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Looking back, looking forward

While the year 2005 represented a better score for Indian hospitality than many that have preceded it, it also contained enough killjoys that spoilt what should have been a well-earned party. Even so, the hospitality industry hasn't looked forward to a year as much as 2006 ahead, analyses Bhisham Mansukhani.

There should be little to complain about in 2005, really. No draconian mischief, no bloody terrorist attacks of numbing proportions and consequently global avoidance, no natural catastrophes save 26/7 and more importantly, no let up in the Indian economy's seemingly irreversible boom.

Yet, while none of the typical ills befell India's hospitality landscape, most of the promised reform on the policy and infrastructure front never gave either, in a way neutralising and making speculative, many of 2005's positives. The state machinery's striking vulnerability in the face of Mumbai’s infamous July downpour, political cartelisation of real estate and generally poor infrastructure sans the underpinned hope of urban development symbolise that we will never know how much we lost and how much some of our more enterprising neighbours gained. At our expense. Again, the collective cheer of the hotel industry centres around the ceaselessly healthy occupancies and ARRs even outside the traditional season. What this period of plenty belies is a price point that violates the regional benchmark and is bound to harbour tourist and business traveller aversions in the future and more so, mounting opportunity loss, considering more rooms could have been filled. If only they'd been there. If only there were land available to build them.

All wasn't silent on the bureaucratic front either. But it was noise rather than music to the industry's ears. The fringe benefit tax (FBT) announced in the course of the interim budget, aimed at taxing company tabs for employees, raised the feared spectre of a socialist state with no regard for institutions as `decadent' as hotels. While most of its sting was subsequently rescinded, FBT is a sobering reminder of the Left Party's influence and agenda at the highest level of government. The budget also revisited a gross ignorance of the hospitality industry - ironically something that the NDA had strived to reverse in the form of sops and tax breaks in the preceding years. The issue of infrastructure status was skirted, tax exemptions were nigh while a token increase of the tourism budget had no immediate bearing on the private sector. The finance ministry did much worse with the levy of a 10 per cent tax on the import of services which could potentially dissuade international tie-ups. The old bogey of land shortage, coupled with government apathy towards the problem, virtually amounted to complicity. On its part, the tourism ministry sounded the government about the problems, and even proposed the financing of budget hotel projects to alleviate inventory shortages, to no material end hitherto.

Anymore lamenting, though, would amount to the deprecation of an industry that has endured far worse fiscals. This year in fact saw it receive due recognition for the same with two of the industry's landmark events - HICSA and the WTTC’s 5th Global Travel & Tourism summit. Convention within days of each other. The events witnessed Marriott, Hilton, Starwood, Carlson, InterContinental and Accor descend on India's urban hubs to participate in international fora as well as conduct substantial business development during close-door asides.

Mindful of all the gaping risks chronicled above, the international behemoths all remained astutely sanguine about the future of Indian hospitality, never mind a napping government. The United Conference on Trade and Development (UNCTAD) survey in fact rated India alongside China as a prime locale in which investors had evinced keen interest, particularly in the hospitality and tourism sectors. Not surprisingly, the calendar year saw Starwood let out plans to introduce its entire galaxy of brands in India including Westin, St Regis, Four Points and W.

Interestingly, other international hotel majors had also begun to blood their compendium of brands in India - Marriott bringing in Fairfield and Courtyard by Marriott and Hilton with Scandic and Hilton Residency. Foreign realty funds had obviously been analysing this and more such trends, and they lined up to invest in India's real estate including hotels, followed invariably by Indian financial institutions like IDFC, Kotak Mahindra and IL&FS. India Inc, too, was just as awake to the opportunity. The Wadias and Kingfisher CMD Dr Mallya, on separate occasions, revealed plans to diversify into the hotel segment while a slew of real estate developers including Vikas Oberoi, DLF Group, Ansal and Odeon Builders have already sunk their teeth into a number of projects.

Tourism business behemoths Interglobe and Bird Group also joined the fray, the former tying up with Accor and the latter revealing plans to build 20 hotels. The crowding house was hardly surprising what with capital markets flush with cash and brand equity that had never been better. All of the hotels listed on the stock markets saw their earnings per share rise by 121.5 per cent, half way through 2005. At time of print, the IHCL stock had breached an all time high of Rs 1,000 while the Royal Orhid Hotels announced its maiden Initial Public Offering (IPO). The allowance of 100 per cent FDI in real estate unintentionally revived the prospect of FDI into hospitality which, though, allowed a long time ago, received few takers with the invariable entrance of foreign real estate majors.

So, while the government's helping hand continues to elude the Indian hospitality industry, the private sector has virtually opened up a second front of reform that is driving its growth to unprecedented levels. Global hotel companies, Indian and international corporate empires hitherto outside the industry, venture capitalists and asset management companies are pouring resources into an engine that has only fetchingly bequeathed the choice of slowing down. It's power ahead into 2006. Bring it on!