The Asian currency crisis and the uncertain political climate in India could not have come at a more inopportune time for the already reeling hotel industry. International tourists are now opting for decidedly cheaper holiday options in SE Asia, a fact which is clearly reflected in the dwindling tourist arrivals and low occupancy rates which have dropped from around the 72 per cent levels in 1996 to around 60 per cent. Also with Indian hotel tariffs being markedly on the higher side, they are obviously not the first choice holiday destinations.As if these were not enough, the political climate has diminished the business interest in India at least in the medium-term. What with foreign travellers accounting for almost 70-75 per cent of the occupancy of four and five star deluxe hotels, one need not explain the implications on the hospitality industry.
Interestingly though the problems for the hotel industry do not end here. Given the fact that the hotel industry is amongst the largest net foreign exchangeearners in India, its problems obviously are a source of worry to the government. A fact which is clearly reflected in the two recent measures implemented for jump starting the tourism industry. The first being the removal of the minimum period stipulation of seven days for charter tourists. The second is the abolishment of the dual tariff system prevalent in the industry. This, to the non-initiated, is a tariff structure with one price for Indians and another price marked 20-30 per cent higher for foreign tourists.
But despite the noble intentions of the government, analysts warn about a possible fallout which could well snowball into a catch 22 situation for the hotel industry. This measure could well result in an overall increase in the domestic tariff, which would then be at par with the international levels. Given this scenario, domestic travellers would clearly object and given that they account for 40 per cent of hotel occupancies, need one explain the implications? Moreover the current recessionarytrend in industry and the general cost cutting scenario in the corporate sector also do not augur well for the hotel industry. More importantly domestic tourists and businessmen also iron out the volatility in earnings caused by the seasonal arrival of foreign tourists.
Furthermore analysts point out that for a single tariff structure to be successful, a published rate card system would have to be strictly adhered to. But given that hotels generally offer huge discounts depending on the volume of business given, implementing the single tariff structure would be impracticable.
But even despite this bleak scenario, most of the hotels are going through with their expansion plans albeit scaled down. But given that land prices are currently depressed and the budgetary provisions have also stipulated tax concessions for hotel projects in backward areas, this appears the right time to expand. Also the supply shortfall for hotel rooms seems to justify the need for expansions. But with international hotel chainslike the Radisson Inn and the Maroitt having evinced interest in the Indian market, there is a hint of overcapacities.
It has been an amalgamation of all these aspects which has made hotel stocks - the perennial market favourites, seek new lows everyday. More importantly the recent bout of rupee depreciation which generally is a harbinger of good news for the hotel industry has also failed to enthuse the sentiment in these stocks. A closer look at the prices of such hotel stocks gives one a better perspective - Indian Hotels and Asian Hotels are trading a mere 1 per cent over their 52 week low, while EIH is trading 4 per cent over its 52 week low. Similarly, Hotel Leelaventure is also trading precariously close to its all time low of Rs 49.
However in the long term, hoteliers and the government alike would do well to realise the vast untapped potential for attracting foreign tourists. Tourism promotions, co-ordination between tour operators and hotels and development of adequate infrastructure is ofparamount importance. India's tourism potential can be gauged by the fact that Hong Kong attracts five million tourists a year, compared to a mere two million in India.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
