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INDIA HOTEL REVIEW REPORT - 2015

India Hotel Review Report 2015

INTRODUCTION

The colours of the Indian flag truly symbolise 2015 for the hotel industry. The year started with the bright orange sense of expectation, moved to the stark white reality of under achievement, and ends with the belief of a green future somewhere – sometime, hopefully very close. The truth yet lies in the central chakra in which the industry is made to and allowed to rotate - day to day, year to year, at micro and macro levels. When will we earnestly be able to break this cycle of oft-repeated problems, errors and challenges?

2015 saw the smallest addition to chain-affiliated hotel inventory in the last seven years – only 7,853 new rooms. 2015 was also the ‘driest’ in recent years, in terms of chain-affiliation deals for new projects or conversions. The former by itself would be less of a concern, possibly even a short-term boon, for markets struggling to work through a supply surge. The latter, however, reflects lack of confidence in the sector, among deployers of equity and debt capital.

2015 Positives: What’s made us smile:

All-India Occupancy rose by 3.3 pts, to 62%. RevPAR increased by 5% (only Rs. 168 in real numbers), because room rates were down by a half-point.

Rs.142 RevPAR growth (8.5%) for Midscale and Economy segment is particularly gainful.

There are fewer markets with red-ink.

All-India demand increase in 2015 is estimated at over 15%; air travel numbers are up very substantially.

e-Tourist Visa proved its relevance, with 445k tourists availing this facility.

Inbound travel numbers are higher – but yet a gross under-achievement.

51.7% of new supply for 2015 was outside the key markets, including 9% in tier 2 and 27% in leisure markets. This is an extremely positive development.

Domestic travel continues to grow in volume; leisure and MICEW (MICE + Weddings) have become part of the industry’s demand core.

F&B and banquets continue to be significant revenue generators across all segments, even forcing changes in operating models for select / limited service hotels.

2015 Concerns: And yet there are problems:

Improved occupancies are partially the outcome of supply slowdown – Mumbai, Pune and Bengaluru are examples.

Inbound leisure is down and we don’t have a sustained response that recognises visitor and source market concerns – incredibility can be pushed only to a point; the on-ground reality must consistently deliver such an experience but that does not happen.

2015 did not see concrete measures for world class convention centres; why can’t central and state governments fast track these projects?

The banking sector doesn’t truly recognise the debt structure needs of this industry; several current problems are structural in nature and may recur for newer projects.

Delhi Aerocity, among several other projects, suffered multi-agency approval delays – how is the impact of this to be treated when it comes to action under the new bankruptcy code? Must not there be effective accountability on the lessor?

The industry continues to suffer high indirect taxes – Delhi has raised the luxury tax rate (applied on published tariffs) to 15%. The effective tax rate at luxury and upper-upscale hotels is 33-35%.

What have we done to protect, maintain, improve and gainfully employ our tourism assets?

Staffing shortages and outdated curricula continue to seriously impinge on service quality? Will ‘Indian hospitality’ lose its traditional service hallmarks?

2016 Outlook: What do we expect:

Occupancy will undoubtedly grow.

Domestic travel, for business, leisure and MICEW will continue to grow.

Inbound business and MICE travel will be in positive territory. Inbound leisure will require wider market outreach and attention to practical needs and perception challenges; a declining Rupee will make India more affordable.

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Hotels will unfortunately continue to struggle for confidence in pushing through rate increases.

F&B and banqueting will remain key contributors to revenue and cash flows, with MICEW being an important generator for rooms demand.

Development activity will remain muted. Investment and lending will likely remain soft.

Development will continue to spread outside the main markets, in most regions of the country.

Bankers could start a more rigorous sale process, once the bankruptcy law is passed – hopefully the valuations will be fair and meaningful. Will this trigger a more active outlook towards deal-making?

The Marriott-Starwood merger will be closely watched, particularly the heavy concentration in markets such as Pune, north Mumbai and central Bengaluru.

COVERAGE AND CLASSIFICATION In this report we examine Occupancy (Occ), Average Daily Rate (ADR) and Revenue per Available Room (RevPAR) trends nationally and for several key markets. Hotels are classified as Luxury & Upper Upscale (Lux-UpperUp), Upscale & Upper Midscale (Upscale-UpMid) or Midscale & Economy (M-E), consistent with STR Global classifications.

Our analysis is based on full year Occ, ADR and RevPAR data, reported by hotels to STR Global and generated per STR Global guidelines. Supply related data is based on Horwath HTL research. All values are in Indian Rupees.

The analysis is presented by segments; we believe this enables better focus on challenges and opportunities for each segment, across markets or in chosen markets. The initial concentration is on all-India numbers and 11 key markets; separate analysis is provided for the leisure sector and some other important markets.

Source: STR Global

GST implications will need to be assessed, for impact on top-lines, bottom-lines, contracts and covenants.

The industry will continue worrying about staffing and training, without taking any concrete steps.

Chain-affiliated inventory at end-2015 is about 113k rooms. Realistically, we estimate end-2020 numbers at about 155k. Is this our true economic worth? A genuine concerted effort by key players – government and lenders actively included – is needed to give effective shape to a deeper vision for India’s tourism worth; for an industry that is essential infrastructure to support wider economic growth.

There was much hope that inclusion of tourism among the 5 “T’s” would help this sector secure its rightful economic recognition. Sadly, the wait continues even as countries with much fewer natural and heritage assets continue to achieve much more.

OVERVIEW OF PERFORMANCE – INDIA

Year Occ% ADR RevPAR

2010 60.5 6,563 3,971

2011 58.3 6,426 3,744

2012 57.1 6,121 3,495

2013 57.2 5,832 3,338

2014 58.7 5,668 3,328

2015 62.0 5,637 3,496

Source: STR Global

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20

30

40

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80

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

India Mumbai Delhi-NCR New Delhi Gurgaon Bengaluru Chennai Hyderabad Kolkata Pune Ahmedabad Goa Jaipur

Overall Performance - India and Key Markets

ADR RevPAR Occ

Note: 11 key markets comprise of Mumbai, New Delhi, Gurgaon, Bengaluru, Chennai, Hyderabad, Kolkata, Pune, Ahmedabad, Goa and Jaipur

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Let us first understand the impact of changing supply and demand composition on the market-wide numbers:

Source: STR Global and Horwath HTL Research

Between 2008 and 2015, supply share of the Lux-UpperUp segment declined from 53.2% to 40.7%. 7.5 pts and 5 pts were ceded to Upscale-UpMid and M-E segments respectively; these segments are at 34.8% and 24.5% of total supply at end 2015.

Importantly, demand share for the Lux-UpperUp segment declined 16.6 pts in the same period; the M-E segment gained 10 pts. Increased domestic travel and a slow economy have pushed demand towards hotels in the value-priced segment.

Creation of supply depth across price segments was necessary, as the Indian hotel industry was essentially top-heavy from a supply viewpoint. At the same time, it is important that the demand share for Lux-UpperUp and Upscale hotels is not allowed to sink further – the industry will benefit from a proper share of higher profile (and better spending) visitors. Larger inbound investment and cross-border economic activity will help create the basis for demand and rate growth for Lux-UpperUp hotels, creating space for higher rates in other segments.

Delhi NCR, Mumbai and Bengaluru hotels are key to the quality of results, with 38%-40% of chain-affiliated supply over the years being concentrated in these markets. In aggregate, the key markets have two-thirds of the national inventory.

Source: Horwath HTL Research

Segmental supply share for the key markets is skewed towards the upper tiers and away from M-E segment. If we take the top 3 markets, i.e. Delhi NCR, Mumbai and Bengaluru, the skew is further towards the Lux-UpperUp segment though it is interesting that the supply share for M-E hotels is marginally larger than is the case for the key markets; this is predominantly due to sizeable M-E supply in Bengaluru.

OCCUPANCY

Source: STR Global

Occupancy improvement is the key feature for 2015 performance, with all but two of the key markets having positive results. At all-India level, 62% occupancy is the highest in the last seven years.

But the key word is ‘improvement’, and not ‘recovered’ or ‘gain’ – we are yet a good distance from where we ought to be or would like to be.

For 2015, all but three markets are in the 60’s with Mumbai and Goa continuing to be above the 70% level. Compare with 2014, when only Kolkata was in the 60’s besides Mumbai and Goa which were above 70%.

Mumbai, Bengaluru, Hyderabad, Pune and Jaipur achieved their highest city occupancy after 2008.

Bengaluru and Delhi enjoyed the biggest growth, at +7.6 and +6.8 pts respectively.

Interestingly, Delhi’s occupancy growth came materially from the Upscale-UpMid and M-E segments (12 pts and 11 pts respectively), compared to +4 pts for the Lux-UpperUp segment. Is this partially an outcome of the high luxury tax?

Chennai ended with +4.6 pts; strong YoY growth upto October 2015 (+6.5 pts) was severely dampened by the floods in Nov-Dec 2015 which caused YoY Occ for those months to decline -4.8 pts. The OMR micro-market is under severe occupancy pressure due to continued new supply and only moderate demand growth.

0%

10%

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70%

2008 2012 2015

Segmental Demand - Supply Share

Supply Share Lux-UpperUp Supply Share Upscale-UpMid

Supply Share M-E Demand Share Lux-UpperUp

Demand Share Upscale-UpMid Demand Share M-E

10%

15%

20%

25%

30%

35%

40%

45%

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55%

All India Top 3 markets Key Markets

Market wise Segmental Supply Share

Lux-UpperUp Upscale-UpMid M-E

-2

-1

0

1

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6

7

8

Occ change - basis points - 2015 vs 2014

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Gurgaon delivered below-par, with occupancy up only +1.4 pts. While a third of Gurgaon inventory was added in 2013 and 2014, no new hotels opened in 2015. The pace of recovery for Gurgaon has been somewhat slow – the spillover of Delhi Aerocity supply seems to over-hang this market, although there should be benefit from the high luxury tax rates across the border in Delhi.

Pune has done well to post overall Occ growth of +5.9 pts; Upscale-UpMid (+8.7 pts) and M-E (+7.5 pts) segments achieved major improvements.

Hyderabad is just under the 60% mark, with +10 pts recovery in 22 months. Growth appears to have stalled from mid-year 2015 as new developments in general business are yet to take root.

-0.9 pts decline for Goa once again brings home the risks of demand source concentration on a single market, in this case, the Russian market – the need to cultivate and maintain multiple inbound demand sources is a lesson that the industry has yet failed to embrace.

Occ decline for Kolkata is more worrisome – the city’s Occ has been in steady decline since it peaked at 70.6% in 2011. There wasn’t any new supply in 2015; major new supply is yet to come.

AVERAGE DAILY RATE

Source: STR Global

The ADR chart still shows up with several red lines, though these are a third lower in number than for 2014 and with a smaller scale of decline than recent years.

Lack of business confidence among hotel managers is holding back room rates. How else do you explain Mumbai, with 70%+ occupancy for two years, growing rate by just +1.25%? or Bengaluru continuing to experience rate decline?

The real achiever is Pune where +6.4% rate growth in the Lux-UpperUp segment helped pull up rates for all segments.

High rate growth in Ahmedabad needs evaluation; it occurred primarily due to events in three months of the

year for which the combined ADR was +21.7%. On the other hand, the ADR for the period March-November 2015 was down -2.7%. While the former shows the power of attracting large events (just where are our convention centres in all key cities?), the latter shows that the Ahmedabad market is still quite damp with the impact of new supply.

Our young hotel managers need exposure in rate aggression tactics. They haven’t seen anything other than rate discounting in the last 7 years, while they matured to or assumed leadership, and the mindset needs to change.

REVPAR

Source: STR Global

A picture that shows something to smile about.

But be cautious please – it’s revving up, and it’s still way below par.

RevPAR growth is mainly predicated on rise in occupancy; with limited help from ADR improvement; in certain cases, notably Delhi, Delhi NCR and Chennai, ADR declines have dragged down the occupancy based RevPAR improvements.

Although 2015 RevPAR growth for Goa is only a nominal 1.5%, the growth since 2012 is a healthy 21%.

In absolute numbers, Mumbai and Goa are the only two markets with RevPAR over 5k, with Mumbai regaining the premier position that it ceded to Goa in 2014.

Delhi has third position and is the only market in the 4k level; yet, its RevPAR is 21.5% below that for Mumbai.

While Bengaluru and Gurgaon are in the mid to high 3k’s, Chennai just about crosses 3k.

Hyderabad, Jaipur, Pune and Ahmedabad have city RevPAR in the 2k’s. Price conscious Ahmedabad has the lowest RevPAR among the key cities, at Rs. 2,318, partially impacted by lack of Lux-UpperUp inventory.

Kolkata unfortunately continues to slide, unable to hold onto Occupancy and Rate.

-6%

-4%

-2%

0%

2%

4%

6%

ADR % change - 2015 vs 2014

-6%

-3%

0%

3%

6%

9%

12%

15% RevPAR % Change - 2015 vs 2014

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SEGMENTAL PERFORMANCE

A snapshot of segmental rate levels, across key markets, is given below:

Source: STR Global

LUXURY – UPPERUP Every key market has achieved RevPAR growth – this has not happened in a long time.

Every key market, bar Goa, has achieved occupancy improvement in 2015.

Mumbai joined Goa at 70%+ Occ and now leads with 70.4%; Kolkata was just under that mark, at 69.8%. Five

Source: STR Global

other markets are in the 60’s level – mainly in the mid 60’s representing healthy bases for the future. Gurgaon (59.5%), Hyderabad and Jaipur are in the 50’s range.

In ADR terms, Lux-UpperUp resorts in Goa were just 0.7% shy of the 10k mark. Gurgaon with ADR of Rs. 8,832 continued its rate leadership among key business markets, growing ADR by +2%. Bengaluru moved up to join Mumbai above the 8k level, but Delhi dropped below 8k, declining by 3.2% to Rs. 7,750.

Pune grew segmental rates by 6.4% to join Hyderabad and Chennai in the high 5k levels.

Southern Indian cities had the highest Occ improvement (+5.1 pts in Hyderabad up to +7 pts in Bengaluru); North Indian cities ranged between +3 pts in Gurgaon and +4.4 pts for Jaipur; while the western markets ranged between -2.6 pts for Goa and +2.4 pts for Mumbai.

Yet, there is general under achievement in this segment.

Mumbai, Delhi NCR and Bengaluru are the lead business cities in India. Hotels classified as Luxury hotels, in these three markets, have 25% of the national Lux-UpperUp inventory. Even these hotels, in aggregate, fail to achieve an ADR of 10k. While this group of hotels achieved Occ and RevPAR growth in 2015, Occ was only 65.6% and RevPAR was yet 10% behind 2010/2011 peak levels.

Combined ADR at Luxury hotels in the other 3 main cities (Chennai, Kolkata and Hyderabad) is about 2/3rds of ADR in the top three cities – the gap is very sizeable; consequently the combined RevPAR for luxury hotels in these cities is 37-38% discounted to the combined RevPAR of luxury hotels in the top three cities.

0

12,000

Segmental Rates - Key Markets

Lux-UpperUp Up-UpMid M-E

0

80

0

12,000

India Mumbai Delhi_NCR New Delhi Gurgaon Bengaluru Chennai Hyderabad Kolkata Pune Goa Jaipur

Lux-UpperUp Performance - India and Key Markets

ADR RevPAR Occ

-6%

-3%

0%

3%

6%

9%

12%

15%

RevPAR % Change - 2015 vs 2014

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0

7.5


-4.5% -3.0% -1.5% 0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0%


INDUSTRY ECG - INDIA `

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Mumbai Delhi-NCR Delhi Gurgaon Bengaluru Chennai Hyderabad Kolkata Pune Ahmedabad Goa Jaipur

Occ %

India

2,000

4,000

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8,000

10,000

12,000

14,000

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2008

20

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Mumbai Delhi-NCR Delhi Gurgaon Bengaluru Chennai Kolkata Pune Ahmedabad Goa Jaipur

ADR

India Hyderabad

1,000

3,000

5,000

7,000

9,000

11,000

2006

20

07

2008

20

09

2010

20

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Mumbai Delhi-NCR Delhi Gurgaon Bengaluru Chennai Hyderabad Kolkata Pune Ahmedabad Goa Jaipur India

RevPAR

Source: STR Global

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India Hotel Review Report 2015 Page 8

Hotels must gain confidence to demand value for their product. After all, the demand trend is positive; demand will grow as initiatives to boost the economy start taking effect. At the same time, the supply pipeline is limited.

While there is greater dependence on MICEW, let us recognise that the quality options available are really not so many, and the service gap is widening.

UPSCALE – UPMID All-India RevPAR variation comes with a ‘+’ sign for the first time since 2010; RevPAR has grown +6.02% on the back of +3.8 pts Occ improvement.

Segmental demand has grown +20.3%, with positive numbers from various markets. Bengaluru and Delhi demand per day grew by 500+ nights; Ahmedabad and Pune by 250+ nights.

From an Occ viewpoint, Mumbai is the only market to have crossed 80%; Goa is just over 70%, other markets are in the low to mid 60’s level except Bengaluru, Chennai and Ahmedabad which yet remain in the mid to high 50’s. Bengaluru in particular is working though major supply growth, while Chennai is continuing to add more Upscale-UpMid and M-E hotels.

Delhi secured double digit occupancy growth with segmental occupancy moving to 67.6%. This was possibly at some cost to Gurgaon, which was able to grow occupancy by a comparatively nominal +1.9 pts. Occ improvement for Hyderabad touched a plateau with only +1.8 pts compared to +11.8 pts for 2014; newer demand creation has slowed.

Source: STR Global

The story is weak, on the rate front – Delhi, Gurgaon, Chennai and Bengaluru were in the red with declines of between -0.2% (Gurgaon) to -3.7% (Delhi). Rate increases achieved in other markets have mainly been just over +1% but there were some exceptions. Jaipur rates grew +5.9% to the highest level in the last 7 years; Pune rates grew +3.3%; Ahmedabad also grew +5.3%, predominantly due to certain event-related demand which will likely occur every other year.

In absolute terms for ADR, Mumbai leads at Rs. 5,565; Gurgaon and Bengaluru follow with rates on either side of the 5k level; Goa, Delhi, Ahmedabad and Chennai follow with rates in the mid to low 4k’s. Pune and Hyderabad are just shy of 4k while Jaipur is at a rather modest Rs. 3,243 notwithstanding the healthy rate growth.

RevPAR growth percentages are handsome – absolute numbers are not satisfying. Mumbai at Rs. 4,474 is the only market above 4k. Goa, Delhi and Gurgaon are in the low 3k’s with Delhi RevPAR 30% lower than that for Mumbai. Bengaluru is edging 3k but all other markets are in the mid 2k’s with Jaipur barely holding on to the 2k level.

Clearly, there is top-down rate pressure which is squeezing the Upscale-UpMid hotels. Hotels will feel constrained to do much on the rate side unless occupancy is seen to be in the 70’s. Of course, some hotels with better locations and adequate meeting spaces have been able to capitalise on the rate-quality opportunity.

This segment is the core of the industry, from a long-term viewpoint, and needs better health than the bulging debt-burden presently carried by several hotels.

0

90

0

6,000

India Mumbai Delhi_NCR New Delhi Gurgaon Bengaluru Chennai Hyderabad Kolkata Pune Ahmedabad Goa Jaipur

Upscale-UpMid Performance - India and Key Markets

ADR RevPAR Occ

-4 -2 0 2 4 6 8

10 12 14


-4%

-2%

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4%

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10%


-8% -4% 0% 4% 8%

12% 16% 20% 24%


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MIDSCALE-ECONOMY

At an all-India level, the M-E segment has enjoyed the highest segmental occupancy (64.4%) as compared to Lux-UpperUp and Up-UpMid segments; its percentage growth of ADR (+3.4%) and RevPAR (+8.5%) has also been higher than the other two segments.

Source: STR Global

Yet, this must be seen in the context of slower absolute supply growth. This segment added 8,700 rooms in the last 3 years; in that period, the Up-UpMid segment added 13,600 rooms.

Delhi outperformed other cities with nearly +11 pts Occ jump and +7.7% ADR growth, together yielding +26.5% RevPAR. That is extremely healthy, even if some of the gain arose from curtailed independent hotel supply on the highway near the airport.

Bengaluru too has done very well to achieve +24.8% RevPAR growth, predicated on sizeable occupancy and rate improvements; occupancy has crossed 70% and ADR grew more than 9% to cross Rs. 2,500.

The third commendable market was Pune, as a combination of +7.5 pts Occ and +4.6% ADR helped create +17.5% RevPAR growth. Yet, in absolute numbers Pune’s RevPAR is less than Rs. 1,600; this is comparable with RevPAR for Ahmedabad and 27% higher than RevPAR for Jaipur. Jaipur languishes at only Rs 1,232 despite being one of our key leisure destinations of international standing.

Mumbai is the only market with over 80% occupancy and ADR above Rs. 3,600. Gurgaon improved its ADR to the 3k level but at sizeable occupancy loss, mainly to Aerocity hotels.

M-E hotels have been tweaking their models to create F&B and meeting spaces and this has yielded some results. But the overall model will remain under stress till RevPAR across markets is consistently at least in the mid 2k’s.

LEISURE

Precise estimates of leisure supply are difficult because some markets overlap with a business travel component. Considering the entire rooms inventory for market that are principally associated with leisure, the chain-affiliated leisure inventory is estimated at 31k rooms. This number was only 14.7k at end 2010; supply has moved up with 14.4% CAGR between 2009 and 2015. Demand has been more robust, with 15.7% CAGR. Domestic demand has a major contribution towards this growth.

Importantly, Occupancy remained in the mid-50’s through this period of supply expansion. ADR’s have also remained range-bound, between Rs. 5,528 in 2009 to a high of Rs. 6,253 in 2014.

And then we see the true impact of real luxury, on the leisure sector. We have reviewed the performance of select luxury resorts with ADR > $250 which comprise less than 3% of total leisure supply; and yet just this tiny supply share pulls up the national ADR for the leisure sector by between 13-15%. These resorts have increased ADR by almost 40% in the last 4 years, to a current level close to 27k. RevPAR for these luxury leisure resorts has more than doubled between 2009 and 2015.

0

90

0

4,000

India Mumbai Delhi_NCR New Delhi Gurgaon Bengaluru Chennai Pune Ahmedabad Jaipur

M-E Performance - India and Key Markets

ADR RevPAR Occ

-8 -6 -4 -2 0 2 4 6 8

10 12


-2%

0%

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10%


-10% -5% 0% 5%

10% 15% 20% 25% 30%


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Source: STR Global

There is a surge in domestic leisure demand; Indians are travelling for short and long vacations; they are going overseas and also within the country. The power of the Indian upper middle and middle class is being unleashed and will continue to do so, if vacation options and connectivity are available. Destination weddings, across multiple price points, have helped this demand surge. The need and demand for ‘short-breaks’ will grow, creating development potential at locations in proximity to big cities.

Goa and Jaipur were discussed as part of the key markets. Both markets are hit by decline in foreign arrivals and must urgently and meaningfully address this. Compensatory demand numbers from domestic leisure and MICEW will take care of occupancy but will damage rates, and the long-term destination profile.

Agra is working through supply accretion, as 796 rooms (39% of total supply) were added in late 2014 and 2015. Reduced inbound demand, combined with increasing MICEW demand share, have also impacted rates. Agra carries good medium and long term potential, benefitting from the Expressway link to Delhi and the upcoming Expressway link to Lucknow. 13.2% demand CAGR (2009-2015) is a strong positive for a town put down as being a ‘day-return’ destination.

Udaipur and Jodhpur are in the sunshine (though the summer is extremely hot) – supply has doubled between 2009 and 2015; and occupancy has risen from 38% to 57%. ADR’s have remained flat, in the low to mid 10k’s, crossing the 11k mark only once - in 2014; this is primarily attributable to the much increased supply share at the Upscale and UpMid levels, with genuine luxury now only about 20% of total supply. The markets could be entering somewhat of a plateau phase and will need more inbound business for rates to meaningfully grow; currently, there is an over-reliance on weddings. Enhanced airline connectivity to Udaipur is a boon.

Varanasi and Khajuraho: Varanasi has good occupancy, but rates are moderate and so is most of the product; it is an ancient city but hotels don’t have to match that. Khajuraho remains seasonal though hotel performances have improved over the years with the town being a base for exploring northern MP. Combined occupancies have remained between 55% and 57% over the last six years;

rates have risen from Rs. 2,800 to Rs. 4,300 in the same period.

Kerala offers a lot, had strong promise but has stagnated. Supply nearly doubled in the last seven years; RevPAR has improved by only Rs. 104. Occupancy has declined from a peak of 63.5% in 2010 to 54.4% in 2015; ADRs have improved 10% in the same period, and were just below 5k for 2015. Kochi is caught between concentration on leisure, business-travel and MICEW and is effectively able to target none of these. Its supply trebled in the last 8 years; demand has risen 77% in the last three years, but occupancies remain in the mid-50’s and rates in the mid 4k’s. Either the expectation was over-hyped or the market has lost its way; it’s very likely the latter, given the natural attributes of the region.

Other leisure spots: the story is generally positive, even if in pockets – Ajmer and Pushkar are on the upward path, Mussoorie seemingly so too. Coorg could do with better roads, while Mysore has perked up with +15.7% RevPAR in 2015. The coastline south of Chennai has become active, through to Pondicherry. The game parks are gaining traction to attract major inbound demand. The mystical north-east is opening up, gradually but surely. Hopefully, we can enjoy the beauty of Kashmir, and repay it with good demand, on a consistent and assured basis.

Some macro concerns before we get away from Leisure.

Several leisure markets have turned into wedding and MICE destinations. This is very positive to the extent that it adds depth to demand, particularly outside the tourist season. The worry is that we tend to focus on the ‘flavour of the day’ and may fail to nurture the true tourism value, assets and core appeal of the destinations. Inbound leisure, from multiple source markets, needs to be sustained, to grow and diversify in its appeal and reach.

Each hotel, each destination, each state government needs to honestly evaluate if they are effectively doing that; domestic MICEW is not a true substitute for leisure travel flows (both inbound and domestic); MICEW is an addition, and must be viewed as a further strength to the core of leisure demand. We may be faltering on this score.

e-Tourist Visa is an important enabler; but do we adequately address the concerns of foreign markets? Safety has become an issue, and we need to meaningfully address this rather than denying it – let’s recognise that concerns are a state of mind and perception which cannot be overcome by righteous denial. For example, cell-phone photography has become a menace for foreign lady tourists.

What about our tourism infrastructure; our assets that are priceless heritage. What are we doing to maintain and improve these? Does any pre-budget memorandum push hard for funds allocation and policy towards this? Can we go beyond seeking tax exemptions which, unfortunately, will never come.

Leisure is serious business but needs to be nurtured by the industry and government alike. Leisure has yet failed to contribute its fair share to our tourism economy (of course, we can rightly say that about tourism as a whole).

0

60

0

30,000

2010 2011 2012 2013 2014 2015

Luxury Leisure Performance

ADR RevPAR Occ

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Seasonality and longer recovery cycle from external uncontrollable events create challenges which are not being factored into lending structures; as a result debt is either not available or is structured towards a ‘very likely’ default. Emperors and maharajas of yore used their own equity to build palaces and monuments that are yielding even today. Some emperors of vision built outstanding leisure assets over the last two decades, taking risks that then seemed implausible – these are yielding the luxury premium we discussed in a previous paragraph. All stakeholders need to work together to widen and deepen our resort supply and appeal; a solid long-term return will likely accrue.

OTHER MARKETS Chandigarh and Ludhiana are seeing continued inventory increase, from 337 rooms in 2008 to 2,599 rooms at end 2015. Demand CAGR between 2010 and 2015 at 32.6% has lagged supply CAGR at 34.4% causing occupancy to drop below 50%; 2015 Occ was 47.7%. ADRs have ranged in the mid to low 4k’s with RevPAR just managing to stay above 2k. These markets have failed to consistently establish themselves as centres for business, and have relied upon a mix of MICEW, business travel and leisure / social travel. With further supply in the near-term, operating pressures will continue.

Vizag has limited inventory but has capitalised on its business basis and airport access to clock impressive occupancy, ADR and RevPAR gains. 2015 RevPAR for Vizag is 30% higher than 2013 RevPAR; at Rs. 2,713 the city’s RevPAR is higher than Pune, Ahmedabad, Kochi, Chandigarh and Ludhiana.

Surat and Vadodara: the combined results for these two markets show better Occ by 4.1 pts; ADR growth by 4.9% and RevPAR at Rs. 2,531. Industrial activity, weddings, retail sector and social travel related demand are pushing Occ and will provide continued demand basis for the foreseeable future.

OUTLOOK Mumbai: Occupancies will remain strong; rates should rise, led by the Lux-UpperUp segment. New supply will be gradual and measured. Mid-tier and lower-tier supply shortage offers opportunity to build more value-priced hotels, if the economics around land-pricing can be made to work. The state government is commendably moving to a more friendly approach towards approvals, licenses and even FSI grants (at a price).

Delhi NCR: Delhi will need 12-24 months to work through further supply growth at Aerocity, with 1,287 rooms to open in 2016; the location is starting to establish its ‘workability’ and will benefit from coordinated efforts by hotels to target convention and MICE demand. Improved demand in Central Delhi will yield higher occupancy. Hotels will benefit from the temporary withdrawal of The Oberoi, New Delhi for major renovation. Gurgaon hotels should enjoy better trading conditions, benefitting occupancy and rate, across all segments.

Bengaluru: Sharp increase in up-take of commercial spaces should translate into growing business travel demand, across segments; combined with moderate new supply, Occ will rise. The rate outlook is less positive as the market

needs a pull-up by the upper-tier; we see lack of confidence for this.

Chennai: Continued improvement in the city centre and blood-bath on OMR.

Hyderabad: New projects and complexes need to fructify to re-generate growth. Else this market will remain at or marginally above current levels.

Kolkata: It is election year combined with significant supply pipeline, mainly in the Lux-UpperUp segment. Hotel performance reports are likely to see more red lines on Occ and rate front.

Pune: A positive mood with expectation of continued growth in RevPAR, through both Occ and rate, across segments. IPL and improvement in manufacturing should serve as additional boosts.

Ahmedabad: In the absence of Vibrant Gujarat and other known events in 2016, operating vibrancy will be stressed unless the city’s leadership can conjure some new events – they have been adept at this.

Goa: Successful attraction of newer foreign business will augur well for hotel rates; occupancy growth through domestic leisure and MICEW will fill the rooms but with rate dilution.

Jaipur: One wishes it will be positive, but realises that it may not be so unless inbound leisure returns in good numbers.

The global economy is in a state of uncertainty. The Indian economy has sectors of concern, particularly the health of its banks and declining exports. These factors, individually or collectively, may cause some unforeseen impact on business in general and thereby the hotel industry. In such times, one could reap beneficial value from cross border Tourism Goodwill provided this has been created and nurtured. We need to collectively work towards such long lasting Tourism Goodwill.

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