Hotels brace for slump in arrivals

Ronald Lewis, a computer consultant in New York, was planning to attend a friend's wedding in Mumbai last December. Instead, he called off his three-week trip to India, in the wake of the terrorist attack that killed scores in the city in November.

Like Lewis, a number of tourists from the US, Britain and the rest of Europe have decided against travelling to India, hurting foreign exchange earnings dearly. Similarly, large scale cancellations are expected from the corporate sector due to the financial meltdown.

HVS India, the hospitality services company, says the economic downturn and increased terrorist attacks will wipe out at least Rs 5,600 crore (Rs 56 billion) in potential earnings for the domestic hotel industry this financial year.

Though India saw a rise of 5.7 per cent in international tourist arrivals to 5.37 million during 2008, as opposed to 5.08 million a year earlier, experts say the inflow was largely due to pre-scheduled holidays, which will be much more restricted this year.

The terrorist attack on Mumbai last November, that killed 195, had led to massive cancellations of hotel bookings through the country. And the real impact trickled in only later. The latest data from the ministry of tourism shows, foreign tourist arrival (FTA) during the first three months of this year dipped by 13.75 per cent, to 1.46 million, as against 1.69 million recorded during the same period last year.

Foreign exchange earnings dropped to Rs 13,582 crore (Rs 135.82 billion), a decline of 13 per cent as compared to Rs 15,655 crore (Rs 156.55 billion) during the comparable earlier period.

Indian hoteliers and consulting organisations fear that worst is yet to come, as many international companies ranging from large corporate houses to medium-sized firms look to cut back on travel. 

Says Vivek Nair, vice chairman and managing director, Hotel Leelaventure: "There is a drop of 15-20 per cent in revenue so far already. There will be immense pressure on foreign tourist arrivals this year. The picture is expected to get a lot clearer after September, when the season starts."

"However, we expect the whole hotel industry to see a decline of 20 per cent in occupancy and average room rates this year," he added. HVS India is expecting a combined revenue loss of more than Rs 9,000 crore (Rs 90 billion) for the hospitality industry over 2008-09 and 2009-10.

The loss in revenue will be much more for the unbranded hotels sector, which will see a dip of almost 23 per cent at Rs 3,130 crore (Rs 31.30 billion) this year, as against Rs 4,058 crore (Rs 40.58 billion) posted last year. The branded hotel segment will see a 12 per cent dip at Rs 8,578 crore (Rs 85.78 billion) this year.

Bangalore-based Royal Orchid Hotels, which currently operates 12 hotels in the five-star category, also feels the year will be challenging for the industry. Keshav Baljee, its co-promoter, said: "Due to an unprecedented turn of events which has lead to the economic downturn, the current year will be a challenge for most hotel companies. Luxury hotels will be the most hit, as people will be downshifting. Companies will have to deal with lower occupancies even next year."