Hotels brace for another bruising quarter

Pinak Ghosh

Calcutta, Nov. 11: A gloomy third quarter is on the cards for the hotel industry as it continues to battle rising operating cost, poor tourist flow and growing room inventories. Adding to their agony is the emergence of affordable alternative tourist destinations.

During the second quarter, major chains such as Indian Hotels Company Ltd (IHCL), EIH and Hotel Leelaventure registered a decline in total income over the first quarter. On a year-on-year basis, the topline rose marginally. Bottomline took a beating with Indian Hotels reporting a loss of Rs 6.36 crore. EIH suffered a loss of Rs 18.3 crore, while Leela's loss stood at Rs 92.49 crore in the second quarter.

Kamlesh Barot, president of the Federation of Hotel and Restaurant Association of India, attributes the poor show to several factors, many of which are "beyond the control" of the industry.

The cost of operation has increased on account of inflation, especially in fuel and raw materials. IHCL's total expenditure during the quarter was up 12 per cent, while that of EIH and Leela were up 10 per cent and 22 per cent, respectively, over the same period a year ago.

The global economic slowdown has affected foreign tourist arrivals, which saw a marginal growth of about 3 per cent to 5.6 lakh in October compared with a 10 per cent growth in the same month last year.

Foreign tourist arrivals during January-October rose 6.2 per cent compared with a growth of 9.3 per cent in the corresponding period a year ago.

Travelling costs have risen 25-30 per cent on account of high air fares, impacting both inbound and outbound tourist flow. The 2 per cent hike in service tax in this year's budget has added to the cost burden.

Barot further pointed out that India was losing foreign tourists to affordable destinations in Southeast Asia.

"Room rates in places such as Singapore have become competitive and are now attracting potential tourists away from India," he said.

Moreover, according to Crisil, 14,500 rooms are likely to be added by 2013-14 to the existing 46,000 in premium hotels across 12 cities, resulting in a decline in occupancy as well as room rates.

Crisil sees an 8 per cent decline in occupancy and 10 per cent fall in room rates over the next two years.

"The hoteliers are unlikely to increase room rates on the fear of losing out customers to competitors," an analyst said.

"We are concerned about the performance of the industry in the first half of the year and with the peak season set to begin, things are not looking up. We anticipate a gloomy third quarter for the industry," Barot said.

The Federation of Hotel and Restaurant Association sees a flat 5.5-6 per cent growth this year for the sector.