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Business News/ Companies / News/  Tony Fernandes’s chain to give Tata’s budget hotels competition
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Tony Fernandes’s chain to give Tata’s budget hotels competition

Tune Hotels

will open 30 properties in the next three years with investment of $30 million

Experts said the group’s entry into India will make the budget segment more competitive even though demand is high. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)Premium
Experts said the group’s entry into India will make the budget segment more competitive even though demand is high. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

New Delhi: Tune Hotels, run by Air Asia Bhd’s Tony Fernandes, plans to take on Indian branded budget hotel chains including Tata’s Ginger and Lemon Tree Hotels Pvt. Ltd’s Red Fox by opening 30 properties in the next three years with investment of $30 million, up from one now.

This comes as Air Asia is collaborating with the Tata group to set up a domestic airline. It currently has just one property in India, which was opened in Ahmedabad earlier this year.

“India only has three to five branded economy hotel chains as compared to China, which has between 1,000 and 3,000 such hotel chains operational," said Mark Lankester, chief executive, Tune Hotels Group, in a phone interview.

“It is because of the industry structure that at the moment India has the biggest potential for budget hotels," he said. “We would be looking at $30 million investment for our first 30 hotels in the first phase. If India grows the way we want it to and if the consumers embrace our business model, it could be the largest single market for us."

The company, which has 30 properties around the world, aims to open two hotels every month globally through acquisitions, leases and management contracts to reach its target of 100 hotels by 2016.

Experts said the group’s entry into India will make the budget segment more competitive even though demand is high.

Tune Hotel in Ahmedabad offers rooms at 1,000-2,500 a night, while Ginger’s tariffs are 1,400-3,000. Ginger also offers so-called daily use rates starting from 999 for business travellers, who do not want to stay the night. This could hurt the overall profitability of hotel chains, which are already under pressure due to low occupancies, analysts said.

The hotel company, which had a soft launch for its first property in May, plans to leverage Air Asia’s strength to gain market share in India, targeting cities to which it flies.

“We pursue single-brand strategy. It will be same with Tune Hotels. Our strategy lies in delivering economy hotels in as many countries as possible," said Lankester. “We will be leveraging our group’s strength. We are already in discussion with Air Asia, which will be our preferred choice, to deliver packaged deals."

The hotel company will also focus on cities such as Chennai, which is Air Asia’s hub, apart from Agra, Jaipur, Delhi, Kochi, Kolkata and Bangalore.

Still, Ginger and Red Fox already have a strong brand presence and are also expanding, analysts said.

“It is going to be the volume game for these budget hotel chains, since these hotel companies need to have a minimum number of properties to ensure viable apportioning of corporate expenses," said Pavethra Ponniah, hospitality analyst at credit rating firm Icra Ltd. “The success of companies entering the branded budget space will also depend on how fast they can scale up."

Ginger Hotels, which launched its 28th hotel in the country earlier this week, plans to add more than 40 properties in the next three years, according to a report published in the Business Standard. Lemon Tree group’s Red Fox expects to add three properties to its current portfolio of four in the next two years.

The Tata-run budget chain has a market share of 20%, said P.K. Mohankumar, managing director and chief executive, Roots Corporation Ltd, which runs the chain in the country.

“Ginger Hotels currently has 2,700 rooms spread across 28 properties," he said. “We are looking at adding 470 rooms by the end of next financial year (2014-15). Going forward, our focus will be to expand to multi-locations in metros and also in tier-I cities."

Lemon Tree’s spokesperson declined to comment on the plans of competitors.

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Published: 31 Jul 2013, 12:21 AM IST
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