Benchmarking Against 2019 is a “low” bar, say India Hoteliers
Above, Raffles Udaipur. Accor India calls for the industry to achieve higher rates so that investors will be more keen to build hotels. Photo: Accor
Indian Hotels Company’s Prabhat Verma (right) with Accor’s Puneet Dhawan at Hotelivate’s HISCA 2022. The panel was moderated by Anuraag Bhatnagar, COO, The Leela Palaces, Hotels & Resorts
By Raini Hamdi, 03 June 2022
It’s the third time in two years that Rohit Kapoor was asked, “When will we get back to 2019 levels?”
While the global chief marketing officer of Oyo previously answered with trepidation, his tune was different during a panel session at the recent 17th Hotel Investment Conference South Asia organized by Hotelivate.
It’s the wrong question, Kapoor said.
The right question is, “How much potential does this country [India] have for travel & hospitality?” he said.
“I’m afraid that 2019 will become the wrong benchmark for us. Because we anchor ourselves solely on 2019 as if that’s the end goal. That’s just a recovery outpost at best…it’s setting a low bar for ourselves.”
The new bar, said another panelist, Vipul Prakash, chief operating officer of MakeMyTrip, should be 20 percent growth over 2019. According to Prakash, searches at the online travel platform have already risen above 30 percent, over 2019. These consumers would convert searches into bookings sooner or later and it’s likely that growth would surpass 2019 this year, he said.
Domestic vs Overseas Travel
Indians are traveling with a vengeance. The IMF expects the economy to grow 8 percent this year, the highest among big countries. Travel and hospitality players have been massaging locals’ desire to discover their country with nifty ideas.
An example is Taj parent, the Indian Hotels Company. Its Ama, India’s first branded homestay product launched during Covid-19, takes Indians to little coastal towns such as Alibag and misty hills such as Coorg. There, private villas and bungalows await guests, and the all-inclusive treatment includes a butler to take care of meals and every guest’s need.
“We were able to create newer, micro destinations,” said Prabhat Verma, Indian Hotels executive vice president operations, international & ancillary businesses, South Asia.
Like Prakash, Verma expects numbers to surpass 2019’s levels this year, in the third or fourth quarter. Leisure destinations are doing well, he said, while metro cities such as Mumbai and Delhi are “almost” back to higher occupancies.
No one’s worried about an attrition from domestic to outbound travel, despite the opening of international air travel. MakeMyTrip’s Prakash said, “At its peak, 21 million Indian travelers used to go out [of the country]. If my math is right, that’s 1.5 percent of the population [1.4 billion]. It’s not going to happen. We are getting searches from 1,700 cities of India. They [travelers] have money and [by] using the app they find things they didn’t know were there.”
Oyo’s Mid-Summer Vacation Index 2022 shows that 61 percent of Indians plan to take vacations this summer. Of this, 94 percent showed a preference to travel domestically. For half of them, it’s their first trip since the 2020 lockdown. The Index attributes the increased confidence to mass vaccination drives and receding pandemic severity.
India outbound is a drop in an ocean of domestic travelers. In 2018, 1.85 billion Indian domestic trips were recorded, India Tourism Statistics 2019 shows. India outbound? Only 29 million trips in 2018. That pales in comparison to China’s 155 million outbound trips in 2019.
Elephant in the room
Inbound tourism is even smaller than outbound and domestic, just 11 million arrivals in 2018 for what’s an incredibly diverse and exotic country.
Therein lies the elephant in the room. Average daily rates are low in India. Asian destinations, even those with sizable domestic markets such as Thailand, Vietnam and Indonesia, enjoy higher margins than India because they rely heavily on international markets. Foreign tourists are less transient, stay longer and spend more than locals.
Puneet Dhawan, Accor’s senior vice president operations, India & South Asia, voiced his frustration over India’s low rates, which “have been lagging behind key global cities for almost 10 years now,” he said. Yet, cost of construction, and cost of capital, which is probably one of the highest in the world, put off investors.
“It’s about time we become aggressive with the rate, and by ‘aggressive’ I mean 20-25 percent over 2019,” said Dhawan. “Otherwise for investors it just doesn’t make sense to invest, whether in economy, midscale or the luxury space. We were having some discussions with owners in the last couple of days. They say why shouldn’t I do a luxury [residences] development in Mumbai versus a hotel, because the return is much higher for a residential complex? If we as an industry do not drive rates, we will hamper our growth. We have a long way to go. India today has 150,000 rooms, same as Dubai [but the latter has much higher rates].”
Different levels
Reaching the 2019 milestone means India hotel leaders now must find answers to the right question, which goes back to what Oyo’s Kapoor said at the beginning, “How much potential does this country [India] have for travel & hospitality?”
Meanwhile, getting back to 2019’s level is still the predicament of other Asian destinations. Clutches of border restrictions have been removed, yet international passenger demand in Asia-Pacific is still just 17 percent of pre-pandemic, according to IATA.
It’s primarily because of the elephant that’s not in the room: China.
“Given their domestic component is the greater majority of their business, Indian hotels can potentially feel that recovery is nearly complete. But everywhere else in the region, China is a key missing piece, and without it, no one is going to get back to 2019 RevPAR. ADRs in some markets are actually solid relative to 2019 levels, but occupancy is still a struggle,” Robert Hecker, managing director, Pacific Asia, Horwath, told Hotels-Asia.
Recovery is patchy in the region, with some hotels markets getting there, while others get going (see article on Sydney Hotel Market Races to 2019 Finish Line, Others get Going).
Said Jesper Palmqvist, STR’s area director Asia-Pacific, “India’s recovery is coming from many places, starting with leisure destinations. Since the past year, business travel and groups have been driving recovery. Large meetings and weddings are already ahead of 2019. Big cities are also doing well, with strong midweek occupancies.
“India has also been progressive in removing restrictions in the last 12 months, allowing travel and business to resume.”