Mid-priced hotel market to diversify risk for foreign chains

Mid-priced hotel market to diversifyriskfor foreign chains

New Delhi:Carlson, Marriott International Inc. and other foreign hotel chains are expanding mid-priced properties—considered the least vulnerable to an economic slowdown—in India, targeting local leisure and business travellers as overseas companies cut travel spending in anticipation of another global recession.

Mid-priced hotels bridge the gap between luxury and budget hotels with room rates of 4,500-7,000 a night. As the demand from international business travellers softens in India amid the European Union’s debt crisis and economic slowdown in the US, foreign hotel operators are targeting local businesses.

International luxury hotel brands get 40-50% of their revenue in India from overseas visitors, according to hotel operators and analysts. The accelerated expansion plans of foreign brands in the Indian mid-priced segment are to an extent aimed at providing a cushion against a slowdown in the luxury segment, said Subrata Ray, a hospitality analyst at credit rating company ICRA Ltd, the Indian unit of Moody’s Investor Services.

These chains are also expanding because the segment was unorganized and largely untapped till recently, Ray said. Hyatt, InterContinental Hotels Group Plc, Carlson, Marriott and Hilton, which started expanding in India after the global recession in 2010, trying to fill the shortage of branded rooms in India, particularly in the mid segment, are set to continue with their plans.

A Deloitte report said the tourism ministry puts the shortage of hotel rooms in India at 150,000. “In case of an economic slowdown, we believe the strongest growth will be across the budget, economy and mid-scale segments," said Jean-Michel Casse, senior vice-president of operations at Accor India. The group operates three hotels in the mid-market segment and has 19 more in the pipeline. “Our plans have not and will not change with the present macroeconomic scenario," Casse said.

The mid-priced segment accounts for 30% of the organized Indian hotel industry, according to consultant Grant Thornton. “With a slowdown almost always lurking at the horizon, there would be renewed interest in providing quality hospitality options in the mid-tier market," said Vinamra Shastri, partner and practice leader, business advisory services, Grant Thornton. Corporate business has already started to shift towards serviced apartments and mid-priced hotels, he said.

The Hyatt group plans to start its first 14 mid-segment hotels by 2012 under the brand Hyatt Place. Carlson, which operates 15 hotels in the segment under the Country Inns and Suites brand, is set to add 38 hotels by 2015.

InterContinental plans to open 32 mid-priced hotels between 2011 and 2015 under the Holiday Inn brand, taking its number of such hotels to 37. “There would be an cceleration to creating more facilities in smaller cities, thereby diversifying the risk and at the same time creating brand awareness," said P.R. Srinivas, India head for hospitality at Deloitte.

“Hoteliers in India want to reduce their dependency on the foreign tourists and focus on domestic tourism, so that if there is a recession and countries take austerity measures, it would not hurt their India operations," said Sudhir Andrews, a hospitality industry expert and the dean of Ecole Hoteliere Lavasa, a hospitality management institute.

There were 740 million domestic tourists in India in 2010, an increase of 10.7% from a year earlier. Domestic travel spending in India is expected to generate 83.8% of travel and tourism’s total contribution towards gross domestic product in 2011, according to a World Travel and Tourism Council report.

India has around 10 prominent foreign hotel brands operational, and a report by Cygnus Business Consulting and Research says 40 more companies may enter the country in the next five years with an investment of 44,800 crore.

Foreign brands have a 19% share in India’s mid-priced hotel segment, according to Deepak Sharma, a former secretary general of lobby group Federation of Hotel and Restaurant Associations of India, and they compete with local brands such as Pride, Lemon Tree, Royal Orchid, Fortune and Ginger