings. Plus, cost cutting measures have le
d to lower business tourist arrivals in recent times. There is an urgent need fo
r the hotels to adopt cost cutting devices. These can include using resources mo
re efficiently; minimizing waste production; using products and materials that h
ave the least negative impact on the environment, both in use and source of orig
in; pursuing action programs that benefit the environment in the local community
; and fostering the education of environmental awareness, both internally and ex
ternally.
Waste management; energy conservation; water use; and laundry and dry-cleaning s
hould be given priority because these areas have huge wastages which can be curb
ed. Paper and stationery can be recycled; air conditioners and other electrical
appliances should be switched off when not in use. Some hotels also offer free w
ine and hence it should be available in only those rooms where it is demanded. P
eople generally tend to misuse the free stuff that is available in the hotels. H
ence, it should be made available only on demand. The government should increase
its budget towards the hotel industry as it is observing high rates of growth a
nd can lead to India’s development as well.
Hotel Industry in India have supply of 110,000 rooms. According to the
tourism ministry, 4.4 million tourists visited India last year and at current t
rend, demand will soar to 10 million in 2010 - to accommodate 350 million domest
ic travelers. Hotels in India has a shortage of 150,000 rooms fueling hotel ro
om rates across India. With tremendous pull of opportunity, India is a destinati
on for hotel chains looking for growth.
The World Travel and Tourism Council, India, data says, India ranks 18th
in business travel and will be among the top 5 in this decade. Sources estimate
, 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 differ
ent guests, receiving almost 24-hour rates from both guests against 6-8 hours us
age. With demand-supply disparity, Hotel India room rates are most likely to r
ise 25% annually and occupancy to rise by 80%, over the next two years. Hotel I
ndustry in India is eroding its competitiveness as a cost effective destination
. However, the rating on the Indian Hotels is bullish.
India Hotel Industry is adding about 60,000 quality rooms, currently i
n different stages of planning and development and should be ready by 2012. MNC
Hotel Industry giants are flocking India and forging Joint Ventures to earn thei
r share of pie in the race. Government has approved 300 hotel projects, nearly h
alf of which are in the luxury range. Sources said, the manpower requirements of
the hotel industry will increase from 7 million in 2002 to 15 million by 2010.
With the USD 23 billion software services sector pushing the Indian econ
omy skywards, more and more IT professionals are flocking to Indian metro cities
. Hotel Industry in India is set to grow at 15% a year. This figure will skyro
cket in 2010, when Delhi hosts the Commonwealth Games. Already, more than 50 int
ernational budget hotel chains are moving into India to stake their turf. Theref
ore, with opportunities galore the future Scenario of Indian Hotel Industry lo
oks rosy.
Indian tourism and hospitality sector has reached new heights today. Tra
velers are taking new interests in the country which leads to the upgrading of t
he hospitality sector. Even an increase in business travel has driven the hospit
ality sector to serve their guests better. Visiting foreigners has reached a rec
ord 3.92 million and consequently International tourism receipts have also reach
ed a height of US$ 5.7 billion. Hospitality Industry is closely linked with trav
el and tourism industries. India is experiencing huge footfalls as a favorite va
cation destination of foreigners and natives and the hospitality industry is goi
ng into a tizzy working towards improving itself.

PORTER’S FIVE FORCES MODEL

INTRODUCTION
Porter’s model is based on the insight that a corporate strategy should me
et the opportunities and threats in the organizations external environment. Espe
cially, competitive strategy should base on and understanding of industry struct
ures and the way they change.
Porter has identified five competitive forces that shape every industry
and every market. These forces determine the intensity of competition and hence
the profitability and attractiveness of an industry. The objective of corporate
strategy should be to modify these competitive forces in a way that improves the
position of the organization. Porter’s model supports analysis of the driving for
ces in an industry. Based on the information derived from the Five Forces Analys
is, management can decide how to influence or to exploit particular characterist
ics of their industry.
1.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 LE
ELA 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 pow
er to attract the customers.
• The Taj, ITC& Oberoi are having various rates and tariffs. Because they are havi
ng their own brand image.
• The hotel chains are operating different services like Spas, Boatels, Resorts, C
ity Centers, Heritage HOTELS, etc.
2 . BARGAINING POWER OF CUSTOMERS
Similarly, the bargaining power of customers determines how much custome
rs 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.
• The suppliers are providing better information about them to attract the custome
rs’ .Here the buyers are highly informed.
• If the hotel price changes are moderate, the Customers have low margins and ar
e price-sensitive.
• Some unseasoned timings the hotels are offering discounts and incentives to redu
ce the bargaining power of buyers.
3.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 a
nd adjustment for existing players in this industry.
• The foreign hotel chains are tied up with Indian hotels to reduce the initial co
st and using the latter’s brand name.
• Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new entra
nts.
• Access to raw materials and Distribution channels are controlled by Existing pla
yers like TAJ, ITC, and LEELA PALACE.
• The cost of land in India is high at 50% of total project cost as against 15% ab
road. 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
%.
4. 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 p
otentially attract a significant proportion of market volume and hence reduce th
e potential sales volume for existing players. This category also relates to com
plementary products.
• Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the subs
titutes.
• 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 t
he reasons to choose a substitute.
• The present demand and supply of hotel rooms is one of the reasons to choose a s
ubstitute.
• More fixed cost and switching costs affects the business.
5. COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS
This force describes the intensity of competition between existing playe
rs (companies) in an industry. High competitive pressure results in pressure on
prices, margins, and hence, on profitability for every single company in the ind
ustry.
• The top competitors in hotel industry are having the same services like five sta
r, spas, boatels and motels, heritage hotels and palaces.
• The healthy competition among the all players is helping to increase the industr
y growth.
• Intense in metro cities, slowly picking up in secondary cities.

MARKET SHARES
The tourism in India has seen a steep decline over last 12 months and the effect
s of that have seen Hospitality Industry in India cut to half.
ASSOCHAM recently released the report on the performance of Hospitality Industry
. Mumbai terrorist attack combined with the global slowdown, have severely impac
ted the bottom line to the extent of 64 per cent of the Indian hospitality secto
r, as per the analysis carried out by the Associated Chamber of Commerce and Ind
ustry of India (ASSOCHAM).
Here are some of the key findings of the report:
• The average net profit of 10 hotels has declined by 65 per cent in Q4 FY ’09 as co
mpared to the Q3 FY ’09.
• Out of these 10 hotels, in Q4 FY ’09, 8 hotels have registered decline in net prof
it on sequential basis.
• The interest cost of 10 hotels went up by 51.65 per cent in the fourth quarter o
f FY ’09.
• The fall in total income was about 4.47 per cent as compared to the third quarte
r of FY ’09.
• The total expenditure in fourth quarter of FY ’09 rose by 7.47 as compared to the
third quarter of FY ’09.
• The share of Travel & Tourism industry to the global GDP was 6.48% in the year 2
007 with value of US$ 3,493.19 billion and industry demand contributed to 13.21%
of global GDP in 2007.
• Middle East was the fastest-growing region in terms of arrivals of international
tourists during 2007.
• According to the report by World Travel and Tourism Council, India currently ran
ks 18th in business travel and will be among the top 5 nations by the end of 201
0.
• ASSOCHAM has projected that Medical Tourism is likely to become the leading f
oreign exchange earner for India
• India is now emerging as one of the hot destinations for medicaland tourism afte
r Singapore, Thailand, Hong Kong, Malaysia, Philippines, Columbia
While the inflow of foreign tourist came down sharply and the rates shri
eked, there has been a rise in expenses as based on profitability and cost param
eters of the hotels on the quarterly results posted by hotel companies listed on
the Bombay Stock Exchange (BSE) from 1st April-25th- May 2009.
The total income of such hotels, which included income from operation an
d other income also, registered average decline by 4.47 per cent in Q4 FY ’09 as c
ompared to the Q3 FY ‘09. The income from operation also showed the average declin
e by 4.63 per cent during Q4 FY ’09. Hotel companies such as TAJGVK Hotels & Resor
ts Limited has registered decline in net profit by 41.49 per cent in Q4 FY ’09 as
compared to the Q3 FY ’09 followed the Jaypee Hotels Limited which registered decl
ine in net profit by 44.86 per cent during the same period. The other hotels whi
ch registered major decline in net profit were Oriental Hotels Limited (28.34 pe
r cent), Jindal Hotel Limited (58.12 per cent) and Howard Hotels Limited (57.28
per cent).
Performance Analysis of Hotel Industry
Parameters Per cent Change
Income from Operation -4.63
Total Income -4.47
Employee Cost 7.47
Fuel, Power and Light 11.28
Total Expenditure 19.84
Interest 51.65
Net Profit -64.80
Source:
Corporate Announcements for the year ending 2008-09.
The cost of power, fuel & light increased by 11.28 per cent in Q4 FY’09 as
compared to the Q3 FY ‘09. Among the hotels, Jindal Hotels Limited incurred maxim
um expenditure on the cost of power, fuel & light by 147.81 per cent, along with
TAJGVK Hotels & Resorts Limited (20.34 per cent), Asian Hotels Limited (17.79 p
er cent) and Despite the decline in income top line and bottom line, the cost
of hotel industry went up by 20 per cent during Q4 FY ’09 as compared to the Q3 FY
’09.
The maximum rise was incurred by Asian Hotels Limited (11.57 per cent) f
ollowed by Jaypee Hotels Limited (10.85 per cent) and TAJGVK Hotels & Resorts Li
mited (8.30 per cent). The rapid pace of expansion in hospitality sector of Ind
ia raised the interest cost borne by the Indian hotel industry. The borrowing co
st of the hotels went up by 51.65 per cent in fourth quarter of FY ’09, while the
total income decreased by 4.47 per cent during the period. The ten hotels analy
zed by the AFP registered rise in interest cost, the maximum increase was incurr
ed by TAJGVK Hotels & Resorts Limited (193.51 per cent) followed by Howard Hotel
s Limited (164.94 per cent) and Oriental Hotels Limited (89.10 per cent) among o
thers.
The employee cost of hotels also registered a rise in the total expendit
ure during the period. The employee cost of hotels rose by average 7.47 per cent
in Q4 FY ’09 as compared to the Q3 FY ’09. The hotels that witness maximum rise in
employee cost include Asian Hotels Limited (24.91 per cent), TAJGVK Hotels & Res
orts Limited (24 per cent), Howard Hotels Limited (21.65 per cent), Ishwar Bhuva
n Hotels Limited (15.45 per cent) and Oriental Hotels Limited (13.27 per cent) a
mong others in Q4 FY ’09 as against Q3 FY ’09.
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 & Internat
ional 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
Increase in the market share
WEAKNESSES
The cost of land in India is high at 50% of total project cost as against 15% ab
road.
The hotel industry in India is heavily staffed.
High tax structure in the industry makes the industry worse off than its interna
tional.
Only 97,000 hotel rooms are available in India today.
Only limited value added services
Poor support infrastructure
Slow implementation
Susceptible to political events.

OPPORTUNITIES
Demand between the national and the inbound tourists can be easily managed due t
o 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.
Open sky benefits.
THREATS
Guest houses replace the hotels.
Political turbulence in the area reduces tourist traffic and thus the business o
f 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 hot
el industry.
Lack of training man power in the hotel industry.
Fluctuations in international tourist arrivals.
Increasing competition

CONCLUSION
 This hotel industry analysis report helps to know the full information o
f Indian hotel industry. The government support towards the hotel industry and i
ts development is appreciable. It creates interest of the competitors to grow dr
astically. The hotel industry comprises a major part of the tourism industry. Th
e hotel industry contributes employment and economical growth of the country.
The report shows that the present and future skyrocket scenario of the i
ndustry. Various classes and categories of hotels and their services of the indu
stry are very effective. The market share and expansion of industry in Indian ec
onomy is rosy day by day. At present the government is very liberal in regulatin
g and licensing to the hotels because to increase foreign tourist average daily
rate.