Overview: The Indian hotel industry has emerged as one of the key industries driving the growth of the services sector and, thereby, the Indian economy.
The various types of hotels in the world are typically classified as business hotels, resort hotels, airport, extended apartment hotels, resort hotels, timeshare hotels, casino hotels, convention centers and conference centers.. At present, the other segment, comprising mainly of budget hotels, is witnessing maximum growth since it is highly affordable.
The sector’s total contribution to GDP stood at US$ 208.9 billion (9.6 per cent of GDP) in 2016 and to rise by 6.7 per cent pa to Rs 28,491.8 billion (US$ 424.5 billion), 10 per cent of GDP in 2027.
Year 2017 was a year of disruption and turbulence for the hospitality sector. It witnessed the impact of two major government policy decisions - demonetization and GST, along with the Supreme Court ruling that banned the sale of liquor in all commercial establishments located on or within 500 metres of any national and state highways, setting back the hospitality industry’s hopes of improved performance after it garnered some tail winds in 2016.
The demonetization move and the liquor ban, which dampened the business sentiment in early part of 2017, are now left behind. Once again this resilient industry has taken the losses and moved on, as the high GST tax brackets for the sector continues to act as an impediment along with the definition of its applicability on the ‘published tariffs of hotels’.
Synopsis:
Demand and Supply- There is slower growth in the new hotel supply but the demand remains high due to business travelers and tourist traffic. Also, there is an increasing demand for medical tourism.
Barriers to Entry- There are barriers to entry in the hotel industry due to economic risks, high capital costs, competition in the industry, poor infrastructure facilities and scarcity of land.
Bargaining power of suppliers- Suppliers have limited bargaining power in the Hotel industry in India due to high competition, especially in metros.
Bargaining power of customers- Due to increasing room supply in the industry, customers have a strong bargaining power, especially in metros.
Competition- Competition is intense in metro cities, slowly picking up in tier-2 and tier-3 cities. Competition has also picked up due to the entry of foreign hotel chains. Also, there is an increasing competition from the startups/online industry due to the increasing penetration of the internet.
Demand Outlook: Hotel demand is closely linked to factors such as macroeconomic policy, economic development, transportation infrastructure and particularly to the growth of commercial real estate and tourism. The relationship between the hospitality and the commercial real estate market is largely symbiotic with the density of office space being closely linked to hotel demand in India. Tourism has steadily become a significant industry in India and both an employment generator and a significant source of foreign exchange for the country, which has had a cascading effect on the hospitality sector, with impressive growth in leisure markets across the country.
Growing Trends Fuelling Growth:
1. Emergence of new formats- With a rise in online competition, popular models have come up with online travel agents (OTAs) offering a single marketplace for all travel-related needs. There are also seen meta search engines like TripAdvisor and MakeMyTrip, that operate like travel discovery platforms. Further, online accommodation reservation services like Oyo Rooms have gained popularity. Apart from this, branded hotels are seen operating direct bookings through their websites.
2. Ease of travel and visa- The number of e-tourist visas issued reached 1.7 mn in 2017, accounting for approximately 17% of total arrivals. FTAs through e-tourist visa, registered a growth of 57.2% y-o-y. The e-visa scheme was introduced in 2014 and currently covers 163 nations for entry into India through 5 sea ports and 25 international airports. Further flexibility was introduced in 2017 allowing foreign tourists to stay for two months
Conclusion: Despite a lag in 2017, the hotel transactions market of operating assets in 2018 is poised to see a quantum leap thanks to the overall improving macroeconomic scenario in the country and enhanced leisure and corporate travel. This would be the third consecutive year of improved hotel operating performances and steady decline in the new hotel supply.
With demand growing at a robust pace and supply additions slowing, while markets such as Pune and Jaipur showed exceptionally strong growth, others including Gurgaon, Chennai and Goa were flat or showed moderate growth.
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