Home >companies >Overseas hotels eye revival in demand as growth rebounds
Starwood Hotels last month said it will relocate its global headquarters from the US to India for a month in March so that the company’s top executives could better understand and execute its business plans for India.
Starwood Hotels last month said it will relocate its global headquarters from the US to India for a month in March so that the company’s top executives could better understand and execute its business plans for India.

Overseas hotels eye revival in demand as growth rebounds

Starwood Hotels, Marriott International and rival international hotels are betting on a rebound in India's economic growth to boost occupancy

Mumbai: The Indian hotel industry may be facing one of the worst supply gluts, but that hasn’t stopped overseas hotel operators from announcing aggressive expansion plans for the country.

Starwood Hotels and Resorts Worldwide, Inc., Marriott International, Inc. and rival international hotel chains are betting on a rebound in India’s economic growth to boost occupancy and average room rates in Asia’s third largest economy.

Starwood Hotels last month said it will relocate its global headquarters from the US to India for a month in March so that the company’s top executives could better understand and execute its business plans for India.

Marriott, InterContinental Hotels Group and Wyndham Hotel Group are targeting a portfolio of 100 or more hotels each in the next three-five years as they expect the six-year-long downturn in the Indian hospitality industry to end soon. These companies already have around 30-50 hotels each under development.

There is probably some substance to their optimism. For one, India has approximately 100,000 hotel rooms for its more than one billion people. In comparison, the greater New York area alone has roughly 80,000 hotel rooms, according to industry estimates. The country will need an additional 188,500 rooms by 2021 to cater to around 1.74 billion domestic trips and 11.1 million international travellers, according to a 2012 report by HVS, a hospitality consulting firm.

The current political scenario has put a fair amount of comfort and optimism in the minds of hotel operators, developers, private equity firms and lenders, said Achin Khanna, managing director, consulting and valuation, HVS South Asia.

Since taking office with the biggest electoral victory in three decades, Prime Minister Narendra Modi has won pledges for investments worth more than $90 billion from Japan, China and the US to boost India’s economic growth, which has slowed to less than 5% in each of the past two years.

An increase in economic activity will boost travel, hotel occupancy and push up average room rates, analysts say.

“There is a renewed interest in the Indian economy. Gross domestic product (GDP) numbers going ahead are looking positive. People are talking about a bull run of at least five years. All of this will contribute to significant growth in business travel, which will drive the revival of the hospitality industry," said an industry analyst at a domestic brokerage. He declined to be named.

The performance of the Indian hotel operators has been poor for the past six years, said Khanna. “While occupancies have remained range-bound, average rates have declined for several years in a row."

Tata group’s Indian Hotels Co. Ltd is in the midst of re-looking its international portfolio and selling a few of them, while Hotel Leelaventure Ltd is looking to sell some of its prime properties to pare debt.

In contrast, Marriott is looking to open 100 hotels in India by the year 2018. “We will be opening our 25th hotel in November and we have another 49 properties which are at different stages of construction," said Rajeev Menon, area vice-president, South Asia, Marriott International.

Marriott’s development team signs around 15-20 new properties every year in India, Menon said.

Starwood will have 100 hotels in India, either operating, under development or management contracts signed, by 2015, according to Dilip Puri, managing director (India) and regional vice-president, South Asia, Starwood Asia Pacific Hotels and Resorts Pte Ltd. Starwood has 39 hotels in India across six brands and is working on developing 33 new properties.

To be sure, most of these hotels will be operated under management contracts or a franchise model, meaning the operators will not have to invest in building the property.

Wyndham Hotels Group, which operates hotels under the franchise model, announced last week it will add 10 properties to its portfolio. “There are currently 24 properties open under the Ramada, Wyndham Hotels and Resorts and Days Inn brands in India and 33 properties under development," said Geoff Ballotti, president and chief executive of Wyndham Hotel Group.

The InterContinental Hotels Group plans to run at least 100 hotels in India within the next 10 years, 46 of which are under final stages of negotiation, Mint reported in January.

For most of these firms, India is the biggest market after China in the Asia-Pacific region and also one of the fastest growing.

According to Puri, India will soon become Starwood’s third largest market after the US and China. Wyndham’s Ballotti said India is the fastest growing market for his firm and his firm should have launched more hotels as there is robust demand. Starwood and Marriott are introducing a whole range of brands that cater to different market segments, which is a significant advantage that these firms have over their Indian counterparts, said Anil Bhandari, chairman of AB Smart Concepts, a hospitality consulting firm.

Some experts have cautioned against the unbridled optimism of global hotel firms. “Just mentioning an expansion plan for a hotel is very easy but new property development in India takes the longest and the time period is around four-six years," said the analyst working with the domestic brokerage. “It is only when broader economic growth picks up that business travel will increase and that is when hospitality will start looking up."

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