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Chapter 2

Hospitality Industry

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2.1 Introduction

The hospitality industry is wide spread and is of considerable financial

importance to every economy in which it operates. It incorporates a whole

range of properties, not just hotels but conferences and training centers of all

sorts, and a host of specialist venues, residential and non residential catering

to guests for business or pleasure and its size defines the imagination of

millions of people who use these establish-merits every day, alone or in

groups, for business or pleasure or combination of both. It is international in

nature with considerable growth potential.

2.2 Hotel Industry in India

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel

Industry is inextricably linked to the tourism industry and the growth in the

Indian tourism industry has fuelled the growth of Indian hotel industry. The

thriving economy and increased business opportunities in India have acted as

a boon for Indian hotel industry. The arrival of low cost airlines and the

associated price wars have given domestic tourists a host of options. The

'Incredible India' destination campaign and the recently launched 'Atithi Devo

Bhavah' (ADB) campaign have also helped in the growth of domestic and

international tourism and consequently the hotel industry.

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In recent years government has taken several steps to boost travel & tourism

which have benefited hotel industry in India1. These include the abolishment of

the inland air travel tax of 15%; reduction in excise duty on aviation turbine fuel

to 8%; and removal of a number of restrictions on outbound chartered flights,

including those relating to frequency and size of aircraft. The government's

recent decision to treat convention centers as part of core infrastructure,

allowing the government to provide critical funding for the large capital

investment that may be required has also fuelled the demand for hotel rooms.

The opening up of the aviation industry in India has exciting opportunities for

hotel industry as it relies on airlines to transport 80% of international arrivals.

The government's decision to substantially upgrade 28 regional airports in

smaller towns and privatization & expansion of Delhi and Mumbai airport will

improve the business prospects of hotel industry in India. Substantial

investments in tourism infrastructure are essential for Indian hotel industry to

achieve its potential. The upgrading of national highways connecting various

parts of India has opened new avenues for the development of budget hotels

in India. Taking advantage of this opportunity Tata group and another hotel

chain called 'Homotel' have entered this business segment.

According to a report, Hotel Industry in India currently has supply of 110,000

rooms and there is a shortage of 150,000 rooms fueling hotel room rates

across India. According to estimates demand is going to exceed supply by at

least 100% over the next 2 years1. Five-star hotels in metro cities allot same

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room, more than once a day to different guests, receiving almost 24-hour rates

from both guests against 6-8 hours usage. With demand-supply disparity,

hotel rates in India are likely to rise by 25% annually and occupancy by 80%,

over the next two years. This will affect the competitiveness of India as a cost-

effective tourist destination.

To overcome, this shortage Indian hotel industry is adding about 60,000

quality rooms, currently in different stages of planning and development, which

should be ready by 2012. Hotel Industry in India is also set to get a fillip with

Delhi hosting 2010 Commonwealth Games. Government has approved 300

hotel projects, nearly half of which are in the luxury range. The future scenario

of Indian hotel industry looks extremely rosy. It is expected that the budget and

mid-market hotel segment will witness huge growth and expansion while the

luxury segment will continue to perform extremely well over the next few

years.

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2.3 Hospitality Industry: An Overview

In the ancient age the kings, emperors, God-fearing philanthropists or

crusaders constructed temples, dharamshalas, sarai for the devotees who

traveled on pilgrimages. Even churches, monasteries and cathedrals followed

the practice. Inns and taverns were found well developed till the fall of Roman

Empire by about 500A.D. Inn keeping could not flourish because travel was

infrequent and trade largely at a standstill.

The crusades in Europe, which started in 1095 A.D., lasted for over two

hundred years" This laid down the foundation of a social revolution resulting

into the development of trade and business that led to the emergence of a

new class that is Middle class2. The impact of renaissance was visible firstly in

Italy and gradually in several countries of Europe. Inn - keeping thus became a

remunerative business.

The first tavern was opened in USA in 1634. Hotels emerged from tavern. By

1920, hotels became the accepted term to describe a place where people

stayed for the night and took their meals on a payment basis. Since then there

has been a multi pronged development in the socio-economic parlance, which

has made ways for the emergence of hotel as an industry. Significant

developments in the field of transportation, sophistication in communication,

growing importance of sophisticated information 'technologies in the business

world, engineering of a strong foundation for industrialization and urbanization,

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increasing domination of corporate sector on the national and international

economies, emerging corporate culture and lifestyles paved copious avenues

for the development of hotel industry the world over. The official deputation,

the business magnets on trade promotion mission, the foreign representatives

on peace mission, the domestic or foreign tourists interested in visiting places

for pleasure or for enriching the knowledge bank, the international events etc.

are some of the important reasons for the development of Hotel industry.

2.4 THE INTERNATTONAL SCENARIO OF HOSPITALTTY INDUS TRY

In the past 35 years, hospitality and tourism had more effect on economic and

social development than any other trade with twenty industrialized countries

accounting for two third of total visitor movements. The OECD (Organization of

Economic Cooperation and Development) member states represent the

wealthy world with an estimated population of 700 million and a domination of

position in the world travel. Tourism is the part of international trade in services

and may be used in the economic advancement of developed and developing

countries and to enhance competitive advantage in the global market.

Government promotes tourism to:

1. Earn foreign exchange.

2. To create job opportunities.

3. To develop backward areas.

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Hence specific functions of governments, in both developed and developing

countries normally involve co-ordination, planning, legislation, regulation,

entrepreneurial ventures, and tourism-industry stimulation *1.

2.5 INDIAN SCENARIO

The plantation of western concept in the eastern environment was made

initially by the British before that we had various dharmashalas built by the

great Indian and Mogul kings and the Emperors. The Taj Mahal Hotel built by

Jameshedji Nauroji Tata in Mumbai in 1903 was the dawn of the

Independence, as till than by and large almost all the hotels in India were

owned and managed by British or Swiss. After the Independence and with the

beginning of the planned concept of economic development, the contours of

development underwent radical changes. The policy makers realized the

significance of Hotel and Tourism services in the emancipation of economy

and UNESCO conference organized in Delhi made the ways for the

establishment of the Ashoka Hotel in 1956. Since then, we find change in the

development philosophy which encouraged the private sector to participate in

the development process.

2.5.1. Service Sector the potential:

In keeping with the general trend the world over in economic development, the

contribution of the Services sector to India's GDp has been growing. Currently

(2006-07) services account for nearly 48.6% of the nation's GDP. *2

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The range and variety of the services sector are vast indeed and so are the

policy prescription and marketing strategies for the promotion of each

segment.

2.5.2. Hospitality and tourism share an interdependency: which has evolved

over the centuries. Successful Hospitality Marketing highly depends on entire

travel industry. People travel for various reasons-for business activities,

conventions, and expositions, trade shows, Leisure-Time Activities- visiting

friends and relatives, education, cultural attractions, natural landmarks,

recreation. Historically significant places, religion, health, and other factors.

India has been the spiritual and cultural destination for tourists from all over

the globe. According to WTO South Asia wouid receive six million tourists in

2000AD of which India's share will be half. Such is the growth potential of

Tourism sector in the country. 3

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2.6 CONTRIBUTION of HOSPITALITY and TOURISM INDUSTR Y

Foreign Exchange Earner: This is the third largest exchange earner in

the country. This went up to Rs 500000 crores in 2009. 4

More than 1, 00,000 Persons are employed in Mumbai by the industry.

Nearly 5.00,000 persons are indirectly employed in allied sectors such

as transport, retail outlets Etc.100 industries.

The Tourism Industry making it at Rs.13000 crores the country's

second largest net foreign exchange earner generates 3.03 billion US

Dollars in foreign currency earnings.

Tourists arrivals have touched 5 million for the year 2007 - 2008.

Provided additional infrastructure in the form of additional hotel rooms

to the tune of 50,000 rooms.

An estimated 10 million tourists are expected to visit India by 2015.

Indian foreign exchange kitty would than receive 10 billion US Dollars

and Rs.20, 000 crores from tourism alone apart from providing

Significant employment opportunities.

Tourism is the fastest growing sector and generates the most jobs for

every rupee invested. For every Rs.10 lakh spent on hotel and

restaurants 89 new jobs are created.

According to the union tourism minister the arrivals was growing at an average

pace of round 12 %. The tourist department expects this to increase further to

2.9m during 2001.However there is much more room to grow and government

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is exploring ways to boost tourism arrivals further. According to Hotel

&Restaurant Association's President Shekar Bajaj, *5 in spite of India having

all assets to lead the world in this industry country has performed poorly in

promoting tourism.

Though India's history is 5000 Years old, it attracts only less than 0.5% of the

world tourist traffic, Which is only 46th in ranking India had only 2.5 million

visitors in the year 2000 compared to china's 25 million' India ranked fourth in

Asia in 1985, but the position slipped to seventh in 1997. Mr. Bajaj suggested

that more flights should come to India' Elaborating the benefits, which the

country would gain from one extra flight to India, he said that out of 400

passengers per flight 200 foreign visitors spent 7 days involving an

expenditure of Rs.2000 per day would result in earning 28 lakh in foreign

exchange per flight. Over Rs.100 crore earned per year from 360 flights

means 20,000 jobs created over a Year.

2.7 Travel Scenario in India

The World Travel and Tourism Counsel for Economic Forecasting has come

out with a study that finds Indians to be amongst the fastest growing travelers

in the world. The figures speak volumes: we are consuming tourism products

apd services to the tune of $16.3 billion today6. this is slated to rise to $51

billion by 2012 . At the annual growth of 9%, this would make the Indians the

fasters growing travel spenders in the world. This should come as no surprise

35

Not only does the average Indian live much better than before but with the

increasing number being added to the middle class every year there are more

people with the means and the willingness to spend on leisure travel Not only

within the country but also abroad.

Unfortunately, most of our holiday destinations lack even basic amenities and

have little to offer by way of entertainment and nightlife. Firstly, infrastructure

whether in the form of roads, transport telecommunications, power supply and

so on need to be beefed up all over the country; more so in the tourist

destinations. Today most of our hill stations that were once the pride of the

country are crowded and dirty beyond belief. Transport links are poor and

water shortages endemic. Second, there is a greater need for economic

freedom. Tourism is a part of the leisure industry, which is itself a product of

the worlds growing prosperity. People work hard, earn money and then take a

break by going to a great vacation. There should be great entertainment

centers like nightclubs, casinos, bars, pubs and discos. Holiday towns should

reverberate with night - life. Previously the hill stations were well equipped with

a 'mall’ in order to facilitate social interaction. In free India, this 'public sphere'

of pubs, bars and cafe has been totally repressed. We cannot promote tourism

thus. Instead of the state trying to promote by running hotels, it should sell out

its stake and invest that money in more crucial infrastructure,

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2.8 HOTEL RIVALS HAVE FORMED A GRAND ALLIANCE TO PR OMOTE

TOURISM:

All major stakeholders in the tourism sector have come together in a unique

alliance to promote inbound tourism7 This model brings together players like

Taj Group, Oberoi Group, Hyatt Hotels, Sheraton and Welcome Group as well

as travel agencies Thomas Cook and Sita Travels.

The move is clearly intended to address the alarming slump in the domestic

tourism sector - frozen since the last decade at a dismal 0.38 % share of the

world tourism.

The main hurdles in the attracting and developing tourism and promoting

Hospitality Industry are:

Infrastructure.

Built up levy of tax on tourism and tourists.

Policy hurdles.

Inadequate security.

Poor Human Resources

Standard service.

Lack of innovativeness in Marketing.

Development resulting into sub

Less diversified tourism products.

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2.9 Government Initiatives

Simplification of visa norms: Government Proposes to grant tourists visas on

the spot to tourists from a group of about 20 countries.

Second International airport at Mumbai.

INFORMATION KIOSKS: There is a proposal to set up high tech

Information Kicsks8 including video conferencing. Computerized hotel

bookings and interactive voice response system, at major International

kiosks including video conferencing, computerized hotel bookings and

interactive voice response system, at major international and domestic

airports as well as the regional tourist offices. About 60 kiosks will be

set up initially at a cost of Rs.1 .25 crores.

PALACE ON WHEELS: There is a proposal like the Palace On Wheels

type trains service in Maharastra and other trade fairs and festivals.

The FOUR S: The four S stands for Swagat, Suchna, Suvidha and

Suraksha. The Government proposes to use these tools to promote

Indian tourism and make India, destination number one in the World.

RELIGIOUS AND CTILTIJRAL TOURISMS: Tire Indira Gandhi National

Center has been assigned to write tolrrism promoting pamphlets. The

center has nearly two lakhs manuscripts on ancient Art and Culture.

"Experience Indian Society" has been formed to develop an appropriate

marketing plan for the country. While the private players have put in seed

capital of 2 crore, the government is committing Rs.8 crore in the first round of

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funding to support these tourism promotion activities. This throws up a unique

model of public and private sector partnership in the tourism sector. Hoteliers

and tour operators to be engaged in effective Business to Business (B2B)

marketing leaving the larger role of Business to Customers (B2C) tourism

promotion to government, which allocates around Rs.22 crore annually

towards tourism promotion, which according to the society was not wisely

spent. The society was started with the purpose of helping the government

focus its marketing spend on key markets, the first priority on their agenda is

to create a world-class television and film commercial to position Indian

tourism appropriately in overseas markets has already been dealt with. It has

also put together a print campaign and marketing plan to promote Indian

tourism oversees.

The ' catchphrase ' of the advertisement is ' India a thousand images, one

word'. And ‘Incredible India’ The ad film intends to promote India as historically

and culturally rich, though linked with technology and modern facilities. Europe

and US will be priority markets. There has been increase in hotel as well as

airline capacities into the Indian sub continent through private initiatives. But if

there is no business, it will create a disincentive for future tourism investment.

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2.10 INDIAN GATE OPENS to the WORLD

The Indian government is cutting out red tap carpet for foreign tourists. Initially,

the facility will be extended to citizens of 16 countries at Delhi and Mumbai

airports. Fly in with your passport, get your visa at a special counter, and walk

out. The 16 countries, which will get this benefit, are from four continents -

America. Asia, Europe and Africa. In some cases on arrival visa facilities are

provided to the travelers. Hong Kong and Thailand for instance, allow an

arrival visas*9. In other cases the opening up is unilateral, to boost tourists

arrivals. In keeping with the general trend world over in economic

development, the contribution of the services sector to India's GDP has been

growing. In today’s competitive world, one needs to become familiar with the

marketing. Today the customer is the king, Satisfaction of the customer is the

only way of survival and a definite road to success.

2.11 NEED TO EVOLVE SPECIAL MARKETING STRATEGIES FO R

HOSPITALITY INDUSTRY

Today's marketing is not a business function. It's a philosophy, a way of

thinking and a way of structuring your business and your mind Marketing can

never be only a short-term program. Marketing is a part of everyone's job from

the receptionist to the board of directors. The task of marketing is never to fool

the customer or endanger the company's image. Marketing's task is to design

a product/service combination that provides real value to targeted customers,

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motivates purchase, and fulfills genuine customer needs. The purpose of

business is to create and maintain profitable customers. Customers are

attracted and retained when their needs are met. Not only do they return to the

same hotel or restaurant but they also talk favorably to others about their

satisfaction. Customer satisfaction leading to profit is the central goal of

hospitality marketing. It is always wise to assess the customer's long-term

value and take appropriate actions to ensure a customer's long-term support.

Two recent studies document this. The forum Company found that the cost of

retaining a loyal customer is just 20% of the cost of attracting a new one.

Another * 10study found that an increase of five percentage points in customer

retention rates yielded a profit increase of 25% to 125 %. Accordingly, a hotel

that can increase its repeat customer from 35% to 40%, should gain at least

an additional 25% in profits, thus Jan Carlzon, president of Scandinavian

Airlines, summed up the importance of satisfied customer. Understanding the

importance of satisfied customers the service sector needs different and

unique Marketing strategies to survive and grow through customer

satisfaction.

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2.12 RATIONALE FOR GIVING IMPORTANCE TO MAHARSHTRA FOR

THE STUDY

Maharashtra has few cities like Pune, Mumbai which is like Bangalore, in India

where climate seems to have blended ideally with its people to produce an

ethos which has built up, on the one hand probably the best in Indian culture

and education and a vital pan of the country’s growing industry*11. Pune has

been building up modem industry against the background of its old tradition of,

learning and administration. With the rapid industrial development in and

around Pune, many swift changes have taken place in its civic life.

2.12.1. Pune in and around the nucleus city of Industrial expansion

The noteworthy feature of the industrial development of Pune metropolitan

region has been the development of large industrial areas around a radius of

50 kms, with Pune city as the nucleus center for expansion. This has been

because of the progressive policy of industrial dispersal of state Government

formally incorporated in the package Scheme of Incentives. This is the force

behind such rural centers as Bhima-Koregaon-Sanaswadi, Shikrapur, Shirwal,

Khedshivapur, Sasrvad, Bhor, Chakan, Pirangut, Kanhe, Nasrapur and

Bebedohol near Talegaon. The significance of this development is that Pune is

now being surrounded from all sided by developing industrial areas. This also

signifies an all-round development of the local population, also in terms of job

42

opportunities, scope for starting ancillaries and an increase in standard of

living.

2.12.2 VARIETY IN PRODUCTION

The peculiarity about industrialization of Pune is that there is no concentration

of any particular industry. There are industries in the large-scale sector, which

manufactures textiles, pharmaceuticals, Biscuits, chocolates, electrical

appliances, electronic instruments, diesel engines, electric fans, machine

tools, air compressor, chemicals, dyestuff, sugar, machinery, scooters, trucks,

tempos, paper, paperboards, cables, rubber goods, glass plastic and T. V.

sets etc. Electronic industry in Pune has developed into a center for electronic

industry and starting from basic transistors to T. V. sets, VCRs, electronic

Telex Machines and PABXS. The small and medium scale equipment

manufacturers are also specialized indifferent lines of instrumentation such as

digital equipment, process control equipment, industrial equipment,

communication equipment, etc. In addition Pune has a large number of

research laboratories and other Government establishment, wherein

continuous research and development in the field of electronics take place.

2.12.3 AN EMERGING CENTER OF ADVANCED TECHNOLOGY

Pune Metropolitan has a variety of Industries ranging from simple fabrication

workshops to companies engaged in High-tech areas like electronics,

computer manufacturing etc. Out of the ten awards declared by IMTEX

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organizers, five were bagged by the industries from Pune thereby earning

recognition for their excellent performances in high tech areas like CN

(machines) EDM testing equipments.

2.13 SOFTWARE TRCHNOLOGY PARK AT PUNE

During the last decade Pune is emerging as one of the leading software export

center in our country. Behind this industrial effort and supporting it in terms of

research and training, stands the city's complex of institution as such it is

rightly said as oxford of Easi, which provides a steady flow of large number of

technically trained manpower which in turn are helping local industries in their

regular production growth and expansion'

2.14 Hotels in Maharashtra

Maharashtra on the stretch of the Arabian Sea occupies a major area in the

western and the central parts of India and happens to be the third largest state

Maharashtra - Tourist Attractions

The state of Maharashtra is dotted with several places of tourist interests. The

capital city of Mumbai is also the financial as well as the film capital of India.

While at Mumbai the must visits is long and comprises of Gateway of India,

Elephanta Island, Prince of Wales Museum, Flora Fountain, Haji Ali's Tomb,

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Kamla Nehru Park, Hanging Gardens, Chhatrapati Shivaji Terminus or Victoria

Terminus, Kalbadevi Temple, Bhuleshwar Temple, Jama Masjid, Mumbadevi

Temple, Nehru Planetarium, Nehru Science Center, Marine Drive,

Taraporewala Aquarium, ISKCON temple. For recreational activities you may

check out the Essel World and Fantasy Land. In terms of the beautiful

beaches the Madh Island, Manori, Versova, Goral, Marue, and Juhu should

not be missed.

Close to the capital is the pulsating city of Pune. Pune is the renowned home

to the Maratha leader Shivaji and the self-proclaimed guru, Bhagwan

Rajneesh also known as Osho. While at Pune do check out the

Shanwarawada Palace, Raja Kelkar Museum, Gandhi National Memorial,

Samadhi, and Pataleshwar Temple.

Aurangabad is another amazing city in Maharashtra. While in the city you must

visit the beautiful tomb of Bibi-ka-Makbara. From Aurangabad the trip to the

world heritage sites of Ajanta and Ellora is mandatory to get a deeper insight

into the Buddhist, Jain and Hindu temples. In terms of shopping Aurangabad

offers the best of silk and cotton textiles.

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Maharashtra also has a chill out zone at Mahabaleshwar. Mahabaleshwar is

an absolute favorite with the nature explorers, peace lover and the filmmakers

alike. Mahabaleshwar offers the nature at its best on one hand and the

marvelous mansions on the other. The other getaway in Maharashtra is

Lonavala. While at Lonavala do not miss out on the special candy made with

peanut and jiggery.

Maharashtra is well connected with the other places and is easily accessible.

In terms of air transport the international airport of Mumbai caters to the needs

of the tourists from destinations across the globe. The other domestic airports

with the regular flights ease the air connectivity with the places in

Maharashtra. The excellent railway network links the state with the other

important cities and towns of the country. The roads connect all the places of

importance conveniently to each other.

2.15 Maharashtra - Hotels

There are enough decent accommodation options in Maharashtra and the

scene is getting better every passing day. There are a number of star category

hotels catering to the needs of tourists coming to explore Maharashtra or

interesting in exploring the scenic region around.

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Maharashtra - Hotel Reservations

Tourism of India.com will book hotels in Maharashtra for the customers

depending on the budget they can afford. Tourism of India.com is a part of

Indian Holiday Pvt. Ltd., a leading inbound tour operator to India and

maintains very good professional relationship with all the major hotel chains

and independent properties in India including Maharashtra.

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2.16 List of Hotels in Maharashtra

Table 2.1 List of Hotels in Maharashtra

Hotels in Mumbai

Five Star Hotels

� Centaur Hotel

� Hotel Tulip Sahara

� Grand Maratha

Shereton Hotel

� The Oberoi Hotel

� JW Marriot Hotel

� Hotel Holiday Inn

� Hotel Leela Kempinski

� Hotel Le Royal Meridien

� Hotel Marine Plaza

� Hotel Oberoi Towers

� Ramda Hotel Palm

Grove

� The Taj Lands End

Hotels in Pune

Five Star Deluxe Hotels in Pune

� Sun-n-Sand

� Le Meridien Hotel

Five Star Hotels in Pune

� Hotel Taj Blue Diamond

� Pride Hotel

Four Star Hotels in Pune

� Hotel Kohinoor Executive

� Hotel Regency

� The Central Park Hotel

� Hotel Aurora Towers

� Hotel Sagar Plaza

Three Star Hotels in Pune

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Hotel

� Resort Hotel

� Retreat Hotel

� Renaissance Hotel &

Convention Center

� Sun-N-Sand Hotel

� Tajmahal Hotel

� The Taj President

� Hotel Sea Princess

� The Orchid Hotel

Four Star Hotels

� Quality Inn Parle

International

� The Ambassador

� Mercure Hotel Guestline

� Kohinoor Continental

� Fariyas Hotel

� West End Hotel

� Emerald Hotel

� Hotel Midtown Pritam

� The Oakwood Hotel

Hotels in Chiplun

Four Star Hotels

� Gateway Riverview Lodge

Hotels in Nagpur

Five Star Hotels

� The Pride Hotel

Hotels in Khandala

� Hotel Dukes Retreat

� Hotel La Revival

Hotels in Aurangabad

Five Star Hotels

� Hotel Rama International

� Taj Residency

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Three Star Hotels

� Days Inn

� Hotel Transit

� Hotel Sahil

� Hotel Heritage

� Hotel Godwin

� Hotel Four Seasons

� King's International

� Grand Hotel

� Hotel Ajanta

� Hotel Airlink

Two Star Hotels

� Hotel Suba Palace

� Hotel Diplomat

One Star Hotels

� Hotel Bawa

International

Other Hotels

� Hotel Ambassador Ajanta

Four Star Hotels

� Hotel President Park

Three Star Hotels

� Hotel Aurangabad Ashok

One Star Hotels

� Khemi's Inn

Other Hotels

� Quality Inn Meadows

Hotels in Nasik

Three Star Hotels

� Hotel Plaza

Business Hotel

� Taj Residency

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� Hotel Supreme

� Gordon House Hotel

� Hotel White Pearl

� The Mirador Hotel

� Hyatt Regency Hotel

Ecotel

� Lotus Suites Hotel

� Rodas Hotel

Apartments

� Lakeside Chalet

Apartments

� The Residence

Airport Hotels

� Tulip Sahara Hotel

Hotels in Puttaparthi

� Sai Renaissance

� Sai Sadan

Hotels in Shirdi

Five Star Hotels

� Sun-n-Sand Hotel

Hotels in Lonavala

5 Star Deluxe Hotels in Lonavala

� Fariyas Holiday Resort

4 Star Hotels in Lonavala

1. Hotel Rainbow Retreat

3 Star Hotels in Lonavala

� Kumar Resort

� Valvan Village Resort

Government Approved Hotels in

Lonavala

� Hotel Star Regency

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Hotels in Alibagh

� Hotel Big Splash

� Kashid Beach Resort

Hotels in Matheran

� Brightlands Resort

� Usha Ascot

� Regal Hotel

� Richie Rich Resort

� The Byke

Hotels in Ahmednagar

� Sun N Sand Hotel

Source: Hotel Management- Overview, 2009, <http://www.tsiindia.com/maharashtra-hotels.html>

52

2.17 Why Hotels

“I would say, by any commonsense definition, we are in a recession.”

-Warren Buffett on the state of the US economy, March 2008.

The economic scenario across the globe is in turmoil. While everyone is

waiting to see how the subprime mortgage crisis is going to affect the US

economy and subsequently their own, apprehension is gripping investors

looking for opportunities in emerging economies such as India and China.

Growth in these countries is closely linked to consumption in the US. In our

opinion, the ripples from a contracting US market will negatively impact the

short-term future performance of these markets. Nonetheless, the

controversial decoupling debate rages on. Increasing evidences show that

despite economies being intertwined through trade and finance, the GDP-

growth rates are less likely to slow down than that expected earlier. According

to The Economist, some important indicators supporting this argument are

Exports to emerging countries are increasing faster than the

decline in exports to the US. This is helping in stabilizing prices

and maintaining growth.

The four biggest emerging economies are the least dependent

on the United States: exports to the US account for just 4% of

India’s GDP; 8% of China’s; 3% of Brazil’s and only 1% of

Russia’s.

53

Domestic consumption and investment is increasing in the home

markets of the emerging economies.

Consumer spending rose three times faster than that in developed countries,

albeit over a much smaller base. Investment grew by over 17% in emerging

countries as compared to 1.2% in developed countries. It is, in our opinion,

necessary to have confidence in emerging countries, as we believe that these

shall be the future global growth engines. The Indian economy has moved

decisively to a higher growth rate. Growth in GDP in market prices has

exceeded 8.0% in every year since 2003/04 and the trend continues into

2007/08 where a growth of 8.7% is expected. Though the country did face

minor hiccups such as the sudden increase in inflation during the latter half of

2007 and the sudden appreciation of the rupee, which caught the entire

exporting sector by surprise, the overall fundamentals of the Indian economy

continue to remain well founded and resilient.

2.18 Overview of the Indian Hospitality Sector

In the 2007 Hotel Valuation Index (HVI)9, valuations of hotels were ‘Riding

Cloud 9!’ and they continue maintaining similar levels with supply lagging far

behind demand. Though a few Tier-2 cities, such as Pune and Ahmedabad,

are witnessing aggressive hotel developments10, the Tier-1 cities remain low

on supply due to hurdles like high land costs, archaic licensing and

54

development norms and a shortage of international hotel brands especially in

the mid market and budget categories. Though the meteoric rise in room rates

across hotels has lost a bit of steam, hotels continue to command mind-

numbing rates at high occupancies. This is, in our opinion, the ceiling that

most hotels shall see in terms of revenues. As is seen in cities like Bangalore

and Hyderabad, companies are shying away from the higher end of the market

and readily exploring options such as mid market and unbranded hotels.

Overall growth of travel continues to expand rapidly in India. A large fraction of

this demand is being created domestically, indicating a strong base and

consequently strengthening the argument for further development of hotels,

especially in the mid market and lower categories. In 2007, 4.9 million

international tourists were expected to have travelled to India; a growth of

12.4% over last year. In the same year, 52.9 million domestic tourists are

expected to have travelled; a growth of 14.6%. The year 2007/08 witnessed a

surge in development of mid market hotels in India as domestic demand for

that product segment grew the fastest. International and domestic brands are

aggressively entering this market and establishing their brands. Innovation is

seen in development of new business models and ownership structures of

properties. Newer hotels are being built atop malls and other mixed-use

developments, mitigating the risks associated with developing a hotel and also

capitalizing on the surge in demand for other commercial assets such as office

and retail space. Sarovar, Lemon Tree, Fortune, Gordon House, Royal Orchid

55

and Ista are some successful examples of such a strategy. Interestingly, all

these are domestic brands with no international presence. While international

chains are expected to follow a similar route, they currently have no

operational hotels in such a format. Occupancies in most cities continue to be

stable except in Pune and Hyderabad, which have shown a slight decline in

overall performance owing to newer developments entering the market and

the market showing resistance to the high room rates being charged. As

highlighted in the 2008 HVI, hotels in cities like Mumbai and Delhi are adopting

a rate strategy vis-à-vis an occupancy one: increasing the revenue per

available room. A large quantum of un accommodated demand is getting

accumulated and being catered to by the unbranded guesthouses and

serviced apartments springing up in cities like Pune, Bangalore, Delhi, Mumbai

and Hyderabad.

The endeavors are to understand the valuation of a hotel in a particular city

based on the hotel’s current performance. The valuation methodology is based

upon actual operating data from a representative sample of branded four-star,

five-star and five-star deluxe hotels in the top ten hotel markets in India. The

data is then aggregated to produce a proforma performance for a typical 200-

room hotel in each city. Based on our day-to-day experience of real-life hotel

financing structures, which arise from knowledge gained during the various

assignments undertaken each year, we have determined appropriate valuation

parameters for each market. These include loan-to-value ratios, relevant

56

interest rates, equity yield expectations and terminal capitalization rates.

These market specific valuation parameters are applied to net income streams

for a typical hotel in each city to form an opinion on the valuation index. City

Performance and Valuations Bangalore continues its strong performance with

both occupancies and average room rates stable at 2006/07 levels. Though

hotel value per room continue to be third highest in the country, values of

hotels have dropped by over 18.2% last year owing to displaced demand,

stabilizing revenues and steep rise in associated costs such as human

resources. Bangalore is witnessing a surge of new developments and this

supply is expected to enter the market by 2008/09-end. We expect the

valuations of hotels to begin correcting by 2009/10.

Tables 2.1 and 2.2 shows the city wide occupancy and average room rates

respectively of hotels included in the study set.

57

Table 2.2- Citywide Occupancy of Hotels

City 1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

Bangalore 59.0% 64.4% 69.8% 64.3% 72.0% 78.5% 81.4% 76.7% 75.5% 73.5%

Kolkata 57.8% 54.8% 62.9% 66.4% 65.4% 62.8% 69.0% 76.4% 77.1% 77.4%

Chennai 64.7% 65.3% 64.6% 56.5% 58.3% 66.6% 72.9% 78.2% 74.7% 76.0%

Delhi 54.1% 52.9% 58.9% 53.3% 60.4% 73.1% 79.1% 80.8% 78.1% 78.0%

Goa 58.6% 53.3% 60.6% 53.6% 60.5% 59.3% 62.5% 67.8% 73.5% 75.0%

Jaipur 45.6% 47.0% 55.0% 48.3% 44.9% 58.8% 67.2% 65.7% 66.3% 71.0%

Mumbai 67.6% 64.5% 64.6% 52.0% 63.4% 69.7% 72.0% 76.2% 78.7% 80.0%

Hyderabad 66.0% 61.3% 69.1% 68.0% 68.9% 75.9% 78.7% 82.0% 73.3% 69.0%

Pune 81.9% 83.5% 76.0%

Ahmedabad 69.9% 70.8% 73.0%

Chart 2.1- Citywide Occupancy

Kolkata, a price sensitive market, has historically not been able to command

the high room

having equally good offerings.

and a steep increase in the average room

witnessed growth in valuations of over 28.0% in 2007/08.

attractiveness as an investment option is increasing due to the city developing

as a major industrial and medical hub and the lack of new hotels opened this

year. Tables 2.

US dollars respectively,

year on year change.

0.00%

100.00%

200.00%

300.00%

400.00%

500.00%

600.00%

700.00%

800.00%

Citywide Occupancy

Kolkata, a price sensitive market, has historically not been able to command

the high room rates that cities like Delhi, Mumbai and Bangalore do, despite

having equally good offerings. However, with low active development of hotels

and a steep increase in the average room rates, the Kolkata market has

witnessed growth in valuations of over 28.0% in 2007/08.

s as an investment option is increasing due to the city developing

major industrial and medical hub and the lack of new hotels opened this

2.3 and 2.4 give the hotel values per room in Indian rupees and

US dollars respectively, over the past 10 years, while Table

year on year change.

58

Kolkata, a price sensitive market, has historically not been able to command

and Bangalore do, despite

However, with low active development of hotels

rates, the Kolkata market has

witnessed growth in valuations of over 28.0% in 2007/08. Kolkata’s

s as an investment option is increasing due to the city developing

major industrial and medical hub and the lack of new hotels opened this

4 give the hotel values per room in Indian rupees and

ast 10 years, while Table 2.5 highlights the

Ahmedabad

Pune

Hyderabad

Mumbai

Jaipur

Goa

Delhi

Chennai

Kolkata

Bangalore

59

Table 2.3 - Citywide Average Room Rates

City 1998-

99

1999

-00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

Bangalore Rs

3,254

Rs

3,025

Rs

3,602

Rs

3,735

Rs

3,752

Rs

4,832

Rs

7,470

Rs

8,762

Rs

10,545

Rs

10,100

Kolkata 3,888 3,557 3,698 3,409 2,917 3,021 3,240 3,887 5,366 6,300

Chennai 3,600 3,424 3,796 3,535 3,224 3,323 3,714 4,357 5,610 6,600

Delhi 4,626 4,115 4,526 4,338 4,089 4,269 5,103 6,909 9,482 10,200

Goa 2,863 2,727 2,914 2,676 2,754 3,086 3,985 4,804 5,846 6,500

Jaipur 2,533 2,514 2,902 2,949 2,728 2,980 3,461 4,407 5,364 5,800

Mumbai 6,297 5,661 5,555 4,932 4,184 4,356 4,822 6,041 8,614 10,200

Hyderabad 1,579 1,867 2,316 2,414 2,541 2,774 3,772 4,870 6,091 6,600

Pune 3,761 4,885 5,700

Ahmedabad 2,612 3,118 3,778

Source:R R Miller, 6th Oct, 2010, Hotels in India, Trends and opportunities 2010, <http://www.tourismroi.com/InteriorTemplate.aspx?id=36658>

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Landscape Pages Chapter 2

Table 2.4 - Hotel Values per Room (US dollars)

61

Landscape Pages Chapter 2

Table 2.4 - Hotel Values per Room (US dollars)

62

Landscape Pages Chapter 2

Table 2.5- Hotel Values Per Room (Indian rupees)

63

Landscape Pages Chapter 2

Table 2.5- Hotel Values Per Room (Indian rupees)

64

Landscape Pages Chapter 2

Table 2.6- Percentage Change in Hotel Value

65

Landscape Pages Chapter 2

Table 2.6- Percentage Change in Hotel Value

66

Chennai has historically been a stable market and continues to remain so.

While occupancies have generally averaged at 67.8% over a ten-year period,

the average room rates have also been well tempered, showing a gradual

increase. Owing to a well-spread development across the city’s peripheral

locations it is witnessing a well spread out development of hotels. Chennai

also has some very competitive indigenous brands such as GRT and Ceebros

that are now expanding their base in southern India. Value of hotels in

Chennai have grown by a healthy 20.3% over the past year and are currently

the fifth highest in the country. Delhi is one of the best performing markets in

India. Though the occupancies have remained stable, room rates across the

National Capital Region (NCR) have risen steeply making it, along with

Mumbai, the most expensive destination in the country. Factors that have

enabled this sustained growth of demand are: continued development of

Gurgaon as a commercial hub, expansion of the international airport,

improvement in basic infrastructure and a demand pattern that is evenly

spread across the region. Supply, on the other hand, continues to lag behind

demand − primary reasons being the freeze on development plans for a

proposed hospitality district as part of the modernization of Delhi airport and

Greater Noida expressway hotels − effectively removing 33% of all future

supply. Delhi hotels have the second highest valuations after Mumbai and

have seen a jump of nearly 24.7% over the previous year.

Goa, despite all the pessimism showered by soothsayers, continues to gather

strength with each passing year. Goa has traditionally been a strong leisure

and meetings, incentives, conferences and exhibitions (MICE) destination. The

opening of a convention centre in the future and the development of industry

in Goa shall further help cement its position as an important MICE destination.

Getting licenses and clearances in Goa continue to remain an arduous task

and hence the slowdown in new hotel development. This leads to existing

hotels commanding exorbitant prices: diverting tourist traffic to other

destinations in the country and the South East Asia region, too. There is no

supply entering the branded hotel market in the near future, thereby increasing

67

Goa’s attractiveness as an investment option. Showing a growth of nearly

34.4% in valuations in 2007/08, hotels in Goa have the fourth most expensive

valuations in the country.

Jaipur, according to the World Bank3, is ranked as one of the most business-

friendly cities in the country: third amongst the 12 studied. It has also benefited

from the construction of the Golden Quadrilateral, a highway development

project involving the construction of a high quality highway corridor connecting

Delhi, Mumbai, Kolkata and Chennai. Apart from the high flow of tourists into

Jaipur, the discovery of oil and gas in Rajasthan has led to increasing demand

from related companies such as Cairn Energy, Shell, Oil India and so forth.

Occupancies showed a healthy growth, though the average room rates grew

by inflation linked 5% and three new hotels also opened. Overall valuations

grew the fastest at 43.7% and are currently sixth highest in the country.

Mumbai, the heart of India’s commerce and finance, continues to impress with

confident increases in average room rates, dislodging Bangalore from the

number one position. Though three new hotels commenced operations in

2007/08, demand far out strips supply, Mumbai’s hospitality market has clearly

split into smaller micro markets such as South Mumbai, Worli and Parel,

Bandra Kurla Complex, Andheri, Mulund, Navi Mumbai and Thane. Current

costs of land parcels render it impossible to justify valuations for a hotel while

FSI in most parts of Mumbai continue to oscillate between unbelievably low

levels of 1 and 1.5. Though there are unconfirmed reports of the current

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government looking at increasing the FSI in the near future, hotel

developments in Mumbai continues to mirror the inefficiency of a non-

performing government. With a 31.7% increase over the past year, Mumbai

ranks number one in terms of hotel valuations.

Hyderabad, the city of pearls, presents a dilemma for the Indian hospitality

sector. Unlike most other cities in India, this city has good development norms,

subsidies and governance, thereby reducing the cost of entry for competition.

As detailed in our recently published article, ‘Metamorphosis of Hyderabad’4,

Hyderabad has increasingly become an important IT and IteS destination with

some of the world’s best companies establishing their base here. Four years

ago, HVS had ranked Hyderabad as the most attractive investment destination

in India. Today, the picture has altered with room rates stabilizing at 2006/07

rates and occupancies showing a slight decline over the past year. This can

be partly attributed to the: opening up of six new properties, rationalization of

growth in the IT sector, low barriers to entry for hotel development and

emergence of a parallel market of unbranded guesthouses and serviced

apartments. With a negative growth in hotel valuations of nearly 11.4% in

2007/08, Hyderabad ranks eight in terms of overall hotel valuations.

Pune has been included in our study set this year owing to the growing

interest of investors in this market, its proximity to Mumbai, development of

quality industrial and IT areas and also the mammoth construction of hotels.

69

Pune has traditionally been an industrial city with only a handful of branded

hotels operating an inventory of approximately 400 rooms. The hotel room

count in Pune doubled with the addition of 400 more rooms opening in

2007/08 alone and approximately 5,500 more rooms opening in the next few

years. It would be, in our opinion, the first market in India to rationalize

dramatically, reducing its attractiveness as an investment destination. With a

negative growth of 2.2% in hotel room values, Pune ranks nine in overall hotel

valuations among the ten cities considered.

Ahmedabad is the financial capital of Gujarat and the centre of all activity in

the fastest growing state of India. Gujarat has impressed the country with its

brilliant performance across all economic measures. With a population of just

5% of India, Gujarat accounts for nearly 16.2% of India’s industrial

production5. Exhibiting a growth rate of nearly 15.2%, it has far outstripped the

target of 10% as given by the National Planning Commission and the national

average of 8.7%. Direct benefits of this good governance are visible in the

growth of Ahmedabad as the focal point for all activity in Gujarat. Occupancies

have increased by 3% while the rates have increased by 21%. Though no new

hotels began operations in Ahmedabad during 2007/08, a large influx of

supply is expected in the near future, reducing the attractiveness of a market,

which is yet to realize it’s full potential. Despite hotel values per room growing

by an astounding 29.8%, the rise is largely due to a small base and therefore

Ahmedabad ranks tenth in the overall hotel valuations.

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2.19 Hotel Guests or Customers

Hotels are in the business of attracting guests. The most important guest

segments that constitute the market for the hotel industry are:

2.19.a Corporate Individuals

Corporate individuals are hotel guests who are traveling for business purposes

and are not part of any group. They usually stay one or two nights. The most

frequent users of lodging services, corporate guests typically stay in hotels 15

to 20 times per year. The top six factors that determine the hotels they select

are:

1. Previous experience with the hotel

2. Location

3. Price/value

4. Room rate

5. Reputation of hotel/chain

6. Recommendation of friend

Thirty-seven percent of corporate individuals use a travel agent when making

travel arrangements, while 39 percent use the Internet or online services such

as Travelocity.com. Use of the Internet to make hotel reservations is steadily

increasing. On-site hotel amenities that these business travelers use most

often include restaurants, lounges, and room service. They also take

71

advantage of exercise facilities, concierge, and business centers. Business

travellers have very definite ideas about

what hotels should make available to help them get their work done on the

road. A desk to work on is their highest priority, followed by access to a fax

machine, proper lighting, a phone at the desk, access to a copy machine, and

a comfortable desk chair. Business travellers who use laptop computers also

desire high-speed Internet access. Business travellers care about recognition

and special treatment. Frequent-stay programs such as Hilton HHonors® and

Starwood Preferred Guest (SPG) have proven particularly effective with part of

this market segment. Individual corporate travellers are often members of

airline frequently-flyer programs, and they may choose to patronize hotels

(and rental car companies) tied in with such programs.

2.19.b Corporate Groups

Corporate groups travel purely for business purposes but, unlike individual

corporate travellers, they are usually attending a small conference or meeting

at their hotel or at another facility in the area, and their rooms are booked in

blocks by their company or a travel agency. These travellers usually stay from

two to four days. While top managers are typically assigned single rooms,

middle-and lower-level managers often share rooms. Corporate groups favor

hotels that offer intimate meeting rooms and private dining facilities. Several

conference centers with these features have been constructed in suburban

locations conveniently located near major cities and airports. The idea is to do

72

away with big-city distractions and give participants a chance to interact not

only during meetings but between them as well.

2.19.c Convention and Meeting, Incentive, Conferenc e and Exhibition

Generally, what distinguishes Convention and Meeting, Incentive, Conference

and Exhibition (MICE) from other corporate groups is their size. The number of

people in a convention or MICE can run well into the thousands. For example,

a world congress of the American Society of Travel Agents typically attracts

5,000 to 7,000 delegates, and every year the National Restaurant Show in

Chicago attracts approximately 90,000 visitors. Convention delegates usually

share rooms and stay three to four days. Large convention groups choose

their venues several years in advance, so a hotel’ s selling efforts are often

prolonged and may involve cooperation from airlines and local convention and

visitor bureaus.

2.19.d Leisure

Leisure Travellers often travel with their families on sightseeing trips, or on

trips to visit friends or relatives. Except at resorts, they typically spend only

one night at the same hotel, and a room may be occupied by a coupe as well

as one or more children. Because they typically travel during peak season,

leisure travellers usually pay high rates, unless they are members of such

organizations as the American Automobile Association or the American

73

Association of Retired Persons, which have been able to negotiated discounts

with many hotels.

2.19.e Long-Term Stay/Relocation Guests

Long-Term Stay/Relocation Guests are primarily individuals or families

relocating to an area and requiring lodging until permanent housing can be

found. Often they are corporate, government, or military personnel. Their

needs include limited cooking facilities and more living space than is available

in a typical hotel room. All suite and extended-stay hotels such as Embassy

Suites and Residence Inns by Marriott are examples of products designed

specially for the needs of long-term guests. A Residence Inn unit is about

twice the size of an average hotel room and typically contains a living are, a

bedroom, extra closet space, and a small kitchen.

2.19.f Airline-Related Guests

Airlines negotiate rates with hotels for airplane crew members and for

passengers who need emergency accommodations because they are

stranded by some unforeseen event such as a winter storm. Rooms for airline

related guests are usually booked in blocks at rock-bottom prices.

74

2.19.g Government and Military Travelers

Government and Military Travelers are reimbursed on fixed per diem

allowances, which means they only receive a certain amount for lodging

expense no matter what they have to pay for a room. Therefore, as a general

rule these guests stay only in places that have negotiated acceptable rates

with their organizations or offer very low rates.

2.19.h Wholesale or Regional Getaway Guests

Wholesale or Regional Getaway Guests are important to hotels that normally

cater to commercial and convention groups on weekdays such as hotels

promote special weekend packages. The hotel package market is defined as

the offering of a combination of room and amenities to customer for an

inclusive price. While normally these packages are designed to boost

occupancy during low-demand time periods, such as weekends and off-

seasons, cases exist where packages are used to maximize revenues at all

times (Lewis and Chamber, 2000).

2.19.i Guest Mix

Guest Mix refers to the variety or mixture of guests who stay at a hotel. A

hotel’s guest mix might consist of 60 percent individual business travelers, 20

percent conventioneers, and 20 percent leisure travellers, for example, Guest

mix is carefully managed in successful hotels. A hotel’s guest mix depends on

its location, size, facilities, and operating philosophy.

75

2.20 Hotel Categories

It is important to understand the ways in which hotels are categorized. Hotels

can be categorized by location, ownership, price, and other factors (such as

service, guestroom format, or clientele).

2.20.a Location

Many hospitality publications and consulting firms categorized hotels by

location. Some of the most generally recognized hotel-location categorized

are:

2.20.a.1 Center-city

These hotels were usually built near railroad stations, for at that time railroad

stations were located at or near the center of a city’s business district. This

followed the pattern that had been established in other major cities of the

world. Most of today’s center-city hotels are full-service facilities operated or

managed by hotel chains. In addition to rooms, center-city hotels may have a

coffee shop as well as other restaurants, at least one bar or cocktail lounge,

room service, laundry and valet services, a business center, a newsstand and

gift shop, and a health club.

2.20.a.2 Resort

Resort Hotels are generally found in destinations that are desirable vacation

spots because of their climate, scenery, recreational attractions, or historic

interest. Mountains and seashores are favorite locales. It is not unusual for

76

resorts to have elaborately landscaped grounds with hiking trails and gardens

as well as extensive sports facilities such as golf courses and tennis courts.

Today, resorts are attracting more business guests than ever before. Business

travelers make up nearly half of the resort lodging market for large resort

hotels that have conference and convention facilities. In smaller resorts the

guest mix may be skewed toward leisure visitors, but groups and meetings

nevertheless remain important target markets. Because of the increase in

business guests, many resorts are adding or increasing amenities that are

important to this market segment, such as fax machines, computer centers,

secretarial services, and on-site travel agencies.

2.20.a.3 Suburban

Today it is difficult to distinguish between a suburban hotel and any other kind

of hotel. It is the location that makes the difference. Nevertheless, there are

some characteristics that suburban hotels have in common.

1. As a group, they tend to be somewhat smaller than downtown hotels.

Many suburban properties have 250 to 500 rooms and limited banquet

facilities.

2. They are primarily chain affiliated; just about every major chain

operated suburban properties.

3. Their major source of revenue is from business-meeting and convention

attendees and from individual business travelers.

4. They often have the same kinds of facilities that center-city hotels offer

77

because they depend heavily on local patronage, restaurants in

suburban hotels frequently offer superior dining experiences. Hotel

services such as laundry, valet, and room service are on a par with

center-city standards.

5. Many of these properties have sports and health facilities as well as

swimming pools.

6. Suburban hotels are often cornerstones of their communities. They

frequently host weddings and bar as well as weekly meetings of such

major service clubs.

2.20.a.4 Highway

It is a place where we can stay en route to our destination. Today’s highway

hotels offer the same facilities found in downtown and suburban hotels, but

with a distinct identity of their own. Most highway hotels feature a large sign

that can be seen from the highway and an entrance where travelers can leave

their automobiles while they check in. Parking space is plentiful and the

atmosphere is informal. Beyond that, the distinction blurs; a highway hotel can

be just like any other hotel except that it is on the highway.

Highway hotels have a lower number of employees per room than suburban or

center city hotels. This is because highway hotels generally provide fewer

services. Guests spend less time at this kind of hotel than in other kinds of

78

hotels; consequently, total sales per room are generally lower. Like most other

types of hotels, highway properties depend mainly on commercial traffic.

2.20.a.5 Airport

It did not take long for hotel chains to identify another growing need for hotel

space – guestrooms near airports. Eighty-five percent of airport hotels today

are affiliated with chains. Even though airport hotels tend to have difficulty

attracting weekend guests because most airline travel occurs on weekdays,

airport hotels enjoy some of the highest occupancy rates in the lodging

industry.

2.20.b Ownership

Hotels can also be categorized by ownership. There are 6 different ways

hotels can be owned and operated. Hotels can be:

2.20.b.1 Independent Hotel

Independent Hotel is not connected with any established hotel company and is

owned by an individual or group of investors. A management company

contracts with hotel owners to operate their hotels. The management company

may or may not have any of its own funds invested. It is usually paid by a

combination of fees plus a share of revenues and profits. A hotel chain is a

group of affiliated hotels. Most hotels that are classified as independent are

independently owned and managed but are allied with a referral or marketing

79

association. It is sometimes difficult to differentiate hotels that are independent

from those that are actually managed or owned by chains.

2.20.b.2 Franchise

Franchise Hotel is the authorization granted by a hotel chain to an individual

hotel to use the chain’s trademark, operating systems, and reservation system

in return for a percentage of the hotel’s revenues plus certain other fees, such

as advertising fees.

2.20.b.3 Chain Hotel

Hotel chains account for a large percentage of the world’s hotel room

inventory. Primarily, the world’s most deluxe hotels were independent. There

was a perception that a chain could not possibly achieve the level of service of

an independent hotel owned and operated by hoteliers who were there every

day. This is no longer true. Most traveler writers consider the Oriental Hotel in

Bangkok to be the world’s single best hotel. The Oriental is part of the

Mandarin Chain, with nine hotels (including the Mandarin in Hong Kong and

San Francisco).

2.20.c Price

Another way of categorizing or segmenting hotels is by the prices they charge

hotel chains create several different brands or hotel names that offer different

benefits and charge different prices. This is a favored strategy for marketing

80

manufactured consumer products. The idea is that different segments of the

consumer market are attracted to different brands at different price levels.

Similarly, in the hotel industry the major hotel chains started by offering one

kind of brand only. Initially these were mid-price products introduced by

Sheraton, Hilton, and Marriott in the 1940s and ‘50s. They were priced to

appeal to the largest segment of the traveling public; mid-level business

executives. Top executives in those days would not dream of staying at a

chain hotel, they started at independent properties or properties that may have

been part of a group but were perceived to be unique or independent.

As the market for mid-price hotels became saturated, some of the leading

hotel chains developed new concepts to appeal to a growing economy-minded

market. Also, there was increasing demand from families and businesspeople

for more spacious, reasonably priced hotel accommodations. The industry

responded by developing several full-service and limited-service brands at

different prices. Three broad categorized of hotels distinguished by price are

(1) Limited Service – economy and budget,

(2) Mid-price – full service and limited-services, and

(3) First Class or Luxury.

81

2.20.c.1 Limited Service: Economy and Budget

There are many limited service hotels in the marketplace today. The first hotel

chain to go after a low-price consumer market was Holiday Inn. Holiday Inns

were not budget properties, however their construction costs were relatively

high because they included restaurants and other amenities and services, and

their aim was to provide a better product. The early budget model segment

has evolved into 2 price levels, economy higher rates than economy hotels).

Both of these hotel segments have a low per room construction cost because

they provide limited services and facilities, labor and other operating costs are

well below those for full service hotels.

2.20.c.2 Mid Price (Full Service and Limited Servic e)

The mid price hotel segment was the fastest growing segment of the industry.

Fueled by a growing economy and the development of automobile and

commercial air traffic, a strong need existed for mid price loading facilities with

restaurants and some other amenities (such as lounges and lodging facilities

with restaurants and some other amenities (such as lounges and meeting

space) previously found only in higher price establishments. The mid price

segment is attractive to many consumers who want to trade up from the

economy/budget segment. When the rate difference between first class and

mid price hotels is not significant, travellers are drawn to the higher class

hotels, but when rates are significantly different, mid price hotels become more

attractive. The challenge for mid price hotels is to maintain a guest pleasure,

82

clearly drawn middle position between increasingly upscale hotels in the

economy/budget segment and first class hotel with high room rates.

2.20.c.3 First Class/Luxury

At the top of the price scale there is a range of first class/luxury hotels, from

the full service hotels of Hyatt, Hilton, and Marriott to the luxury properties of

Four Seasons, Ritz Carlton, and Inter-Continental. By definition, a luxury hotel

used to be an independent property in which the owner/manager was present

to greet guests and see that their every need was satisfied.

2.21 Services versus Goods

Goods are tangible, meaning the consumer can take them home and use

them. Services are different from goods because they are intangible and

experienced, not tangible and possessed. Essentially, the goods component

of a product is different than the service component because you can see and

feel goods, while services provide you with an intangible experience. A car is a

good that can be driven and tested before being purchased. A hotel stay or a

restaurant meal is a service, the room or food cannot be tried before purchase.

A car buyer leaves with a car; a service buyer leaves with an experience. This

explanation is somewhat simplistic. What we need to do is break the product

down into its various components; Customers tend to view each component in

terms of problems it solves.

83

2.22 Marketing of services

2.22.a Intangibility

Intangibility is characteristic of services. The consumer of a service can only

bring home an experience, very different than wearing a new sweater. The

customer must be satisfied with the experience of the service itself.

2.22.b Perishability

Services are perishable. They cannot be stored for later consumption and if

unsold and unused at one particular time they cannot be redone or resold.

This creates a greater need to manage demand and capacity.

2.22.c Heterogenetity

The Heterogenetity of service delivery is much different than that of goods

delivery and creates special problems. Customers constantly interact with

Front desk, switchboard, sales, room service, and restaurant employees,

among others, where there are constant vagaries in the service delivery. This

poses special problems for both management and customers.

2.22.d Simultaneity of Production and Consumption

Unlike its goods counterpart, whereby a car may be manufactured

inNakhonrachasrima and sold in many part of Thailand and outside country,

services are consumed as they are produced in the same place and same

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time. This means the customer is part of the production process, again leading

to special problems.

2.23 Components of the Hospitality Product

There are four major elements that customers receive when purchasing and

using the hospitality product – tangible goods, environment, intangible

services, and experience.

2.23.a Goods

Goods include the mostly physical factors over which management has direct,

or almost direct, control. Management decisions or practices directly affect

goods. In some cases management expertise determines the quality level of

goods, as in the case of a chef. Alternatively, quality of goods may depend on

management’s willingness to spend or not spend money in pursuit of the

target market it whishes to serve. In this category we place beds, food, room

size, furnishings, location, bathroom amenities, elevator service, heating and

air conditioning, TVs, things that do not work, and so forth. We also define

price as tangible although it is a cost of services as well as goods, because it

tangibilizes the intangible. To the consumer, price is very tangible in any

purchase decision. In hospitality it is the goods components that, generally

speaking, satisfy or do not satisfy the basic needs of customers.

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Table 2.7 Differences between services and manufact ured goods

Functional

Characteristics Goods Services

Unit definition Precise General

Ability to measure Objectives Subjective

Creation Manufactured Delivered

Distribution Separated from

production Same as production

Communications Tangible Intangible

Pricing Cost basis Limited cost basis

Flexibility of producer Limited Broad

Time interval Months to years Simultaneous or

shortly

Delivery Consistent Variable

Shelf life Days to years Zero

Customer perception Standardized evaluate

Marketing Traditional, external Nontraditional, largely

internal

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2.23.b Environment

In the category of environment, we place those items over which management

may also have some control, but not as directly and not as directly and not as

easily. While environmental items may or not be tangible, they are something

the customer feels. And what we are marketing is that feeling. For example,

putting electronic locks on bedrooms doors is something very physical and

tangible, but we do not sell the electronic lock to the customer. What we sell,

instead, is the benefit of the feature; a feeling of security, a very important but

intangible attribute for many hotel customers (i.e., the customer needs a room

with a lock, but wants a room with an electronic lock). Other attributes in this

category are décor, atmosphere, comfort, ambience, architecture, and so

forth. These attributes fall more in the “want”, as opposed to the “need”

category. They solve extended problems. A hotel room, for example, satisfies

a basic need: a luxurious room satisfies a “want”.

2.23.c Services

The third category, services, includes nonphysical, intangible attributes that

management clearly does, or should, control. Items in this category depend

heavily on the personal elements provided by employees, such as friendliness,

and speed, attitude, professionalism, responsiveness, and so on. But there are

other factors as well: There are those that may depend on employee aptitude,

but may also depend on the system, such as the handling of reservations.

Then also there are those that may strictly depend on management decisions,

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such as whether to offer a service. Room service is an example of this. In fact,

we can use room service to demonstrate the complexity of the

interrelationships among the four components of the hospitality product.

Management must first decide to offer room service. Obviously, this decision is

relevant to many things including the particular property and the target market.

The first question to be answered, of course, is whether offering room service

will solve a problem for customers at this property. If an alert management

decides that the answer is yea, it will then analyze demand, cost, resources,

and facilities. If customers expect room service and it is not offered, there will

be dissatisfaction. Deciding to offer room service is not the end. There are still

many opportunities to fulfill or not fulfill expectations. First, there is the service

element.

How many times does the phone ring before the room service

department answers it?

What is the attitude of the person who does answer?

Is the order delivered when promised?

What is the attitude of the room service waiter?

Did he remember the rolls, the sugar, and enough cream for the coffee?

When the meal is finished and the tray is put out in the hallway, how

long does it stay there before someone takes it away?

Now let’s look at the goods element. Is the orange juice fresh, the

coffee hot?

Is the silverware clean?

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Is the bacon crisp or the toast soggy?

Is the price fair?

What about the environment?

Is there a table to put the food on without rearranging the bedroom,

perhaps even a balcony where one can enjoy the view?

Are there chairs to sit on that enable one to reach the table? Is the tray

well presented?

If all these things are done well, consistent with the target market that

determines what “well” is, does the customer say, “Boy, this is a well-

managed hotel?”

The immediate answer will be probably not. But if one thing is not done well,

the customer may well say the opposite. Why should this be? Because it is

expected to be done well. That is the solution to the customer’s problem. That

is how the customer measures the price/value relationship. This is why the

“risk” was taken. All these lead to the ultimate level of satisfaction. There is no

opportunity to return room service for another room service in the same way a

good can be exchanged. You can see now that room service, like all parts of

hospitality operations, is marketing, it solves or causes problems; it can keep

or lose a customer.

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2.23.d Experience

There is a fourth component of the hospitality product that may, in fact, be the

most important. This is experience, which is most likely outcome of the other

three components. While buyers of the hospitality product may not always

seek an experience, per se, that is inevitably what they come away with and

what they most remember. How are experiences different from goods and

services? Experiences are memorable, experiences unfold over a period of

time, and experiences are inherently personal. Thus experiences can create

new and greater economic value. Effective service providers use experiences

to increase the attractiveness of their offering to bring customers back to the

same hotel or restaurant. As services increasingly become copied and

commoditized, successful hospitality operators will create memorable

experiences to create and keep customers. This is true for two reasons. First,

the hospitality product is personal. The customer interacts with all phases of

the product at a very personal level and judges them on the basis of personal

experiences. Four Seasons considered one of the top luxury hotel chains in

the world may not be experienced as luxurious by some guests if the light

bulbs are only 60 watts or if there is only one comfortable chair in the room.

The second reason for classifying the hospitality product as an intangible

experience is that it is always “left behind”, that is, customers do not take it

with them and it can never be redone. The moment has passed forever.

Customers go away empty-handed, with nothing to show for their money. The

hospitality product is unique in that there is no cure and no second chance. All

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you take away with you is an experience. This has incredible implications for

hospitality marketing and operations.

2.24 Characteristics of customers

Needs and Wants

Abraham Maslow was a psychologist who wanted to explain how people are

motivated. What he learned was that motivations are based on different needs

in different contexts. Maslow labeled his theory of motivation the “hierarchy of

needs”. This hierarchy model has stood the test of time and is the basis of

much of what we know about human behavior. The model is shown in Table

2.6.

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Figure 2.1 Maslow’s hierarchy of needs

The thrust of Maslow’s hierarchy is that the lower level needs have to be met

Self-

actualization needs

(self-development)

Esteem Needs (self-esteem, recognition, status)

Social Needs (sense of belonging, love)

Safety Needs (security, protection)

Physiological Needs (hunger, thirst)

Source: K. Ashwathappa, 2008, “Organizational Behavior”, Himalaya Publishing House, India before the higher level needs become important. Thus until physiological

needs of hunger and thirst are satisfied, they remain primary in human

motivation. Once these are satisfied, our safety needs of security and

protection become primary, and so forth on up the pyramid. Maslow’s

hierarchy of needs is a critical foundation of human behavior. At the same time

is only a foundation upon which we must build. Motives activate people’s

behavior but perceptions determine the course of that behavior.

****

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