The HVS INTERNATIONAL

JOURNAL
2003 Edition This edition has been published by the New Delhi office of HVS International www.hvsinternational.com

HOTELS IN INDIA TRENDS AND OPPORTUNITIES

Introduction The scope of this publication is to assess current trends and future opportunities for the hotel industry in India. As always, apart from conducting specific research for this publication, we have included macro data provided by the Department of Tourism. The publication briefly discusses the tourism industry in India in the context of the current economic scenario in the country and presents the results of our survey on the performance of branded hotels - analysed by each segment of the hotel market, as well as by major cities. Our study also provides an overview of supply and demand conditions in the hotel market in India. As in last year's edition of this report, we have, once again, presented our assessment of hotel trends and developments likely to take place in the current fiscal year; this is included as part of the Future Trends section. In addition to the HVS International Journal, we also publish The Indian Hotel Industry Survey on an annual basis, in association with the Federation of Hotel & Restaurant Associations of India (FHRAI). This publication, unique to India, provides detailed financial and statistical information on the hotel industry, analysed by star category, across all major cities in the country. The 2002/03 edition will be available by the end of the year. This is the seventh edition of HVS International's Hotels in India-Trends and Opportunities publication. We are therefore in a position to present data from 1995/96 onwards. However, we have chosen to publish only the figures from 1998/99 till date. Information pertaining to the previous years is available at our office. A record 215 hotels, having a total room count of 27,125 rooms, participated in our survey for 2002/03. Data required for the purposes of our study has also been obtained from HVS International's extensive database of hotel operating results for India. Table 1 reflects our analysis of the number of participating hotels in the survey. We would like to emphasise
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HOSPITALITY COMPENSATION EXCHANGE

Introduction In this edition of the HVS International Journal, we bring to you excerpts from Hospitality Compensation Exchange (HCE), an in-depth overview of compensation trends in the hotel industry in India. The Hospitality Compensation Exchange has been conducted by HVS International in the United States since 1996, and has successfully established itself as the largest industry forum for t h e exc h a n g e o f c o m p e n s a t i o n information for the hospitality sector in the United States. In India, we are undertaking this effort for the first time. You may recall that, in last year's edition of the HVS International Journal, we had included a section titled Compensation Survey - also a study of compensation trends, but on a significantly smaller scale than the HCE Survey. The HCE Survey is intended to be a onestop reference for current and credible information on Also in this issue: remuneration p a t t e r n s , including beneTriton - Taking Service fits and bonuses. Management to New We hope that the Levels information contained will act as a useful tool for hotel owners and operators, to assist them in attracting and retaining managerial talent through equitable compensation practices. Methodology The HCE Survey is based on the compensation data for the financial year 2002/03 from 106 branded hotel
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Table 1: Number of Hotel Respondents

300 250 250 200

Number of Rooms (00s)

200 150 150 100 100 50

50

0 1998/99 1999/00 2000/01 2001/02 2002/03

Number of Rooms (00s)

Number of Hotels

Average Number of Rooms Per Hotel

HVS International

Number of Hotels

that, for the first time, we have chosen to omit a number of government-owned ITDC hotels from the survey. Many ITDC hotels were sold last year and are at different stages of renovation. These hotels will be included in our survey, once they are re-branded and re-open in their respective markets. Economy and Tourism GDP growth for 2002/03 stood at 4.3%, against 5.4% in 2001/02. This was largely the result of the poor performance of agriculture, which, in turn, was caused by an erratic monsoon - the worst in the last fifteen years. The uncertainty and volatility created by the war in Iraq and the SARS virus, in terms of oil prices, foreign trade and cross border investment, also hit GDP. Despite adverse circumstances and developments, the economy performed noticeably well in certain important areas. Services grew at a healthy 7.8-8.2% reflecting a strong consumer demand and spending. Industrial growth - an impressive 5.8% - was spurred by a strong performance of core sectors such as cement and steel, in response to growth in demand from the housing sector and infrastructure projects. Foreign investment managed to remain more or less at the levels of the previous year - notwithstanding global economic recession and poor investor sentiment across the world, reflecting a certain degree of confidence in the Indian economy. These positive factors have continued into the present fiscal and are expected to further strengthen. The good monsoon experienced by India is also in its favour. The overall outlook on the economy is certainly encouraging: the Reserve Bank of India has forecast a GDP growth of between 6-7%, which would make India among the fastest growing economies in the world. This sense of optimism is being echoed by the public at large: as per a Business Confidence Survey conducted by the Economist Intelligence Unit across CEOs/CFOs

of approximately 100 companies across different industries, 85% of the respondents expected a GDP growth of 6-7% in 2003/04, while nearly 80% respondents expected double-digit growth in company revenues. The capital markets also reflect the overall bullish mood: domestic investment has risen noticeably and investment by FIIs is at its highest level in the last thirty-one months. Moreover, the measures announced in Union Budget 2003-04 for the travel and tourism industry are quite encouraging. These provisions are as follows: Withdrawal of 10% expenditure tax on hotels. The finance minister has also made an appeal to the state gover nments to withdraw the luxury tax currently charged on hotel guests; The hotel industry will continue to enjoy exemption from levy of service tax; The basic customs duty on liquor has been considerably reduced from current levels; The restoration of leave travel concessions to government employees. This is expected to give a boost to domestic leisure travel. Furthermore, interest rates have declined to historically low levels, making it easier for new as well as existing investors to finance new hotel projects or refinance existing projects, as the case may be. The union and state governments are, on their part, making a visible effort to boost transport and commercial infrastr ucture in India. Funding and incentives have been sanctioned for the private sector initiatives to build additional airports at Bangalore and Hyderabad. Similarly, the Government is hoping to achieve a high level of modernization in the airports at Delhi and Mumbai. Two mega convention centres are also proposed to be

developed in the country at the cost of Rs 1,000 crores. These are slated to take place in Mumbai and Delhi, and could be a joint collaboration of the government and the private sector. These infrastructure developments will certainly help the tourism industry in the country. The World Travel and Tourism Council's India report 2003, states that in 2003 the travel and tourism industry, in itself, is expected to generate 2.0% of GDP and over 11 million jobs, while the broader travel and tourism economy is expected to total 4.8% of GDP and create nearly 24 million jobs. Looking ahead, travel & tourism demand is expected to total 7.4% real growth in 2003, and 8.8% real growth per annum between 2004 and 2013. Tourist arrivals for the year 2002 amounted to a meagre 2.36 million, representing an overall decrease of 6.92% when compared to figures for 2001. This was largely the result of the effects of September 2001, political tensions between India and Pakistan with regard to the mutually shared border and communal riots in Gujarat. However, the periods Oct-Dec 2002, January-March 2003 and April-June 2003 registered healthy increases of 14.1%, 12.4% and 10.3%, respectively, for international tourist arrivals, over the corresponding periods of the previous year. Tourism in large parts of Asia was severely affected in early 2003 by the war on Iraq and the outbreak of SARS. India, on the other hand, remained mostly insulated from these developments, resulting in a strong performance in tourist arrivals in the first half of the year. Another important by-product of SARS and the war on Iraq was that the Indian traveller chose to stay at home and travel within the country thereby boosting domestic tourism in a big way. The upward trend witnessed in the first half of 2003 leads us to believe that 2003 will be a better year for foreign tourist arrivals. The upward
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2 Hotels in India - Trends & Opportunities 2003

trend in arrivals is likely to be further reinforced by business sentiments, which are presently on an upswing. The fact that many of the international arrivals are not tourists but businessmen coming to India to conduct business also bodes well for overall arrivals into the country. Table 2 reflects key statistics for the Indian tourism industry. Hotel Supply Three years ago, our survey indicated that in the year 2000, 109 hotels were ready to open or were under construction. Last year this number (hotels expected to open in the next few years) had declined to 80. This year, the number of new hotels under development has further declined to 63, with another 20 hotels being conversions by the various budget brands. Mumbai, Kolkata and Goa have witnessed the bulk of the new luxury development over the past 12 months. The budget and midmarket openings have mostly been in secondary cities. We expect this trend to continue for a while and foresee more budget hotels being launched. Many of the budget brands are, in fact, concentrating on converting un-branded hotels. We anticipate that, in a few years, the number of branded threestar hotels will far exceed those in the luxury market, as has been the case in markets in the US and Europe. Table 3 reflects our research on the development of branded hotels in major Indian cities. For the first time the National Capital Region of Delhi (NCR) has overtaken Mumbai, in terms of the number of new hotels slated to become operational in the next few years. Thirteen hotels are in various stages of planning and development in the NCR, of which nine properties are expected to be located in Gurgaon. Survey Results The HVS International survey has been computed by dividing the respondent branded hotels into their
HVS International

Table 2: Key Tourism Statistics

1998 Number of Arrivals Foreign Exchange Earnings (US$ billions) Foreign Exchange Earnings Per Visitor Total Arrivals to New Delhi Total Arrivals to Mumbai Total Arrivals to Chennai Exchange Rate US$1.00:Rs 2,359,000 $2.94 $1,246 39.9% 33.3% 12.7% 42.20 1999 2,481,000 $3.00 $1,209 32.2% 28.1% 11.1% 43.50 2000 2,641,000 $3.17 $1,200 31.9% 28.3% 11.3% 44.90 2001 2,537,000 $3.04 $1,198 34.0% 27.0% 12.0% 47.20 2002 2,360,000 $2.96 $1,254 29.0% 25.0% 12.0% 48.20 2003* 2,767,000 $3.62 $1,308 33.0% 28.0% 12.0% 46.00

* Note: All figures for 2003 and all exchange rates (weighted for the year) are HVS Estimates Source: Ministry of Tourism and HVS Estimates

respective classifications according to star grading. As before, we have examined the performance of ten major cities across India, wherever a reasonable sample allowed. While most of the responses to the survey were given in Indian Rupees, we have presented some results in US Dollars as well. Overall, average room rates (in Rupees) continued to decline in 2002/03. The effect in US Dollar ter ms was slightly more pronounced due to the differences in exchange rates between the two years. Occupancy levels, on the other hand, registered an improvement in 2002/03 over the previous year. Table 4 reflects room occupancy, average rate and revenue per available room (RevPAR) data by hotel classification for the period 1998/99 to 2002/03, in Rupees. Table 5 reflects the same results in US Dollars. We would like to bring to attention

the fact that many new budget hotels have been added to our survey each year. Six years ago, three-star and four-star hotel rooms accounted for approximately 20% of the overall base of rooms in our survey. This number has risen to nearly 35% of the total rooms in the survey for 2002/03, clearly indicating the importance of budget and midmarket hotels in India. However, this has also somewhat skewed the results in favour of budget hotels by taking down the overall average rates, as shown in the survey. The year 2002/03 has seen demand for hotel room nights improving across all star categories of hotels. Surprisingly, it is the five-star deluxe category that has seen the most growth (13.6%), followed by the fivestar category (10.9%). One explanation for the strong rebound is that it was this category of hotels (fives t a r d e l u xe a n d f i v e - s t a r ) t h a t suffered the most after the events of

Table 3: Distribution of Existing and Proposed Hotels by Major Cities

0 Agra
Existing

10

15

Number of Hotels 20 25

30

35

40

45

Ahmedabad Aurangabad Bangalore Kolkata Chennai Cochin Coimbatore Delhi (NCR) Goa Hyderabad Jaipur Jodhpur Lucknow Ludhiana Madurai Mumbai Pune Udaipur Vishakhapatnam
Source: HVS International Research

Proposed

Hotels in India - Trends & Opportunities 2003 3

4 Hotels in India - Trends & Opportunities 2003 HVS International

Table 4: Key Operating Characteristics by Hotel Classification (Indian Rupees)

Occupancy Average Rate RevPAR

12-Month Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded Growth Rs. Rs. Rs. Rs. Rs. Growth* Growth Rs. Rs. Rs. Rs. Rs. Growth* Growth 1998/99 1999/00 2000/01 2001/02 2002/03 Growth*

Overall Average Five-star Deluxe Five-star Four-star Three-star

55.4% 60.2% 56.4% 55.9% 48.2%

53.9% 58.3% 55.7% 53.2% 47.7%

57.2% 60.9% 56.1% 58.7% 48.8%

51.6% 52.2% 51.4% 52.7% 49.7%

57.2% 59.3% 57.0% 56.4% 53.6%

10.9% 13.6% 10.9% 7.0% 7.8%

0.8% -0.4% 0.3% 0.2% 2.7%

3,903 5,572 3,516 2,296 1,457

3,505 4,910 3,368 2,168 1,505

3,731 5,102 3,447 2,392 1,673

3,467 4,668 3,277 2,368 1,696

3,269 4,335 3,114 2,246 1,669

-5.7% -7.1% -5.0% -5.2% -1.6%

-4.3% -6.1% -3.0% -0.5% 3.5%

2,162 3,354 1,983 1,283 702

1,889 2,863 1,876 1,153 718

2,134 3,107 1,934 1,404 816

1,789 2,437 1,684 1,248 843

1,870 2,571 1,775 1,267 895

4.5% 5.5% 5.4% 1.5% 6.1%

-3.6% -6.4% -2.7% -0.3% 6.2%

* Growth in 2002/03 (in absolute terms) expressed as percentage of the figure for 2001/02

Table 5: Key Operating Characteristics by Hotel Classification (US Dollars)

Occupancy Average Rate RevPAR

12-Month Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded Growth US$ US$ US$ US$ US$ Growth* Growth US$ US$ US$ US$ US$ Growth* Growth 1998/99 1999/00 2000/01 2001/02 2002/03 Growth*

Overall Average

55.4%

53.9%

57.2%

51.6%

57.2%

10.9%

0.8%

$92.48

$80.58

$83.10

$73.45

$67.83

-7.7%

-7.5%

$51.23

$43.43

$47.53

$37.90

$38.80

2.4%

-6.7%

Five-star Deluxe

60.2%

58.3%

60.9%

52.2%

59.3%

13.6%

-0.4%

132.03

112.88

113.64

98.90

89.94

-9.1%

-9.2%

79.48

65.81

69.21

51.63

53.33

3.3%

-9.5%

Five-star

56.4%

55.7%

56.1%

51.4%

57.0%

10.9%

0.3%

83.31

77.42

76.77

69.43

65.23

-6.0%

-5.9%

46.99

43.12

43.07

35.69

37.18

4.2%

-5.7%

Four-star

55.9%

53.2%

58.7%

52.7%

56.4%

7.0%

0.2%

54.41

49.97

53.27

50.17

46.59

-7.1%

-3.8%

30.42

26.58

31.27

26.44

26.28

-0.6%

-3.6%

Three-star

48.2%

47.7%

48.8%

49.7%

53.6%

7.8%

2.7%

34.52

34.59

37.27

35.93

34.63

-3.6%

0.1%

16.64

16.50

18.19

17.86

18.56

3.9%

2.8%

* Growth in 2002/03 (in absolute terms) expressed as percentage of the figure for 2001/02

Table 6: Occupancy Levels by Major Cities

90 80 70 60

Occupancy (%)

50 40 30 20 10 0

Agra

Ahmedabad

Bangalore

Chennai
1998/99 1999/00

Delhi
2000/01

Goa
2001/02

Hyderabad
2002/03

Jaipur

Kolkata

Mumbai

Table 7: Average Rate by Major City (Indian Rupees)

7,000 6,000 5,000

Indian Rupees (Rs)

4,000 3,000 2,000 1,000 0 Agra Ahmedabad Bangalore

Chennai
1999/00

Delhi
2000/01

Goa
2001/02

Hyderabad
2002/03

Jaipur

Kolkata

Mumbai

1998/99

Table 8: RevPAR by Major Cities (Indian Rupees)

450,000 400,000 3,50,000

Indian Rupees (Rs)

3,00,000 2,50,000 2,00,000 1,50,000 1,00,000 50,000 0

Agra

Ahmedabad

Bangalore
1998/99

Chennai
1999/00

Delhi
2000/01

Goa
2001/02

Hyderabad
2002/03

Jaipur

Kolkata

Mumbai

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Hotels in India - Trends & Opportunities 2003 5

September 2001. The four-star and three-star categories also registered demand increases, with growths of 7.0% and 7.8%, respectively. The average rate in rupee terms declined in all categories of hotels in the year 2002/03; the steepest decline was once again felt by the five-star deluxe category at 7.1%. The three-star category had a marginal decline at 1.6%. The average rate in US Dollar terms declined across all categories, resulting in a countrywide decrease of 7.7%. On an average, in 2002/03, hotels saw an all round increase in occupancy levels (10.9%), compared to a decline of 9.4% in the previous year. Average rates in Rupee terms also decreased 5.7% (a smaller decrease, compared to a 7.5% decline in 2001/02), resulting in an overall improvement of 4.5% in RevPAR or a 2.4% RevPAR increase in US Dollar terms. Table 6 illustrates hotel occupancy levels for ten key cities between 1 9 9 8 / 9 9 a n d 2 0 0 2 / 0 3 . Ta b l e 7 illustrates average rates for the hotels in each of these cities, expressed in R u p e e s . Ta b l e 8 p r e s e n t s t h e corresponding RevPAR data for each city. As seen in the previous years, there continues to be a significant disparity between the major metropolitan cities and smaller cities. Although Mumbai continues to be the average rate leader, in terms of occupancy and RevPAR, Bangalore has surpassed all cities and is the undisputed King. This is a major improvement compared to five years ago, when Bangalore ranked a poor fifth in terms of average rates and RevPAR. Current indications are that this year, Bangalore may outperform both Mumbai and Delhi in terms of highest average rates in the country. In 2002/03, double-digit growth in occupancy was exhibited by Mumbai (21.9%), Delhi (13.3%), Goa (12.9%) and Bangalore (12.0%). Chennai (3.2%), Hyderabad (1.3%) and Ahmedabad (1.1%), showed modest gains. Both the leisure destinations of Agra and Jaipur had a decline in

occupancy of 8.9% and 7.0%, respectively. The only metro city to witness a decline in terms of occupancy was Kolkata - this was due to a large oversupply of hotel rooms. Average rates continued their downward trend for most major cities with the exception of Agra and Hyderabad, which registered a growth in average rate of 6.2% and 5.3%, respectively. In the case of Agra, this encouraging performance was largely the result of the opening of a luxury resort. Goa and Bangalore have also shown small improvements in the average rate, with Goa registering a 2.9% growth and Bangalore, a 0.5% growth. In terms of RevPAR in 2002/03, Bangalore was in number one position, followed by Mumbai and D e l h i . H o w e v e r, t h e b i g g e s t improvement during the last fiscal year, in terms of RevPAR, was seen in Goa (16.2%), followed by Bangalore (12.5%) and Delhi (6.8%). The worst declines were seen in Kolkata (15.7%) and Jaipur (14.0%). The various cities have witnessed mixed results, in terms of compounded growth in average rate (in Rupees) for the period 1998/99 to 2002/03. The highest growth was experienced by Hyderabad (12.6%) and Bangalore (3.6%). Jaipur (1.9%) and Agra (0.6%) also had positive growth during this period because of the opening of luxury resorts in the two cities. Conversely, Mumbai, Kolkata, Delhi and Chennai had negative compounded average rate growths of -9.7%, -6.9%, -3.0% and -2.7%, respectively. In 2002/03, cities like Kolkata, Goa and Mumbai saw huge increases in room supply. However, strongert h a n - ex p e c t e d d e m a n d g r o w t h helped in absorbing large parts of this supply of hotel room nights, especially in north Mumbai. With very little immediate supply coming into Hyderabad and Bangalore, we can expect hotel occupancies to go up in these two cities. It would be interesting to see how hotel

operators are able to push average rates in Hyderabad and Bangalore over the short term. Table 9 presents average room occupancies, average rate and RevPAR data for the period 1998/99 to 2002/03 (in Rupees), by major city. Table 10 reflects the same data in US Dollars. Future Trends HVS has been conducting this survey for six years, and, for the first time, there seems to be some real optimism in the hotel industry. All of the cities we tracked have shown improvement in hotel room night demand - a precursor to rate increases in the future. Table 11 illustrates our findings for the five-star deluxe hotel category in key cities, for the period April to August 2003. Comparisons with the corresponding period last year have also been presented, to illustrate the extent of change. While all cities have seen increases in rooms occupied per day (over the previous year's corresponding period), Kolkata (44.5%) is the market leader, followed closely by Bangalore (42.1%) and Mumbai (41.4%). In fact, of the seven cities studied by us, Hyderabad was the only city to have a single-digit growth (7.0%). This was primarily due to the fact that the occupancies in Hyderabad were already at a high level during the same period last year. Also, all cities have experienced increase in occupancy, with the exception of Goa and Kolkata. Goa and Kolkata have had occupancy declines of 9.4% and 5.9% respectively, due to the huge increase in rooms supply in these markets (Kolkata, 53.4% and Goa, 38.4%). In terms of average rates, Bangalore (15.9%), Goa (14.4%) and Hyderabad (14.2%) have all had increases. Yearto-date occupancy for Bangalore at 82% means that average rates can be expected to go up sharply over the next six months. We would expect operators to push rates in Hyderabad as well. Mumbai and New Delhi are expected to see some stabilisation of average rates; in fact, we expect some of the luxury hotels in these cities to
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6 Hotels in India - Trends & Opportunities 2003

HVS International Hotels in India - Trends & Opportunities 2003 7

Table 9: Key Operating Characteristics by Major City (Indian Rupees)

Occupancy 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Growth* Agra 46.4% 40.1% 50.8% 64.4% 65.3% 52.9% 53.3% 61.3% 47.0% 54.8% 64.5% 42.5% 55.8% 69.8% 64.6% 58.9% 60.6% 69.1% 55.0% 62.9% 64.6% 33.7% 53.2% 64.3% 56.5% 53.3% 53.6% 68.0% 48.3% 66.4% 52.0% 30.7% 53.8% 72.0% 58.3% 60.4% 60.5% 68.9% 44.9% 65.4% 63.4% -8.9% 1.1% 12.0% 3.2% 13.3% 12.9% 1.3% -7.0% -1.5% 21.9% Average Rate Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Growth Rs. Rs. Rs. Rs. Rs. Growth* -9.8% -1.9% 5.1% -2.6% 2.8% 0.8% 1.1% -0.4% 3.1% -1.6% 1,906 2,220 3,254 3,600 4,626 2,863 1,579 2,533 3,888 6,297 1,638 2,705 3,025 3,424 4,115 2,727 1,867 2,514 3,557 5,661 1,586 2,736 3,602 3,796 4,526 2,914 2,316 2,902 3,698 5,555 1,840 2,354 3,735 3,535 4,338 2,676 2,414 2,949 3,409 4,932 1,954 2,164 3,752 3,224 4,089 2,754 2,541 2,728 2,917 4,184 6.2% -8.1% 0.5% -8.8% -5.7% 2.9% 5.3% -7.5% -14.4% -15.2% RevPAR Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Growth Rs. Rs. Rs. Rs. Rs. Growth* 0.6% -0.6% 3.6% -2.7% -3.0% -1.0% 12.6% 1.9% -6.9% -9.7% 884 1,288 1,920 2,329 2,503 1,678 1,042 1,155 2,247 4,257 657 1,374 1,948 2,236 2,177 1,453 1,144 1,182 1,949 3,651 674 1,527 2,514 2,452 2,666 1,766 1,600 1,596 2,326 3,589 620 1,252 2,402 1,997 2,312 1,434 1,642 1,424 2,264 2,565 600 1,164 2,701 1,880 2,470 1,666 1,751 1,225 1,908 2,653 -3.3% -7.0% 12.5% -5.9% 6.8% 16.2% 6.7% -14.0% -15.7% 3.4% Compounded Growth -9.2% -2.5% 8.9% -5.2% -0.3% -0.2% 13.8% 1.5% -4.0% -11.2%

Ahmedabad 58.0% Bangalore Chennai Delhi Goa Hyderabad Jaipur Kolkata Mumbai 59.0% 64.7% 54.1% 58.6% 66.0% 45.6% 57.8% 67.6%

* Growth in 2002/03 (in absolute terms) expressed as percentage of the figure for 2001/02

Table 10: Key Operating Characteristics by Major City (US Dollars)

Occupancy Average Rate 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Growth* Growth US$ US$ US$ US$ US$ Growth* Agra Ahmedabad Bangalore Chennai Delhi Goa Hyderabad Jaipur Kolkata Mumbai 46.4% 58.0% 59.0% 64.7% 54.1% 58.6% 66.0% 45.6% 57.8% 67.6% 40.1% 50.8% 64.4% 65.3% 52.9% 53.3% 61.3% 47.0% 54.8% 64.5% 42.5% 55.8% 69.8% 64.6% 58.9% 60.6% 69.1% 55.0% 62.9% 64.6% 33.7% 53.2% 64.3% 56.5% 53.3% 53.6% 68.0% 48.3% 66.4% 52.0% 30.7% 53.8% 72.0% 58.3% 60.4% 60.5% 68.9% 44.9% 65.4% 63.4% -8.9% 1.1% 12.0% 3.2% 13.3% 12.9% 1.3% -7.0% -1.5% 21.9% -9.8% -1.9% 5.1% -2.6% 2.8% 0.8% 1.1% -0.4% 3.1% -1.6% $56 56 95 110 135 63 45 68 109 170 $38 62 70 79 95 63 43 45 82 130 $35 61 80 85 101 65 52 65 82 124 $39 50 79 75 92 57 51 62 72 104 $41 45 78 67 85 57 53 57 61 87 5.1% -10.0% -1.3% -10.7% -7.6% 0.0% 3.9% -8.1% -15.3% -16.3% RevPAR Compounded 1998/99 1999/00 2000/01 2001/02 2002/03 12-Month Compounded Growth US$ US$ US$ US$ US$ Growth* Growth -7.5% -5.2% -4.8% -11.6% -11.0% -2.6% 4.0% -4.4% -13.5% -15.4% $26 32 56 71 73 37 30 31 63 115 $15 31 45 52 50 34 26 21 45 84 $15 34 56 55 59 39 36 36 52 80 $13 27 51 42 49 31 35 30 48 54 $13 24 56 39 51 34 37 26 40 55 -4.2% -9.0% 10.6% -7.8% 4.7% 12.9% 5.3% -14.5% -16.6% 2.0% -16.6% -7.0% 0.0% -13.8% -8.5% -1.9% 5.1% -4.7% -10.8% -16.8%

* Growth in 2002/03 (in absolute terms) expressed as percentage of the figure for 2001/02

Table 11: Supply and Demand Analysis: April-August 2003 vs. April-August 2002
Rooms supply per day Apr-Aug 2002 Bangalore Chennai Goa Hyderabad Kolkata Mumbai New Delhi 1,210 1,263 933 1,107 745 3,990 5,100 Apr-Aug 2003 1,331 1,381 1,291 1,028 1,143 4,377 5,107 Var 10.0% 9.3% 38.4% -7.1% 53.4% 9.7% 0.1% Rooms occupied per day Apr-Aug 2002 760 610 425 645 436 1,895 2,365 Apr-Aug 2003 1,080 810 533 690 630 2,680 2,975 Var 42.1% 32.8% 25.4% 7.0% 44.5% 41.4% 25.8% Apr-Aug 2002 63% 48% 46% 58% 59% 48% 46% Occ% Apr-Aug 2003 82% 59% 41% 67% 55% 62% 58% Var 29.4% 22.9% -9.4% 15.2% -5.9% 29.2% 26.1% Average Daily Rate (ADR) Apr-Aug 2002 4,100 3,550 2392 2,457 3,440 4,900 4,212 Apr-Aug 2003 4,750 3,385 2,737 2,806 3,150 4,400 3,972 Var 15.9% -4.6% 14.4% 14.2% -8.4% -10.2% -5.7% Apr-Aug 2002 2,583 1,704 1,090 1,432 2,012 2,352 1,938 RevPAR Apr-Aug 2003 3,871 1,997 1,130 1,883 1,735 2,728 2,304 Var 49.9% 17.2% 3.7% 31.6% -13.8% 16.0% 18.9%

Source: HVS International Research

increase corporate rates. The most encouraging development during the first five months of the current year has been the healthy increase in RevPAR across all cities, Kolkata being the only exception, where RevPAR declined due to the o v e r s u p p l y. B a n g a l o r e ( 4 9 . 9 % ) , followed by Hyderabad (31.6%), New Delhi (18.9%), Chennai (17.2%) and Mumbai (16.0%) have seen doubledigit growths. Goa, despite the huge i n c r e a s e i n s u p p l y, h a s a l s o witnessed a modest RevPAR growth of 3.7%. The growth in room night demand in Mumbai has primarily been in north Mumbai; the hotel market in south Mumbai has seen a relatively marginal growth during the last few months. We attribute the improvement in room night demand in Mumbai to the development of areas like AndheriKurla, Malad and Navi Mumbai. The Bangalore market has surprised many operators and existing hotel owners can expect a windfall gain during the current year as well as for the next few years, until new supply enters the market. With occupancy already at historically high levels in most hotels, we expect the focus to shift to average rates - operators are expected to increase rates by 15-20%, on an average. However, we would like to caution that this trend may not last long: we know of at least six new hotels which are at the planning stage and will start to enter the market in three years time. The trends witnessed in the New Delhi market in 2003 have been quite

positive, reinforcing our faith in the city. Occupancies have picked up over the past few months. Although average rates declined in the period April-August, we expect these to stabilise as the peak season kicks in. It would be interesting to see the effects of development in the form of new hotels in Gurgaon (Hilton Trident) and Noida (Radisson). Also, with the Claridges and the Kanishka under renovation, we can expect to see a little more competition in the city next year, which, hopefully, will get absorbed as the demand picks up. No new developments are anticipated in the hotel markets in Hyderabad and Chennai; the performance of these cities will depend on improvements in the Indian economy and, consequently, the extent of increase in demand for room nights. Goa is expected to do well: in the last 12 months, three new hotels have entered the city, and are expected to market Goa in their own right; these include three hotels with international affiliation. The only weak links continue to be the leisure destinations of Agra and Jaipur, which, we hope, will experience some improvement as international arrivals increase. With economic indicators improving across most fronts and business sentiments being very positive, we expect the majority of cities to witness some degree of improvement in the coming months. Opportunities Opportunities for the Indian hotel sector continue to be in the budget and mid-market segment - we expect to see further development activities in these segments in the next year or

two. Hotels in metro cities, with an average rate of Rs 2,400-2,800, and hotels in non-metro cities, with an average rate of Rs 1,800-2,400, are likely to experience a rapid growth in demand in the next year or two. As we did last year, this year as well, we estimate that hotels in Bangalore, Hyderabad, Chennai and Delhi will see occupancies grow significantly over the next few months. Bangalore is expected to have huge amounts of unaccommodated demand and will allow hotels to increase average rates across the city. Till the time new supply enters the market (in 2005), the existing hotels will benefit tremendously. Another market that has surprised hotel operators and certainly the analysts is the north Mumbai market. Although this market has experienced huge supply increases in the past 12 months, most of the supply has been absorbed. With two large hotels expected to open in the next few months, we can expect some slow down. However, the long-ter m outlook for Mumbai is certainly positive, as the city has experienced demand growths of between 20% and 40% during each of the last four to five years. The real opportunity lies in a good mid-market or budget hotel of international standards. Leisure resort destinations that are easily accessible are likely to benefit from the increase in foreign tourist a r r i v a l . M o r e o v e r, t h e o v e r a l l improvement in the economy would favourably impact the performance of good four-star hotels in secondary cities.
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8 Hotels in India - Trends & Opportunities 2003

HOSPITALITY COMPENSATION EXCHANGE

- continued from page1

compensation on a nation-wide basis for each of the thirteen designations; Table 2 illustrates average annual compensation comparison by room size, for hotels with more than 200 rooms. It may be noted that the salary, bonus and retirement remuneration of expatriates have been excluded from our calculations for all the positions. For each of the positions, the minimum and maximum base salary earned has been presented, as well as the base salary at the 25th, 50th and 75th percentile levels. The 25th percentile can be defined as the lowest value (in this case, base salary) that is greater than 25% of the th values; similarly, the 50 percentile is the lowest value that is greater than th 50% of the values and the 75 percentile is the lowest value that is greater than 75% of the values. The term base salary includes basic p a y, h o u s e r e n t a l l o w a n c e ,

properties across India, ranging from the three-star category to the fivestar deluxe category. More than 700 senior executives within the industry have participated in the survey. Information was compiled from responses to a detailed questionnaire framed for the purpose and sent to the corporate offices of the hotel groups.

Compensation details have been presented for thirteen senior management positions in the HCE report; this data has been further classified into a variety of categories for the purpose of comparison. The tables provided are excerpts from the main survey: Table 1 reflects statistics relating to average annual

conveyance allowance, education allowance and special/dear ness allowance. It does not include annual bonus, which has been presented as a separate item. Average Retirals indicates provident fund and/or gratuity and/or superannuation, as applicable across individual hotel properties, while Average Benefits implies medical and leave travel allowance entitlements. While most hotels provide car/transportation facility to their senior executives as part of the total compensation due to them, we have not included this in our calculation of average benefits, as different hotel groups follow different policies with regard to this particular entitlement. Survey Highlights The data reflected in Table 1 and Table 2 confirm that compensation in the hotel industry continues to be connected to the hierarchy of a traditional organisation chart. The General Manager (GM) is the highest

Table 1: Compensation Data - All India Figures

Position General Manager Resident Manager Department Head Front Office House Keeping F&B Service Food Production Engineering Sales & Marketing Human Resources Finance Systems Training PR & Communications Min 295,000 120,000 132,000 58,000 103,000 114,000 90,000 100,000 105,000 130,000 90,000 120,000 102,000 25P 592,000 419,000 213,000 228,000 292,000 328,000 255,000 311,000 215,000 307,000 144,000 243,000 200,000 Base Salary (Rs) 50P 720,000 630,000 310,000 290,000 392,000 455,000 348,000 442,000 361,000 420,000 206,000 291,000 279,000 75P 1,180,000 1,040,000 400,000 504,000 485,000 680,000 506,000 687,000 474,000 610,000 312,000 375,000 421,000 Max 2,690,000 1,400,000 750,000 1,020,000 1,210,000 2,000,000 1,383,000 1,540,000 1,240,000 1,440,000 750,000 750,000 810,000 Avg Bonus (Rs) 191,000 54,000 40,000 40,000 49,000 71,000 57,000 76,000 64,000 73,000 22,000 52,000 51,000 Avg Retirals (Rs) 112,000 79,000 38,000 38,000 49,000 58,000 52,000 40,000 52,000 59,000 27,000 33,000 40,600 Avg Benefits (Rs) 127,000 107,000 78,000 54,000 70,000 94,000 87,000 84,000 75,000 88,000 36,000 54,000 58,000

Table 2: Compensation Data - Hotels with more than 200 rooms

Position General Manager Resident Manager Department Head Front Office House Keeping F&B Service Food Production Engineering Sales & Marketing Human Resources Finance Systems Training PR & Communications Min 992,000 492,000 230,000 261,000 183,000 309,000 260,000 301,000 332,000 307,000 111,000 240,000 216,000 25P 1,139,000 828,000 372,000 374,000 394,000 608,000 425,000 493,000 438,000 499,000 235,000 276,000 299,000 Base Salary (Rs) 50P 1,280,000 1,051,000 442,000 565,000 483,000 781,000 546,000 689,000 550,000 610,000 315,000 363,000 387,000 75P 2,460,000 1,250,000 584,000 739,000 614,000 1,872,000 739,000 765,000 784,000 723,000 418,000 456,000 600,000 Max 2,690,000 1,400,000 750,000 1,020,000 1,210,000 2,000,000 1,383,000 1,540,000 1,240,000 1,440,000 750,000 750,000 810,000 Avg Bonus (Rs) 285,000 84,000 61,000 50,000 70,000 161,000 73,000 59,000 92,000 80,000 26,000 59,000 55,000 Avg Retirals (Rs) 196,000 111,000 60,000 55,000 71,000 103,000 79,000 62,000 92,000 85,000 39,000 40,000 57,700 Avg Benefits (Rs) 182,000 177,000 154,000 90,000 71,000 145,000 93,000 103,000 93,000 102,000 47,000 67,000 76,000

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Hospitality Compensation Exchange 2003

Table 3: Compensation Data - Expatriates

Position General Manager Executive Chef Min (Rs) 3,052,000 2,287,000 25P (Rs) 4,282,000 2,798,000 50P (Rs) 6,333,000 3,540,000 75P (Rs) 7,900,000 5,359,000 Max (Rs) 8,373,000 5,500,000

paid executive, followed by the Resident Manager (RM). As per our survey results for 2002/03, the head of Food Production is the highest paid department head, followed by the Sales and Marketing head. Taking into account all-India figures, th the median (50 percentile) of the annual base salary of a GM was Rs 720,000 in 2002/03. For GMs of hotels with rooms greater than 200, the median of his/her annual base salary was Rs 1,280,000. In other words, the median basic pay of GMs of hotels with rooms greater than 200 was about 77.7% higher than the nationwide average. Significant variations were also noticed in other designations: for example, the median basic pay of the Sales and Marketing head at hotels with rooms greater than 200 was 55.8% greater than the nation-wide average basic pay of Sales and Marketing heads. By the same comparison, the head of Human Resources at hotels with rooms greater than 200 ear ned 52.3% higher. The largest variation was observed in the case of Housekeeping: the median basic pay of the Housekeeping head at hotels with rooms greater than 200 was 94.8% greater than the nationwide median basic pay for this position. The average bonus of a GM was about 18.4% of his/her average base salary. This is more or less in line with bonus pays for GMs in the hotel industry in the United States, where bonus as a percentage of average base salary is 20-22%. The RM's bonus was 7.3% of his/her average base salary - lower than the bonusas-percentage- of-average basic of both India-based GMs as well as RMs in the US (13%). Benefits worked out to 12.2% of the GM's average base salary and 14.6% of the RM's average base salary.
10 Hospitality Compensation Exchange 2003

Retirals as a percentage of average base salary were 10.7% and 10.8%, respectively, for the GM and the RM. For the Sales and Marketing head, average bonus as a percentage of average base salary worked out to 15.0%, while benefits worked out to 12.6%. For the Finance head, bonus and benefits as a percentage of average base salary were calculated to be 15.3% and 18.4%, respectively. Survey Highlights - Expatriates As part of the main survey, we conducted a study on the compensation package of expatriates in two positions - the GM and the E xe c u t i v e C h e f ( h e a d o f Fo o d Production), details of which are presented in Table 3. Although compensation data was obtained for other senior management expatriate positions as well, these could not be presented, as the sample size in all such cases was inadequate to merit a reasonable analysis. As is generally the case worldwide, in India as well, different hotel groups provide different types of benefits to their expatriate employees. Therefore, for the purpose of our analysis, we have taken in account a sum total figure - cost to company. For More Information The HCE Survey in its entirety presents compensation data according to a number of classifications, which include: Nation-wide comparison of compensation; Results by number of rooms (less than 100 rooms, 100-200 rooms and greater than 200 rooms); Results by major cities; Results by hotel type (commercial, resort, conference centre). The report would be available with us from October 15, 2003. For further information on the report and its pricing, please contact Moni Biradar at mbiradar@hvsinternational.com.

TRITONTAKING SERVICE MANAGEMENT TO NEW LEVELS

HVS Technology Strategies has recently aligned itself with Knowcross to promote Triton on a worldwide basis. Triton, a proprietary product of Knowcross, is a comprehensive tool aimed at task and guest service management. In any property, service delivery is key to success. These service requests can come from guests, other employees or equipment, such as periodic maintenance. Once a task is identified, it must be communicated to the appropriate department or person. From there it needs to be assigned to someone and scheduled. Ideally, when the task is being attended to and completed, there should be feedback so that if something isn't done properly or on time, there's an opportunity to correct it quickly. Lastly, it's often valuable to look back on tasks from a guest, employee, task, location or equipment perspective to understand trends and spot problems. Existing solutions generally focus on parts of the above need. They may allow you to enter tasks and record their completion, but don't help assign people or warn of a current problem. Others do a good job of maintaining engineering records and tracking periodic maintenance, but are not so strong in guest services. Some are tools for tracking guest requests and satisfaction, but don't deal with task allocation and employee performance. Here is where Triton is unique. It addresses all facets of task and guest service management, from the moment a request is made to its ultimate successful completion and subsequent reporting. Its key capabilities include: Task entry from any networked PC, telephone, IP phone or
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virtually any other data input device; Allocates the task whenever possible to a specific employee based on a best fit and who is available algorithm, eliminating one or more dispatcher positions; Instantly communicates details of the task to the assigned staff; Provides real-time view of all tasks on any PC in the hotel. Allows users to view the tasks by status, staff, and location; Automatically alerts managers when a task has not been completed within its designated time. Alert paths and timings are defined for each call type such that the system automatically accelerates up the chain of command if it gets no response; Allows users to create personalized alerts so that they can be infor med when specific situations arise. For example, the Rooms Manager may want to know when anyone on the executive floor has a complaint; or the Chief Engineer may want to be alerted if there is a problem in any of the rooms serviced by boiler #2; Has a module for following up with guests and recording their feedback, which is automatically converted into a 'guest satisfaction rating'; Tracking of maintenance works, contract renewals, parts replacement and related tasks; Allows review and reporting based on specific task, task type, employee, department, location, guest, etc. This can be used to answer question such as How often do guests ask for additional towels? or What engineers have the highest percentage of tasks not completed on time? How does Triton improve service? Triton alerts your staff to problems as they occur. Moreover, it shows you which tasks occur most often, which ones take longest and which ones
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most often result in time violations or low guest satisfaction ratings. Armed with this information, it becomes much simpler to improve overall service levels. Triton also provides an accurate picture of what employees are doing, in terms of both workload and performance. This, in turn, will help senior management to undertake more objective performance evaluations, and over a period, ensure adequate, but not excessive, staff levels. A clear understanding of where money is being spent in labor, parts and support, assists hotel operators in taking suitable decisions, where managing their property is concerned. For more information on Triton, contact Manav Thadani at HVS International's New Delhi office. Acknowledgements The HVS International Journal has been developed for the benefit of employees, developers, investors and operators with an interest in the tourism industry in India. The study has been made possible only with the contribution and support of most of the domestic and international hotel chains, to whom HVS International would like to express its gratitude and appreciation. If you or any of your colleagues would like to receive complementary copies of the HVS International Journal or HVS Executive Search information, kindly send your e-mail address along with full contact details to Moni Biradar. Alternatively please visit our website www.hvsinternational.com and register yourself. About HVS HVS International has been operating in India for six years. The HVS team has worked on projects ranging from feasibility and marketing studies; valuation of hotels; residual land values; management contract values; management contract negotiations;

development strategies for new brands; impact analysis; research reports and investment services. Our clients in India include Indian Hotels, EIH Ltd., ITC Hotels, Hotel L e e l a Ve n t u r e L t d , Fo r t e P l c , Intercontinental Hotels & Resorts, Mandarin Oriental, Carlson Hospitality, Hyatt International, Hilton International, Choice International, Silver Link Holding, Lehman Bros., ICICI Bank, Sun Group and the Hero Group among others. In May 2001, we launched HVS Executive Search, to cater to the staffing needs of the hospitality and related services sectors. Apart from being the first retained search firm for the hospitality industry in India, HVS Executive Search also provides services in areas of HR Consulting and Compensation Survey & Design. In addition to its New Delhi office, HVS Executive Search has offices in New York, London and Hong Kong. HVS Executive Search has also launched two websites:hospitalitycareernet.com and 2020skills.com. 2020 Skills is an internet-based assessment tool specifically designed for service industry professionals, for assessing performance characteristics and cultural compatibility. 2020 Skills was authored by professors Florence Berger and Judy Brownell of the Cornell University School of Hotel Administration and HVS Executive Search. The assessment profile has three unique levels: senior, midmanagement, and line. The site can be accessed at www.2020skills.com. www.hospitalitycareernet.com provides state-of-the-art solutions for employment news, career advice, compensation assessment, and more. It has become one of the most efficient way to recruit, hire, and retain employees.

Hospitality Compensation Exchange 2003 11

Offices: India C-67, Anand Niketan, 2nd Floor New Delhi 110021 (91) (11) 2410 1005 (91) (11) 2410 1066 fax Singapore 100 Beach Road, #32-04, Shaw Towers Singapore 189702 (65) 6293 4415 (65) 6293 5426 fax Dallas 2601 Sagebrush Drive Suite 101 Flower Mound, TX, 75028 (972) 899-5400 (972) 899-1022 fax

About the Authors Manav Thadani joined HVS International's New York office as a Consultant and Valuation Analyst in September 1995. Prior to joining HVS, he gained six years of operational experience in various hotels in New York City. In early 1997, Manav planned the opening of HVS International's first Asian office in India, which was established in New Delhi later in the year. In 2000, Manav was promoted as Managing Director of the HVS International New Delhi office. Manav holds a Masters Degree in Food Service Management from New York University (NYU), prior to which he earned a BS degree. Kiran Andicot joined HVS International's New Delhi office in May 2002 as a Consulting and Valuation Analyst. Kiran has seven years experience in the hospitality industr y. He has worked as Accommodations Manager at Taj Exotica in Goa. Prior to the Taj, Kiran has worked with the Oberoi Group of Hotels in different management positions. His experience includes The Oberoi in Bangalore, The Trident in Cochin and Rajvilas in Jaipur. Kiran holds a Post Graduate Diploma from the Oberoi Centre for Learning and Development in Delhi and a Diploma in Hotel Management from the National Council for Hotel Management and Catering Technology. Vandana Ahuja has recently joined HVS International's New Delhi office as a Senior Associate. Vandana has eight years experience in the area of human resources. She has worked as a consultant with Hewitt Associates during which period she spearheaded executive search, media assignments and business development initiatives for the company's Talent Sourcing practice. Prior to Hewitt, Vandana has worked with Eli Lilly Ranbaxy, handling the HR function for the corporate office, and the western and central regions. Vandana is a graduate in Zoology (with Honours) from Delhi University and holds a Post Graduate Diploma in Ecology and Environment. She has also earned a Post Graduate Diploma in Marketing Management.
Reprint Permission required for any article appearing in this publication. Editorial board: Deepika Thadani
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