Burgeoning middle class driving demand for hotel rooms in India

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Douglas Martell, vice-president for operations, Southwest Asia, InterContinental Hotels Group, tells Jharna Mazumdar that India is a key market for IHG and the group is very optimistic about its growth potential here. Excerpts:

Is over-supply of rooms a worry for the sector and are room tariffs expected to decline? Has it already declined because of the global slowdown?

The hotel industry is a cyclical business. In countries where there are considerable growth opportunities and the industry is working to make the most of them, there can be times when supply will exceed demand. This is the case in some cities in India, but this will correct itself over time - both occupancy and tariff are key to this.

India is predominantly a domestic market, so that is the primary drive of the industry here. With continued growth in India’s GDP, improvement in per capita income, and increased consumer spending, the Indian hospitality sector is expected to grow faster than most countries around the world. While international visitor numbers are increasing (by 8 per cent in 2010), the figures clearly show that the domestic market is where the big opportunity lies. One of the drivers behind this is the burgeoning middle class.

IHG has been present in India for over 48 years. We see increasing demand from domestic business travellers seeking a hotel with an international brand at great value. India has a strong domestic market and is set to grow significantly in the next few years. Given that business travellers in India spend on average 27 nights away per year, our Holiday Inn and Holiday Inn Express brands are well positioned to address their need for great value, internationally branded, high-quality hotels.

Are more foreign hospitality chains expected to come to India? Will there be consolidation in the sector? Also, tell us how the sector has evolved in the past few years and how it is likely to perform in the coming years?

We have been in India for 48 years and have seen many new entrants to the market in that time. The Indian market is certainly becoming a lot more competitive and this is a good sign as it reiterates the potential and is a sign of growing market.

The driver for growth is coming from the burgeoning domestic market, which is driving demand for hotel rooms. This is why we’re focused on growing our Holiday Inn and Holiday Inn Express brands here. At present, 80 per cent of our India pipeline is with the Holiday Inn family of brands.

What has been the investment scenario in the hospitality industry? How easy or difficult is it to raise funds for hospitality projects?

Our business model is primarily managing and franchising, meaning the hotel properties are owned by a third party. There is certainly interest in the hotel industry as an investment opportunity but what’s critical to making a hotel a success is pairing the right owners, with a property in the right location with the right brand. The brand you put above the door can often help to raise funds and that is where the brand, and the power of the system behind the brand, is key. In 2011 we delivered 69 per cent of room revenue to hotels through our own systems e.g., websites, sales teams, reservations centres. This gives hotels a real lead start and helps to build the business case for investors.

As an example, Holiday Inn Express is a good investment opportunity for hotel owners as it provides excellent returns on investment, as a result of its unique operations model. For example, non-guest facing services are outsourced and the actual hotel team is there to focus on services where they interact with the guests. This maximises the revenue that the hotel is able to earn.

Please elaborate on your expansion plan in the next three to five years?

We are committed to a long-term presence in the country and are driving growth through four brands primarily, each catering to the demands of different market segments – InterContinental, Crowne Plaza, Holiday Inn and the recently launched Holiday Inn Express brands. We have 37 hotels in our development pipeline all due to open within the next three to five years. Our JV with Duet India Hotels Group is a big part of this. We will open 19 Holiday Inn Express hotels, adding approximately 3,300 rooms to our footprint in India. At present, 80 per cent of our India pipeline is with the Holiday Inn family of brands - The brands represent a great opportunity for IHG, as they are well positioned to meet the increasing demand for rooms.

India is a key market for IHG and we are very optimistic about its potential and our growth here. We support our business partners and owners by leveraging our scale, investing in our brands and growing market share. Overall, IHG is strongly positioned to build a significant India footprint with a growing presence in India’s key business and leisure hubs. This will help us meet our ambition to have 150 hotels in the country by 2020.

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