India update: Societal change provides hoteliers with plenty of optimism and opportunity

The world regions that have experienced the most significant hotel performance recovery to date are now faced with similar challenges. Most of those challenges stem from economic uncertainty. In India, there are certainly challenges, but there are also unique factors driving optimism and opportunity. Specifically, overall societal change is presenting India’s travel and tourism industry with temptations not seen for some time.

Can government stability be key to long-term growth?

Government alignment with the travel industry is never straightforward, but the imminent release of an official, updated tourism policy will focus on how domestic tourism and travel will become a larger part of India’s GDP. At the recent Hotel Association of India (HAI) Hoteliers’ Conclave, Shri G. Kishan Reddy, Honorable Minister of Tourism, laid out a view assembled from recommendations within the industry. That view showed there is an expectation of a modernized but also broad policy with focus on medical, religious and pure leisure travel—while trying to attract foreign direct investments. Additional political clout for hotels can be found in India’s G20 host responsibility in 2023. With 55 locations selected across the nation based on quality of hotels and airlift, the global publicity lens will be focused on the country along with providing increased demand. In a historic first, the G20 is in the hands of a trio of developing nations, as Indonesia passes responsibility to India, which in turn will pass onto Brazil.

Inbound tourism remains comparatively low and requires work

On the topic of promoting India abroad, Shri Arvind Singh, Secretary at the Ministry of Tourism, acknowledged during the HAI Conclave that overseas consulates and embassies, which today are the main channels for the promotion of tourism to India, are not ideally informed, equipped or ready to promote India to travelers at an efficient rate to move the needle. How upcoming changes materialize remains to be seen as a battle for priorities and infrastructure updates around the nation tops the agenda.

Lack of new hotel supply can create unwanted long-term concern

Many agree that India needs more new hotel supply, particularly in the mid-range segment and located in growing second- and third-tier cities. Major barriers to new supply continue to be legacy-driven regulations and licenses, even if post-pandemic funding of new constructions adds to constraints. This lack of visible volumes of new product brings an uncertainty of how the industry can cope with and satisfy demand growth 3-5 years down the line.

Strong growth factors

In stark contrast to the rest of Asia, where seat capacity is still far behind 2019 levels, India is leading the way globally with both domestic and international airlift well underway in Q3 2022. In addition, the significant width of the recovery drives a transparent lens on how far performance has progressed. There are fewer laggards when comparing with other regions, and at this point, we see consistent recovery across the hotel industry—by class, location, business segment and in weekday travel patterns. Most regions globally are displaying strong rate growth, but a nuance to such growth in India nuance is that average daily rate (ADR) in the group segment remains higher than transient ADR. Clearly, 2022 weddings in India have come at a higher price, pushing not just F&B but also room revenues.

While it is true that India historically is not immune to a potential U.S. recession ahead, the country’s domestic power and potential to move quickly on unprecedented demand means many are looking beyond a potentially bumpy 2023.

India is one of the least branded countries in the world

Global brands with a footprint in India continue to grow, even without direct investment. Both Radisson Hotel Group and Marriott International are adding substantial numbers of hotels in India, which when converting from an independent property certainly adds to the pool of branded hotels. The target for Marriott is an additional 200 hotels in India by 2025.

This branded or conversion scheme should be measured against the lens that only 5-10% of all hotels in India today are branded as part of a recognized hotel chain. While Asia as a whole has seen a dramatic shift in the last decade, pushing branded inventory beyond 50% of total hotels, India still has a large regional portfolio of unaffiliated inventory.

Indian hotel companies’ visually inherent equality

India (arguably along with Sri Lanka) remains by comparison, at a global level, the area in the world with the most women represented in industry leadership positions. That makes for a big difference in conversations and change management.

On the topic of tight labor markets and workforce challenges, a high volume of individuals left the hotel industry during the pandemic and remain more interested in a booming gig economy. Authorities present at the HAI Conclave were asked whether there was pending legislation to entice workers back to the industry and further improve gender equality. The current framework of creating strong and safe workplaces for women in the country may not be enough, and further action might be needed to ensure the talent pool expands further.

Digitizing and modernizing Indian hospitality, one step at a time

The Chairman and Managing Director of Lemon Tree Hotels, Mr. Patu Keswani, passionately encouraged attendees at the HAI Conclave to look beyond traditional metrics and methods and adopt more dynamic industry methods across revenue management, finance and development. As a key advocate of improved digitization, Keswani presented the benefits of using data in a better way, hotel benchmarking not only with hotels but also across affordability in a market and total pricing. Kewani also reiterated the challenge to build new hotels as the risk assessment for such funding by the Reserve Bank of India remains volatile, alongside previously mentioned legacy red tape. Rebuilding capital takes time, as more than 20% was wiped during the pandemic.

On a more encouraging note, Keswani looked beyond the fact that his organization had gone from 9,000 staff pre-pandemic to a current 6,000, and that this represents increased productivity and ‘manpower rationalisation’ with no intention of going back to previous levels of staffing.