15 Travel Gazette India – May 2010www.hotelierindia.com

The closure of the financial books in 2009-10 fiscal year has given a reason to officially pronounce India “cautiously optimistic”. Talking to travel trade industry leaders to understand strategy and outlook for the rest of the year, the term is now familiar to TGI, along with other trends that have emerged on the eve of strategis-ing for recovery.

The Union Minister of Tourism, Selja Kumari set the tone. “Now we can safely say that the negative impact has been totally mitigated. Tourism in India is now on the path of recovery,” she says, commenting on the

growth rate of 12.8% in foreign tourist arrivals (FTAs) in the first quarter of 2010. In fact, December 2009 saw a huge rise of 21% growth in comparison to the corresponding period during the previous year.

The trend continued with 16% growth in January 2010 and about 10% in February 2010. Going forward, the key trends are:

Optimistic results at the end of the first quarter of 2010 have got the leaders in travel trade re-strategising says Shalini Seth

Cautious Optimism

Travel Trends

Domestic traveller

The Indian traveller leaving home to go for pilgrim-ages, short weekend breaks, business or meet-ing relatives is finally getting his due. Srinivas of Deloitte India, analyses the trend thus: “Domestic travel numbers are bound to increase. We don’t even think about the domestic tourist, when they are the only reason to exist for much of the travel trade industry in the country. There are 500 million travellers in the country – a 100 times more than outbound travellers.” The ministry has supported this claim with Selja Kumari calling domestic tourism “the backbone of the economy”.

Adding value At the sixth Hotel In-vestment Conference - South Asia 2010, one of messages from hoteliers such as Martin Rinck president, Hilton Worldwide, Asia Pacif-ic; Liam Lambert, pres-ident, the Oberoi; and Capt CP Krishnan Nair, chairman, the Leela, was to do with adding value. “We do not want to be the biggest. We want to be the best,” says Liam Lambert. “Rather than having a nice time physically, people want to have a nice time intellectually and to participate in community activity. If there is an eco-friendly hotel and a non eco- friendly hotel available in the same price, I’d probably go for the eco-friendly one. Peo-ple want things tailor-made rather than be a part of a package,” he says, speaking on the trends that are shaping their strategy.

Too much roomSmart operators increased their room capacity last year. In India, traditionally, land prices have not per-mitted budget hotels, but now there is oversupply, at least temporarily. “Occupancy seems to be here but rates are going to stay where they are because of oversupply,” says Uttam Davé, president and CEO of InterGlobe Hotels, Accor’s key partner in India. Keys Hotels is set to launch soon. And, Hilton plans to add 1500 keys in the next 12-15 months, with six out of its 10 global brands – Hilton, DoubleTree, Garden Inn, Hampton, Conrad and Waldorf Astoria. Experts say that this is not the case of too much of a good thing. “In the short term there will be over supply. But no hotel or tourism product is built for three years. There is a seven-year time frame for recovery,” says P R Srinivas, Industry Lead, Tourism, Hospitality and Leisure, Deloitte India.

Business moves One of the first sectors to show improvement was business travel, says Srinivas. “Business travel in the country has been on the mend. It was never down in the dumps as it was abroad,” he says. Business travel-lers, both men and women, have caused the industry to sit up and take notice of what they need. “Business travel and business delegations have picked up very smartly. That trend started a little earlier instead of lei-sure. So I think if you are a hotelier in business areas you see smart revival. If you are a hotelier in leisure segment you are struggling still,” says Sharma, adding that business travellers will travel to less-than-perfect destinations while leisure travellers would look out for the right amount of sunshine.

Scaling down Things will not be the same, at least for some time. “The customer is trading down. He was earlier look-ing for a five star deluxe hotel, today he’s happy with a five star,” says Arjun Sharma, MD, Le Passage to India. “We are dealing with a new customer psyche – tendency to book late and trade down.” So, re-strat-egising does not include hiking prices, for the moment.

They are not coming back The most important lesson the industry has learnt is to go lean. “Lot of these jobs that are cut won’t be added back. At least not for a couple of years,” says Christopher Mumford, MD, HVS Executive Search.

“They had become quite fat and they really need to lean and mean and they realise that they can operate. So they don’t need all these people. They need people in hotels but in the head office and corporate office I don’t see people being added back,” he says. Industry leaders are a bit gleeful at having learnt this. “That was a great initiative. We are trying to institutionalise the culture of cost control,” says Davé.

16

REGIONAL NEWSTravel Trends Cautious Optimism

Travel Gazette India – May 2010 www.hotelierindia.com

Kumari Selja.Minister for Tourism & Housing & Urban Poverty Alleviation“Tourism in India is now on the path of recovery. The growth rate in foreign tourist arrivals in December 2009 over the corresponding period of 2008 works out to 21%, which is the highest positive growth registered in any month of 2009. The first quarter of 2010 has also seen a healthy growth of 12.8% over the corresponding period last year and now we can safely say that the negative impact has been totally mitigated. Aggressive marketing and concerted efforts of all stakeholders has resulted in this growth. The news of normalcy return-ing to the global economies has given us all reason to cheer up and expect the buoyancy to return soon to the industry.”

Ankur Bhatia. Managing Director, Amadeus India and Executive Director of Bird Group“The last year was undoubtedly tough. Bat-tered by the economic debacle, businesses had cut down on travel to manage cost. In addition, leisure travel was hit as travellers exhibited conservative spending patterns. However, with the global economies poised for recovery and showing promise, we are positive that the tourism industry in India is deemed for a second wave of growth in the days to come.

The past year had been tough on the indus-try and like others we too had taken measures to keep a tight rein on the costs all along. Our strategy was to pursue a cautious yet a pro-gressive growth plan. Though we paid bonuses during recession to keep the employ-ees’ momentum going, the pay hike was market-linked. Now with the restoration of global econ-omies, the industry is e s t i m a t i n g rapid growth in the com-ing months and the hiring of manpower is picking up proportion-ately.”

Arjun Sharma. Managing Director, Le Passage to India “The year 2009 taught all of us a great lesson on removing the fat from the system. We all went back to our balance sheets to see how best we can profit in that climate. It was a very useful exercise because a lot of excesses and indulgences had been built in the businesses in times of 2007 and 2008.

The big challenges going forward are many. Inflation is definitely going to hit us. There are still challenges in terms of finding, retaining and moti-vating people. You have to probably give reasonable increments. You

could probably hold them back last year but you have to do that now. It will be difficult to keep too much cost under control as revenues are under a strain, there is new capacity growth.

We have challenges today from European and industrial world – our source markets – in form of very weak currencies. We have seen a smart recovery in foreign tourist arrivals. It started very late last year, and in the first quarter of this year. We see a forward looking growth for the next 6-9 months.

I’m one of the few people who does not believe we have seen the worst yet. I believe there is another double dip happening. I am not running out of the market. I wouldn’t exit and I wouldn’t enter. But I won’t forget not to exit. There is no buy-and-hold strategy left in this world anymore.”

Expect buoyancy to return soon to the industry ”

Battered by the economic slow down, businesses cut down on travel to manage cost ” I wouldn’t exit and I wouldn’t enter ”

Cautious optimismIt will take a long time for the industry to reach the euphoric high of 2007. Experts do see some recovery, specially in Asia, but the mood is underlined by Sharma, who says, “The recovery has probably nearly brought us back to even keel in terms of numbers on the 2008-09 numbers. Obviously, there is no growth at the moment. I am just preparing myself, my organisation to not get carried away based on today’s growth. I think the jury is still out, in the world. Indian is still best positioned about it. I am not negative. I am cautiously optimistic.”

17

REGIONAL NEWSTravel Trends Cautious Optimism

Travel Gazette India – May 2010www.hotelierindia.com

Uttam Davé. President and CEO, InterGlobe Hotels, Accor’s key partner in India “There is uplift in the travel trade. There is lots of optimism now. Things are looking better.

Most of our hotels saw a decline in occupancy and rates by 10%. Occupancy seems to be here but rates are going to stay where they are because of oversupply.

We all went back and looked at each and everything in our overheads or operations and asked ourselves if we really wanted to spend that money. At operations and head office

levels, we also implemented measures like cutting costs by 10%. That was a great initiative. And it has become a catalyst for having workshops on cost cut-

ting. We do see that the customer has more choice so the rates are not going to go up. At the same time we are looking at the domestic sector and we believe it will grow at the same rate as the country’s economy – at about 8-9%.”

Liam Lambert. President, Oberoi Hotels & Resorts“We have injected a certain bit of opti-mism in the bud-get for this year. The economy is going

to turn around. Green shoots are showing. We feel that the restructuring of sales division in America, Canada, the UK, Europe and Middle East alone will deliver the much needed revenue. Just being the place where we were not before... is optimism. We are now looking at the Indian middle class that is growing every day. They are starting to travel over-seas and they are familiar with the Oberoi brand.

We have been hit by recession and we have felt the effect. We have been reinventing ourselves… hiring new team members… appointing PRs, general sales agents… [and] increasing our general marketing. We feel that by reducing our inventory we can lever-age the luxury brand. Like everyone else has. We have kept our price integrity. What we are looking to do now is innovate… and add value.

The challenge is to retain our people. My fear is that all of these new hotels coming up are going to come knocking on my door.”

Kashmira Commissariat. COO, Outbound, Kuoni India “There are clear indicators of the market sce-nario being buoyant and offering a positive trend with Indians spending more.

Exotic/varied places in India, theme based and experimental holidays are becoming popular.

The experienced traveller opts for authen-tic, off-the-beaten-track vacations in remote

and less well-known places as against luxurious five-star vacations, lead-ing to an interest in rural and ethnic tourism. Weekend breaks are becom-ing popular, so is neighbouring country tourism.

India has also been looked upon as a potentially lucrative market by various National Tourism Offices (NTOs). NTOs are setting their offices keeping in mind the high disposable incomes of Indian travellers. NTOs now market the destinations with a dual approach of reaching out to the Tier II and Tier III cities. In addition to the leisure holidays, NTOs have started promoting the MICE segment.”

Sunil Gupta. CEO, Avis India “I would not call it a recession but an eco-nomic slowdown due to a loss of business confidence regarding the future prospects of business. Avis India utilised this period to carry out a strategic review of our business. We were clear that our manpower resources are the best in the industry and are a key

differentiator for us. We retained all our staff through the slow-down and utilised the time to carry out training programmes...Now that business has revived, we are well-placed with well-trained manpower resources.

Most progressive companies have re-examined their cost structures in the last couple of years. We in Avis India have done this as well to become more operationally efficient, taking care not to cut cost at the expense of our employees. We notice that our corporate clients who had kept a con-trol on costs so far have started re-investing in their businesses and their human resources to exploit the improvement in the economy.

Avis India has seen a boom in the business in the last three-four months and the graph has shot up dramatically. We have clients across indus-tries who are dispersed geographically and we are seeing the boom right across. Avis India saw the green shoots early and has been scaling up our operations to serve the anticipated demand in the forthcoming months.”

Occupancy seems to be here but rates are going to stay where they are because of oversupply ”

Avis India has seen a boom in the business in the last three to four months and the graph has shot up dramatically ”

We have injected a certain bit of optimism in the budget for this year ”

18

REGIONAL NEWSTravel Trends Cautious Optimism

Travel Gazette India – May 2010 www.hotelierindia.com

PR Srinivas. Industry Lead, Tourism, Hospital-ity & Leisure, Deloitte India “There is 70% increase in outbound. From the inbound perspective we’re getting to summer and it’s going to go bad until Octo-

ber lull into inbound. That is usual for us. Looking at source markets – they are not fully back

into holiday mode. India continues to be expensive. The new traveller is business-oriented rather than leisure-oriented. Delhi and Mumbai both airports will be ready which will cater to increase in numbers.

Infrastructure and tourists is a chicken-and-egg situa-tion. As far as hotels go, the land prices are high, so hotels could not start at less than five star prices. If you encour-age mid-market travel to India it has to be catered by mid-market hotels.

People have gone lean. You did not have time to react and plan your expansion in the boom years. You went and recruited because you had to get those properties work-ing and services operational. Hotels, airlines, cafes – the entire value chain was like that. I think companies will be retaining the same level of staff in back office procedures, procurements.

Cost cutting has become important. We work with one of the largest branded restaurant chains. We worked on a lean procurement system and on how to manage costs and bring down overall cost issues in the run. Stuff like wastage, procurement of raw materials in time, standard industrial stuff adapted to the hospitality space – things like CRM or how would you train staff to be multi-task-ing. There are always better ways of using technology, of ensuring waste management. We do time and motion studies. It had all gone into thin air when there were jobs and there were people to offer them to. The trigger for all these has to be something that hurts the bottom line. That happened last year.

The market is aiming to please the mid-market. If you do expectation management and the gap is well-set, ser-vice level is defined, expectation is not built up. We are not going to promise the earth to the consumer – to start with.

The high-end traveller from abroad is not necessarily coming to India. There are better page3 locations that they can go to. If I am in UK, I can go to Brazil rather than come to India or Argentina, unless you are doing an upper upscale kind of crowd.”

Sharat Dhall. Managing Director, TripAdvisor, IndiaIn hindsight, I would say that we met a need. There was a gap in the market. In a situation where you are careful about each rupee that you spend, you could end up doing more research than you would have done a year ago. So a travel planning and research site, which is what we are, did really well. We did not get impacted by recession. Worldwide too we had an excellent year – we grew in double digits last year when most companies in the travel space tumbled. Our EU business has grown tre-

mendously in the last three years. It’s not that people stopped travelling in 2009. They scaled down their travel. A lot more people chose domestic destinations over international ones so they still needed to at which hotels they needed.

Last year one piece of data in all our forum discussions was that the use of words related to budget travel – discount, value, deals – had gone up by 100%. That is the one thing that has changed this year. We are seeing much less of that.”

Christopher Mumford. Managing Director, HVS executive search“In terms of market conditions, there is some improvement. London, for example, is doing pretty well and starting to see a little bit of recovery. The US is slower. But there is definitely some more cautious optimism. Asia is much more resilient. I like to say that Asia is like a bamboo stalk. You bend it over and it springs back up. It’s always quicker to spring back up than Europe and the US.

There is more demand for hotel personnel in hotels in Asia. There has been more move-ment in management in Asia. In Europe it has been static. Last year no one was hiring. Last year, the story was all about cost-cutting. There was restructuring of the organisa-tion – taking out layers and lot of redundancy. They cut 10-15% of their workforce. Take big groups such as Starwood, Hilton, Marriott – all have hiring freezes in Europe and the US. In Asia it is a different story. There are so many hotels coming up. They have to hire. But hiring is at hotel level. At the corporate level it is a bit slower. Corporate office is where a lot of cost efficiencies were introduced. Jobs were cut. A company like Accor – they have five regional offices worldwide. They reduced that to three. You have a regional vice pres-ident for one area and you have a regional vice president for another area and suddenly now there is only one regional vice president, looking after two. That is still the case and it is not going to change soon. Lot of these jobs that are cut they won’t be added back. At least not for a couple of years.

Lot of companies have learnt the lesson. They had become quite fat and they really need to lean and mean and they realised that they can operate. So they don’t need all these people. They need people in hotels but in the head office and corporate office I don’t see people being added back.

In India, even in retail or real estate need for people from hospitality industry. Even the banking sector in Switzerland is the biggest employer of people out of Swiss hotels schools. They see the service ability. I think the hotel people are very attractive to other industries. And it is one of the biggest challenges the hotel industry is how to keep their people. That is the biggest problem the hotel industry has.”

You did not have time to react and plan your expansion in the boom years. You went and recruited... ”

Last year...the use of words related to budget travel – discount, value, deals – had gone up by 100% ”

A lot of these jobs that are cut won’t be added back. At least not for a couple of years ”