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Global luxury hotel brands bullish on India

Canada-based Fairmont Hotels and Resorts’s 255-room super luxury property in Jaipur. The company plans to open 12 such hotels in the next 5-10 years. (Canada-based Fairmont Hotels and Resorts’s 255-room super luxury property in Jaipur. The company plans to open 12 such hotels in the next 5-10 years.)Premium
Canada-based Fairmont Hotels and Resorts’s 255-room super luxury property in Jaipur. The company plans to open 12 such hotels in the next 5-10 years.
(Canada-based Fairmont Hotels and Resorts’s 255-room super luxury property in Jaipur. The company plans to open 12 such hotels in the next 5-10 years.)

Firms cite increased demand, long-term potential, but some experts warn of competition, roadblocks

New Delhi: Four Seasons Hotels and Resorts, which operates 91 luxury properties around the world, is setting up a 5 million sq. ft complex that will house a 300-room hotel, residences and retail space in Noida on the outskirts of Delhi, all with the luxury tag.

This will be one of the largest mixed-land use developments by Four Seasons and one of 23 such projects around the world modelled after similar properties in San Francisco, Moscow and Toronto. The project is in collaboration with the 3C Company, a real estate developer in the national capital region (NCR), which encompasses Delhi and its neighbourhood. The Canada-based hotelier currently operates one luxury property in India, in Mumbai.

It’s not the only brand eyeing India. International luxury hospitality brands such as W and St. Regis from Starwood Hotels and Resorts Worldwide Inc. are ready to make a big splash in the country. Starwood operates the Le Méridien, Sheraton, Four Points by Sheraton and Aloft brands in India.

Fairmont Hotels and Resorts Inc., also Canada based, is looking beyond the 255-room super luxury property it set up in Jaipur last year. Lebua, the top-end property of Thailand-based Lebua Hotels and Resorts, is also expanding operations in the country.

There’s good reason why foreign brands are tapping the Indian luxury market. More Indians than ever are entering the ranks of the wealthy and developing a taste for luxury, said Dilip Puri, managing director India and regional vice-president, South Asia, Starwood Asia Pacific Hotels and Resorts.

Globally, Starwood has doubled its luxury room count to meet growing demand for luxury travel in the last five years, the person said.

“We have over 150 luxury hotels under our St. Regis, Luxury Collection and W brands, which is the largest luxury footprint in the world—nearly as big as Four Seasons and Ritz-Carlton combined. Over 90% of our luxury pipeline is in emerging markets, reflecting new demand for luxury in new places. With a rising middle class, growing disposable income, an affinity for luxury brands and huge pent up demand for foreign travel, India is emblematic of the growth we are seeing in regions around the world and key to our global growth plans," Puri said.

Atul Lall, general manager at the Fairmont in Jaipur, agreed with this.

“India’s luxury hospitality sector is growing and interestingly at a rapid pace...fuelled by hearty inflow of overseas tourists as well as increased tourist movement within the country," Lall said.

Fairmont is optimistic about the long-term growth story of India and it was a high priority for international hospitality chains along with other developing countries in a stage of economic revival.

Starwood has one St. Regis and four W hotels under development.

“We already have 10 Luxury Collection hotels under a franchise arrangement with ITC and have recently signed W hotels in the National Capital Region, Goa and Gurgaon," Puri said. “We also signed a St. Regis in Noida and in Delhi NCR. With the debut of W Hotels and St. Regis, eight of our nine distinct and compelling brands will be present in India. India is Starwood’s fourth largest market and will soon become its third largest market after US and China."

Vidur Bharadwaj, director at the 3C Company, said Four Seasons was a completely “green" project. “It will be the new benchmark for luxury in the Indian hospitality market and create healthy competition for major Indian hotel chains," Bharadwaj said.

The company did not disclose the investment figure, but the project cost is estimated to be in excess of 2,000 crore.

Fairmont plans to open 12 hotels such as the one in Jaipur in the next five to 10 years.

“We have already progressed in terms of finalizing a resort in Goa and a property in Mumbai. Both should start construction in the next few months," said Lall. “In India, we aim to be in key cities such as Delhi, Mumbai, Bangalore as well as in resort locations like Goa."

Kempinski Hotels SA, a European luxury hospitality brand that has a property in Gurgaon in partnership with Leela Palaces, Hotels and Resorts, is now eyeing five luxury properties in India—one each in Udaipur, Mumbai, Hyderabad and a city in Kerala over the next few years. It recently opened a hotel in east Delhi.

However, industry experts say that these companies may face roadblocks on account of slower short-term growth as well as competition from luxury chains based in the country such as the Indian Hotels Co. Ltd (IHC), which operates the Taj group of hotels, and Oberoi Hotels Pvt. Ltd, which is known for its flagship super luxury properties such as the Rajvilas in Jaipur, the Amarvilas in Agra and the Udaivilas in Udaipur.

“At present, the premium segment has an oversupply. In an economy where demand is low and supply is high, any global chain entering India will find it difficult to settle because of their limited flexibility to lower prices as they need to protect their brand image," said Pavethra Ponniah, a hospitality analyst at credit rating firm ICRA Ltd.

“If the luxury brands target only the high net worth individuals, the traffic won’t be high. They need corporates and leisure travellers who are now cutting down on travel," she added.

She said luxury companies are entering the market with a 10-15 year time frame.

“They sense increasing money with Indian consumers and in the entire system. Over the longer period of time, the market and the demand will pick up, which will then absorb the supply that is coming in," she said.

The domestic luxury brands, which control more than 50% of the segment, are expanding their footprint to protect their market share. IHC plans to have 200 properties around the world by 2018, the majority of them in the luxury segment.

A spokesperson said the Taj Group commands a 30-32% share of the luxury market.

“Taj has a 100-year legacy in India, which the competition can never match. We also commanded a 13-14% premium over our competitive set in the year ended December 2012. Going forward, 15% of our inventory pipeline over the next five years will be in the luxury segment.

In an earlier interview to Mint, Raymond Bickson, managing director and chief executive officer of IHC, said that when foreign hotel chains come to India, they “look at three major players which control 50% of the market today. For them to enter into this market is like us entering into those markets which are very mature and the barriers to enter are really high".

ITC Hotels, which last year inaugurated the 600-room ITC Grand Chola luxury hotel built on more than 1.5 million sq. ft of land in Chennai involving an investment of 1,200 crore, plans to have a portfolio of 150 hotels in the years to come.

It has three hotels under construction in the super premium luxury segment and another four at the planning stage, the company said in a reply.

However, representatives of foreign chains say Indian consumers have evolved and international hotel brands may have a better chance of success as the market has changed.

“Indian luxury consumers are as good as the consumers in other parts of the world. They are educated, well-travelled and know the product. India is now used to a taste for luxury products like BMWs or Porsches," said Vella Ramaswamy, general manager of the new Kempinski hotel in east Delhi.

Deepak Ohri, chief executive of Lebua Hotels and Resorts, which recently entered into a management contract to operate three luxury resorts in Rajasthan, said, “With an upsurge in lifestyle spending, India is one of the fastest growing luxury players in the world. The new species of aspirational customers is here to stay and likely to contribute a considerable share to luxury market revenues."

Ponniah of ICRA agreed. “Even though a lot of services offered by premium hotels like exclusive butlers or customized services are the same around the world, the global brands coming to India may give the domestic market a different flavour. For example, global luxury hospitality companies have very strong loyalty schemes that Indian players had not capitalized on earlier," she said.

Besides, hospitality markets overseas have strong categorization in terms of star ratings. In India, a four-star hotel may provide five-star services. “With the entry of these global brands, the standardization of the experiences and services provided by each of these star-rated categories will become clearer," she added.

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