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Cover Story
Crossing over
Crossover consolidation and partnership is the latest. While
hospitality players are finding lucrative propositions in travel companies,
they in turn are looking to invest heavily in hotels. Sanjeev Bhar delves
deeper into the travel-hospitality nexus.
 Some
of the big hotel chains in India have of late shown a strong inclination to
partner with different segments in order to tap every nook and corner of the
hospitality market. Small travel companies who need to deal with hotels are
now exhibiting interest in forming a hotel subsidiary as a part of their portfolio.
High room demand, high occupancies, and an even higher room rate are reasons
enough. The best part is the aggressiveness, the commitment and the assurance
with which these travel companies are marching ahead to balance the hotel demand-supply
graph, especially in the budget segment.
But there is more. There have been a series of issues that tour operators and
agents have been dealing with. Taxation, discounts for operators, blockage of
a certain percentage of rooms during the peak season are just a few of them.
The Indian Association of Tour Operators (IATO) has a lot to say on service
tax incurred by tour operators for the services provided by them with respect
to foreign tour operators and travel agents. The dissatisfaction arises from
the fact that tour operators are being made to pay up taxes one after another.
According to Gour Kanjilal, executive director of IATO, "Hotels have an
option to directly deal with foreign tour operators. Here, overseas tour operators
are getting an exemption of 4.896 per cent of service tax and approximately
10 per cent on commission, whereas through us service tax would go directly
into the government's kitty."
| One product that has already made its entry in the
Indian travel market is travel insurance, which is at a very nascent stage
in India. Whatever has been experienced in this arena is primarily the outbound
tours. But with chances of domestic insurance service soon taking over domestic
travel, there will be additional scope for travel companies to leverage
from it. Companies that are looking forward to providing such insurance
instruments are forthcoming of the developments in the travel and hospitality
sector, where both are merging in a manner that would eventually help customers
at large. Pankaj Chaudhary, travel relationship manager, Tata-AIG General
Insurance, feels, "Tour and travel operators intending to move across
the supply chain (hotel segment) will certainly have corporate clients.
This will be more so in the case of timeshare or holiday resort properties."
He suggests that the tour operators can be distribution
partners of insurance companies and be the beneficiaries of the commission
that is due to any agent whenever insurance is sold to a corporate domestic
policy. Based on the strength of their existing relationship within the
corporate, they can help insurance companies in sourcing such business.
"Alternatively," he adds, "there is a possibility that
such companies will be able to get a cover created in their names and
negotiate bulk rates from insurance companies and retail it to their customers
on a 'cost plus' basis. Although there are some regulatory issues in this
idea, none of the companies in India are doing it as of now. Tour/travel
operators can also align with insurance companies considering their interest
in venturing into the hotel business." However, a word of caution:
the right synergies have to be achieved while getting into two different
business domains.
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IATO comes to the rescue
To counter this, IATO is promoting its members who are willing to invest in
hotels. E M Najeeb, chairman of IATO (Kerala chapter) says, "IATO is promoting
those operators who wish to open hotels especially in the metros or hill stations.
It is easy to get financial assistance from banks these days and the whole idea
should be seen positively by the industry." He is of the opinion that an
integration of this kind will be beneficial for everyone. As per IATO, the comparative
impact due to increase in service tax on tour operators with effect from April
18, 2006 has been:
- Hotel accommodation (room only basis) - 1.224 per
cent of total bill
- Hotel accommodation with meals - 4.896 per cent
of the total bill.
However, Deep Kalra, CEO of Makemytrip.com disagrees. He remarks, "The
primary reason for them getting into hotels may not necessarily be to integrate
business. This can be viewed as a natural progression to expand their horizons.
Hotels are fixed assets and are capital-intensive, and offer regular returns
considering the demand for rooms today."
Moreover, the Federation of Hotel & Restaurant Association of India (FHRAI)
is also seeing this positively. According to Rajesh Mishra, FHRAI president,
there have been some late entrants in this field as these entrepreneurs of travel
industry were handling tourists booking and a measure of diversification. He
says, "A few of them are coming into the hospitality fold. There is nothing
to worry about; this will only enhance tourist services and make it available
at a reduced rate. Otherwise a travel agent's commission of 15 per cent to 20
per cent of the tariff is always passed on for booking the hotel rooms and in
budget segment. In smaller cities such developments are welcome."
Of course, any effort of reducing the tariff is a welcome development. On the
other hand, Mercury Travels presents us with a perfect reverse angle to these
developments. Considered to be one of the early birds in travel agencies, it
enjoyed the upper hand for being a subsidiary of the Oberoi Group of hotels
with a marketing office located in Frankfurt, Germany, which was sold off last
year. East India Hotels (EIH), which owned and operated the company since its
inception in 1948, sold it off with rising stakes on the travel front. However,
its corporate association with EIH still remains intact to see diametric growth
in both the hotel and travel segment. FHRAI, too, being the apex association
of the hotel and restaurant industry has already made its point clear. Mishra
says, "Once these tour operators become hoteliers they can also become
FHRAI members and the facilities and benefits, which we provide to our all FHRAI
members will naturally be extended to them as well."
| Even as business ventures in the hospitality and
travel sectors gain importance, the profit margins for both are diminishing
steadily. Nangia points out, "Industry is on a high but the bottomline
profits are diminishing. This is forcing companies to venture into alternate
modes of revenue. I feel this is the right time to venture into other related
niche areas to tap the opportunity."
Therefore it is quite possible to see that travel companies
and transporters are slowly getting into the portal business, especially
for hotels. There has been a significant growth in the online travel industry.
With recognition of the online medium's strength, the entire procedure
for making a reservation has drastically changed. Today, in India, 25-30
per cent of the total revenue that travel agents are generating is through
online bookings, which is also encouraging these travel companies to have
their own portals. Commenting on this is Deep Kalra, CEO, Makemytrip.com
who says, "Online business through travel portals vis-à-vis
individual company domains is fundamentally different. Even today, when
the online medium is doing good business, most of the travel companies
are getting negligible revenue through their own sites; travel portals
are doing the rescuing act." Nevertheless, having both travel and
hotel domains in their kitty will enable these companies to offer better
packages and keep the inventory of hotels brimming.
So, the signals are very clear; travel companies hooked
to travel portals' services should stick to them as that will also offer
them leverage in terms of hotel bookings in future when the infrastructure
is up and running apart from what its tour arm has to offer. According
to Kalra, foreign tourists are happy to go to lesser-known accommodation
options, which is good. "We are always looking at providing our customers
with remote budget hotels, which can be promoted through photographs on
our site. But they have to be unique and provide good service," he
adds.
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Going budget
Leisure Hotels’ Corbett Hideaway in Uttaranchal |
Most of the companies that have chosen to diversify their
portfolio have made a very conscious decision of overlooking high-end properties.
The fixation for budget category of hotels comes from the fact that there has
been an immense demand to accommodate tourists who don't mind shelling out US$
45-50 per night. Though supply for such accommodations at present is marginal.
Amrit Mann, director of Mann Tourist Transport Service, says, "We are going
to invest in budget category of hotels (three-star) with a 100-room inventory.
At the moment we are looking at options available for land sites."
Commenting on reasons why he chose to invest in the budget segment as his next
venture, Mann has an honest answer. He explains, "I operate one of the
leading transport services and know the pulse of the inbound tourists. If we
analyse the present situation in travel, 40 per cent of foreign tourists coming
to India land in Delhi from which approximately 50 per cent travel to the Golden
Triangle circuit where finding quality budget hotels is very difficult."
Mann's plan of setting up 100-room hotels is estimated to be around Rs 7-8 crore
each. Adding emotional flavour to his new business venture, he explains, "Funding
today is not so difficult. It is primarily the right location and the will to
achieve the dream. I have an image of what I want my hotels to look like and
this would certainly add warmth to the whole project. I don't see it as a mere
business step; it has more to do with realisation of a wish at a personal level."
Similarly, Citizen World Travel & Treasure Tours has plans to focus at key
getaway cities across the country, eyeing the airports to attract airline crew
and inbound traffic from its own tour operating arm. The target is mid-segment
hotels in three- and four-star categories with inventory of 100 rooms each.
Iqbal Mulla, its CMD and MD, is of the opinion that diversification is a natural
choice towards building a company that will integrate the travel and hospitality
business.
Meanwhile, Indo Asia Leisure Services (IALS), erstwhile Indo Asia Tours, was
focused on travel. But with the growing concern of hotel room shortage, the
company has joined in to develop its own hotel arm with an eye on three-star
category hotels. It started expanding its hotel portfolio last year with three
properties at Madikeri (Coorg), Jaipur and Hampi. According to Sunirmol Ghosh,
the company director, "We want to target resort destination travellers
by giving facilities of four-star hotels at a three-star cost. The idea is to
integrate our tour operating business and following it up with more hotel projects
to existing properties in Jodhpur (which is a tie-up venture), hotel Heritage
Resort in Bikaner, Jaisalmer (with a 50 per cent share in a three-star property)
and one at Madikeri in Coorg, Karnataka."
The group has clearly defined its interests - it will not venture into the five-star
segment. Gajender Singh, director of IALS, who also heads the hotel division
i.e. Indo Asia Hotels, says that there are not many tour operators who have
come to develop hotels and we are already operational. "When we started
our hotel in Bikaner, there were not more than 50 good rooms over there. How
many actually take interest to develop a circuit and promote a destination by
providing rooms for travellers?" he questions. According to him diversifying
into hotels was quite an obvious step for IALS, especially when there is huge
scarcity of good, comfortable rooms in the middle class segment. The company
is also looking at completing the western Rajasthan circuit for its hotels where
rooms are priced at US$ 50-70 per night. "A traveller coming for a two-day
trip to a city doesn't avail facilities that a five-star provides, which is
why three-star hotels with nice living environment is needed at every tourist
destination worth its salt," Singh argues.
| Leisure Hotels, that owns 14 properties only in the
state of Uttaranchal, wants to integrate its business. Speaking to Express
Hospitality, Vibhas Prasad, director (business development) of Leisure Hotels,
says, "We are planning to backwardly integrate our business by bringing
travellers from across India to Uttaranchal. For that, we are planning to
set up a separate division which will look into the areas of getting more
bookings, having an online presence, thereby adding value to those wishing
to stay at our hotels in Uttaranchal." The company has hotels in areas
where adventure tourism is proliferating like elephant/jeep safaris, nature
walks/treks/hikes, bird watching, white water rafting, rock climbing/rappelling,
river crossing, etc. "Since the age of travel agents is soon losing
its essence with the rise of online presence, we are looking at backward
diversification which would contribute to our business," says Prasad.
The company is planning to launch its business division within the next
six months, which will focus on the future need. It has resorts like The
Corbett Hideway, The Naini Retreat, 5 Elements at Rishikesh, The Fort Unchagaon
at Garmukhteshwar which are attracting adventure traffic. Prasad adds, "The
newly-formed business arm will also concentrate on bookings where we may
not provide such services but facilitate them to reach their destination."
By doing so the company intends to attract travellers (FITs, corporates
and others) from all over India to Uttaranchal and build its brand. |
Desperately seeking expertise
The companies venturing into the budget segment are not alone in talking about
the dire need for such accommodation. Kalra says, "The move by travel companies
needs to be appreciated. Looking at the present scenario, the demand will remain
so for many years to come and therefore, the step by tour operators or travel
companies rising to the occasion by addressing the budget accommodation need
is a welcome move." Rajeev Nangia, associate director (operations) of TRAC
Representation (India), says, "The basic force that is driving this trend
is the viability for small operators to venture into the (budget hotel) business."
In this scenario, the only thing that goes against the tour operators is their
lack of expertise in this field. Senior hotel professionals refrained from speaking
against tour companies' new role in hotel management. According to them, lack
of hotel expertise could have a boomerang effect and the results could be fatal.
Rajinder Rai, vice president of Travel Agents Association of India (TAAI) and
chairman and managing director of Swiftravel International has a two pronged
opinion. He says, "We have to see the whole picture in a sound manner.
No single entity or any travel association should get into the business and
announce plans hastily without pondering. Individual travel agents and tour
operators can boost their businesses looking at the demand for more rooms especially
when they are facing the brunt of high room rates, taxation, etc. There is a
clear message for the hotel industry."
So, are there any trends that we can expect from the hotel sector? Mishra
sums up by saying, "I do not find any interactive trend in the hotel industry
except that the current trends will alert existing players in the field to be
more cost-effective and proactively serve the customer." Travel truly is
on a hospitality role.
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