18 Jan, 2013

FREE Download: FHRAI’s Indian Hotel Industry Survey 2011-12

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New Delhi – Just a few days before the opening of SATTE 2013, the Federation of Hotel & Restaurant Associations of India (FHRAI) published the 15th annual edition of the Indian Hotel Industry Survey, in cooperation with HVS Hospitality Services. The survey includes in-depth information about the performance of hotels across various cities and provides several benchmarks for comparing hotel performance in India. It analyses the performance of Indian hotels across parameters such as facilities, manpower, operational performance, and marketing trends.

The following is an extract of the key issues & trends in the Indian hotel industry mentioned in the report. The full report can be downloaded free here: HVS – Indian Hotel Industry Survey 2011-2012

Travel Impact Newswire reports on SATTE are supported by UBM, the event organisers, and Creative Travel, India. Click on the logo for more details.

Overall Performance: The year 2011/12 was a period of resilience for the Indian hotel industry. A slowing Indian economy coupled with depressed global economic conditions posed a threat to the industry. Nationwide occupancy, however, witnessed only a marginal decline of 1.9% in 2011/12 as compared to 2010/11. Average rate, on the other hand, increased by 2.2% in 2011/12 over that in 2010/11. HVS estimates that while hotel supply across major cities witnessed a growth of 15% in 2011/12, demand exhibited a strong increase of 12% during the same period1. Thus, although nationwide occupancy decreased in 2011/12, it is vital to note that it was primarily due to supply pressure and not due to an absolute decrease in demand.

The more serious challenge currently facing the hospitality industry is inflation, which was recorded at 8.8% in 2011/12. High inflation levels throughout the year resulted in increased overhead costs. Consequently, although the top line improved in 2011/12 over 2010/11, the net income percentage declined by 3.1%. In particular, the increase in departmental expenses as a percentage of revenue together with the PAR increases in Administrative & General and Energy costs resulted in the reduction in bottom lines.

Shortfall of Trained Manpower: The hotel industry is at an interesting stage, where it is witnessing a flood of international and domestic hotel companies opening new hotels across market positioning and locations. Additionally, with the growing disposable income of the Indian consumer, we see that the domestic traveller is becoming far more discerning and demands superior products and services. One of the biggest challenges facing most hotel companies today as they try to keep pace with the growing supply of new hotels is the recruitment of trained manpower, to maintain quality and professional service delivery and product up-keep.

This year’s survey reveals that the average percentage of trained employees per hotel is 83.3%. While this average has witnessed a growth of 6% over that in the previous year, none of the staffing levels (manager/supervisor/staff) have achieved an average of 100%. Going forward, HVS believes that with supply expected to increase by nearly 111% in the next five years1, the demand for high quality professionals will continue to increase and will also lead to a steady rise in compensation levels. Additionally, HVS has noticed a decline in the quality of service offered by hotels in India confirming the lack of trained manpower. We also note a shortage of skilled staff in the two-star and three-star categories of hotels. In order to cultivate a suitably trained workforce, more vocational institutions will need to be set up. Moreover, hotels would need to maintain considerable focus on training, development and multi-skilling of their manpower to ensure efficient utilisation and to cope with rising manpower costs.

Changing Market Segmentation: The Indian hotel industry at large caters to more business guests as compared to leisure travellers. This is mainly because a major portion of the hotel supply is located in key metropolitan cities which are primarily business destinations. This year’s survey reveals an interesting trend: a decline in the ratio of business travellers to leisure travellers. The percentage of business guests decreased to 58.8% from 60% last year. The increasing use of internet and video conferencing tools to conduct meetings coupled with cost-cutting initiatives in a depressed global economic scenario has resulted in a decline in overall business travel. Also, the average length of stay of business guests decreased to 2.7 nights from 3.0 nights last year.

The Leisure segment, on the other hand, grew by 3% over last year. Additionally, the overall average length of stay of leisure guests has improved from 2.3 nights last year to 3.0 nights this year. This increase has been led mainly by domestic travellers who, as mentioned earlier, have improved disposable incomes and a greater keenness to travel. The domestic leisure segment is drawing more and more attention from the industry, with family vacation packages and wellness and rejuvenation holidays marketed extensively by hotels and travel companies, especially during the summer months when schools break for holidays and over long weekends and festivals.

With respect to foreign leisure travellers, the average length of stay declined from 3.4 nights last year to 3.2 nights this year. Also, average spend witnessed a decline as reflected by the decreasing Foreign Leisure – FIT segment, typically a higher yielding market segment within Leisure demand.

Mix of Country of Origin of Guests: The United Kingdom and the United States of America remain the largest international source markets for the Indian hospitality sector, contributing 24% of the overall demand. Although these countries continue to contribute the biggest portion in percentage terms, their share has declined by 14% since 2007/08. While we expect this trend to continue in the future, demand from the SAARC nations and Middle Eastern countries has grown steadily. Also, hotel guests from countries such as China and Japan have shown healthy increases over last year (8% each). The rise in visitation from Asia and Middle Eastern regions may be attributed to improved connectivity, easier visa norms, infrastructure development, and strong marketing efforts.

Increasing use of Internet: Internet is increasingly becoming an important medium for communication, generating reservations, and marketing across hotel categories. Nearly 95% of the hotels participating in this year’s survey have reported to using e-mails for communications. At the property level, while direct enquiries continue to contribute the maximum share of reservations, online sources such the global distribution systems, hotel websites, online travel agencies and other online reservations systems are slowly gaining share. Presence on online channels enhances a property’s visibility and reach, two vital components required to generate business in a highly competitive environment. Within online marketing, hotel managers are beginning to use tools such as search engine optimisation, pay per click, mobile website marketing, social marketing, and viral marketing. Moreover, having a dedicated online marketing team either at the property level or chain level that focuses on reputation management, adoption of multi channel initiatives and website analytics is a rising trend within the Indian hospitality industry.

Sustainable Operations: This year’s survey reveals an overall increase of approximately 9% in energy costs on a PAR basis as compared to the previous year. Given the increasing demand and cost of electricity and the rapidly declining water table levels, it has become essential for hotels to invest in environmental sustainability. The impact of increasing demand for electricity can result in non-fiscal consequences as well, such as mandatory reduction in power consumption stipulated by local electricity boards, or the simple non-availability of fresh potable water. Adopting “Green Practices” have been proven to lower operating costs, resulting in improved GOP margins by 1-3% as seen by HVS Sustainability Services through their investment grade audits. This vertical of HVS provides a range of business-driven consulting services that enable hospitality firms to identify utility cost savings opportunities, enhance operational efficiency, and demonstrate positive commitment to the environment to guests, investors and other relevant stakeholders.