Are High Hotel Tariffs Damaging India’s Tourism Potential?

Industry analysts fear that the current boom which the Indian hospitality industry is witnessing will not last. The prime reasons cited are steep hotel rates and shortage of rooms. Leading tour operators, in conversation with Bhisham Mansukhani and Charmaine Fernz share their opinion on this current scenario...

The Indian hospitality’s current occupancy boom, which revived the industry from its days in shambles, is now posing a serious threat to the supposedly resurgent inbound tourism sector. Inbound tour operators have unanimously cited both the steep Average Room Rates (ARRs) and shortfall in inventory as key deterrents that keep tourists from visiting India.

Tour operators state that the problem is twofold, while the consequence is simply a low number of inbound tourists.

Ashwini Kakkar, CEO and MD, Thomas Cook India Ltd

“The problem is particularly serious in the metros. We are not just talking about incredibly high room rates which are disproportionate to the regional benchmark but the absolute non-availability of rooms at any cost. The implications of this in terms of the country’s economy, and Foreign Institutional Investment(FII) approach is far reaching and mostly detrimental. Our nearest and most formidable competitor, China has more than 100,000 rooms in its key industrial hub Shanghai. However India, which claims to draw parallels with it, has a paltry 92,000 rooms across the country. While in some cases, rooms available at an exorbitant cost might not deter the business traveller, there is not a compelling enough reason for tourists to spend such large sums on stay alone.

Thus, inspite of reforms on the aviation front and the Ministry Of Tourism campaign, Incredible India, inbound tourism is threatened by stagnation.”

Neeraj Ghei, director, Select Vacations

“The cost of hotels is indeed an expensive proposition. This demand-supply issue is short-term and mainly due to a lack of rooms. Hotels look at this opportunity as the best possible way to extract maximum prices. In the future, more development of hotel rooms will ensure lower tariffs and more supply. If one has to compare the Indian hotel rates with their South East Asian counterparts, Indian hotels are 50 per cent higher.”

Rohit Kohli, director - operations, Creative Travels

“India as a destination has indeed out-priced itself and in comparison to its competitors it has lost the competitive edge. What the inbound industry is witnessing is an increase in pricing without hotels actually improving the quality and standards. In fact, to cite an example, this summer season has witnessed a reduced growth of about 10 per cent as compared to last year’s summer season. One needs to realise that the hotel component forms quite a major portion of a travel or tour package. And considering that these hotel prices fluctuate at about 100-150 per cent, it certainly leaves the market in a very dicey position.”

Ajay Bali, CEO, TQ3 India

“There is an approach tour operators can use to an extent to hedge their risks. Negotiated rates are one way that tour operators can insulate themselves against a spike in room rates and even shortage of rooms. However, this approach of pre-booking gives both the tour operator and his client little or no room for manoeuvre to itenary or number of days spent in India. For instance, tourists will be reluctant to make impulse trips within the country which would have otherwise added to the tourism economy, which is typically the strength of a long haul destination. Room rates have gone up by 30 per cent.

Lalit Sheth, chairman and managing director, Raj Travels

“In the long term, when this trend of high occupancies abates, which is inevitable, hotels will realise how vital the tour operator is to their business. They must not take this myopic view of the situation. At the same time, it is understandtable that they want to cash in on the boom and they can do that in a positive way by adding to their current inventory. Pattaya had a similar situation many years ago when the upsurge in inbound tourism wasn’t met with a proportionate number of hotel rooms. The government stepped in with cheaper land rates and loan availability at 2.5 per cent annual interest.

Himmat Anand, COO (India and South Asia), SITA Incoming

Hotel pricing in a tour package is a relative situation. One needs to understand the profile of the destination and then the price factor. Where India is concerned, though it is a varied destination and has a lot to offer, it is not an up-market destination and prices are just charged up. There is a big differentiation between the product perception and product pricing, where India as a tourist destination is concerned. These increased rates have only been witnessed in the last 12 months, wherein the domestic market has been very bullish. One needs to understand the market dynamics, if the hotel rates are suddenly increased, it would eventually outshine as fast. This trend is only noticed in the Indian Metros, while the rates remain pretty low in the smaller cities. A major problem is certainly lack of rooms and more demand rather than supply.”

Burjis Mehta, business head, ITH

The problem is easing out. There are many projects in both Mumbai and Bangalore which are in various stages of completion. I foresee ARRs in central and north Mumbai to settle at a level of Rs 5000.