All eyes on India.

India’s changing face.

In early 2008, news of India’s

growing economy and the country’s
new positive self image was making
headlines around the world for good
reasons. Popular opinion was that
India’s economy was largely immune
to the American-born credit crunch
and the country was tackling their
teething problems effectively.

Its tourism industry is forecast to generate US$42.8 billion by 2017 – an estimated

42% increase on 2007 and India is also expected to grow their travel and tourism
demand faster than any other destination in the world between 2009 – 2018,
according to the World Travel & Tourism Council.

Over the course of 2008 the credit crunch turned into the global economic crisis and
India experienced a number of terrorist attacks – both bad news for India’s growing
tourism industry. However, India is fighting back and tourism developments are still
taking place. Although there will inevitably be some short to medium-term set backs,
the long-term outlook remains positive.
 India still roaring
Despite the deepening world economic crisis, India’s
economy remains in decent shape and is still
experiencing some of the strongest growth rates in the
world. It is clear that 2009 will be a tough year for the
global economy and emerging economies are now
looking less immune to global economic woes.
In December 2008, factory output in India declined for
the first time in at least 13 years, a sign of the
decreased demand for exports. But for now, the trend
remains the same and India is set to achieve stronger
economic growth than the rest of the world as can be
seen in figure 1.
Figure 1. GDP growth from 2006 to 2010
2006 2007 2008* 2009* 2010*
World 4.1 3.9 2.4 -0.4
India 9.7 9.0 6.2 6.1
* forecast
Source: Economist Intelligence Unit as of 11 Dec 2008
Budding building blocks
India’s firm place in the top emerging economies in the
world has not gone unnoticed by the hotel industry.
The hotel building boom continues across the country,
as both international and domestic hotel chains rush to
cash in on the country’s potential. According to
Lodging Econometrics, the global authority for hotel
real estate Portsmouth NH, there are 73,793 hotel
rooms in the pipeline of which 11,207 are due to open
in 2009 and 22,522 in 2010.
Limited tourist infrastructure still restricts the amount of
tourism movements around the country and much
needed improvements are underway. Hyderabad and
Bangalore both opened new airports in 2008 and
modernisation of airports in both Mumbai and Delhi
should be complete by 2010.
India as a tourism product has so far suffered from
being a high cost destination, partly due to limited
access, as well as the fact that it is a long-haul
destination from some of its source markets.
Competition is also fierce from other markets
such as Thailand, and increasingly, Dubai.
2
The robustness of the Indian tourism industry can be
seen from its size and spread – while international
tourism accounts for a little over five million visitors, the
domestic market is estimated at over 500 million – truly
the iceberg effect. The Indian outbound market is
estimated at eight million, larger than the incoming
market.
On trend
India is at the forefront of addressing trends in the
industry. Environmental issues have become increasingly
important in the last few years and the government
launched an initiative called Energy Conservation
Building Code 2007 in June 2007 that specifies the
energy performance requirements for all commercial
buildings to be constructed in the country. Many major
brands and hotel chains in India have been associated
with eco-friendly practices even before this policy came
into play and have received credentials for them.
1.5
7.1
Medical tourism is poised for rapid development in the
future and India is busy developing first-class facilities to
attract this multi-billion dollar niche market. India is well
positioned to succeed in this sector as it already has a
strong reputation for traditional Ayurvedic medicine,
spa and well-being travel. The challenge now is to build
on its medical reputation while making it attractive and
accessible to a larger target audience. The government
has already helped by relaxing criteria to receive a visa
for medical tourism.
Medium-term misfortune?
Despite India’s strengths, there is no denying that 2008
was a very tough year with the global economy in a
shambles and increased terrorist activity throughout the
country. International tourist arrivals into India have been
strong over the last few years, achieving around 13%
growth year-on-year from 2005 to 2007 attracting just
over five million arrivals in 2007. 2008 told a different
story and even before the Mumbai terrorist attacks,
tourist arrivals have shown a steady decline throughout
the year from 12.2% in the first quarter to 9.3% in the
second and 6.1% in the third. During the month of
September alone, arrivals grew by a mere 1.5% resulting
in year-to-September growth of 9.6% according to
provisional data from the World Tourism Organisation.
Source market slowdown
Tourist arrivals are suffering at the hand of the slowing
economy in India’s source markets and this is expected
to continue into 2009. According to the Bureau of
Immigration, the US and the UK were the top source
markets of foreign arrivals into India in 2007,
accounting for just over 15% of all foreign tourist
arrivals each. Unfortunately, these two countries are
also two of the most severely affected by the global
slowdown and as corporate and leisure traveller’s purse
strings tighten, fewer trips will take place. Domestic
travel may also start to slow as the crunch starts to
affect the emerging middle classes to a greater degree.
The airline industry in India is not immune to the crunch
either and has sought rescue packages from the
Delhi had the fastest revPAR growth up 10.5% to
INR 9,906 – the highest absolute revPAR in India.
Meanwhile Chennai achieved the second fastest
growing revPAR in the country due to limited drops in
occupancy, up 9.4% to INR 6,042. Year-to-November
revPAR in resort destinations such as Jaipur and Goa
was up 7.5% and 0.7% respectively.
Figure 2. Hotel performance percentage in India change year-to-November 2008 versus
year-to-November 2007
India
Bangalore
Chennai

government. Several Indian airlines have made

Delhi
redundancies while others have asked employees to
take pay cuts. Consolidation is on the increase as a Goa
result of the downturn as well. Jet Airways and
Kingfisher Airlines announced their immediate alliance Jaipur

in October 2008 in order to cut costs and offer the best

Kolkata
possible fares to customers. Shortly after, in December,
Jet Airways and Emirates announced a partnership Mumbai
including a reciprocal frequent flyer arrangement and
unilateral code share agreement. -15 -12 -9 -6 -3 0 3 6 9 12 15

Occupancy Average room rate

Turning point for hotel performance
Hotels have been affected by the global economic
slowdown and occupancy across India was in negative
territory each month of 2008 until November (the most
recent data available) as seen in figure 2. Strong average
room rate growth kept revenue per available room
(revPAR) in positive territory but average room rates are
experiencing decelerated growth. In October, average
room rates fell 0.1% and resulted in a 10.8% dip in
revPAR. Year-to-November revPAR however, remains
positive, up 4.4% to INR 6,250 driven by a 9.5%
increase in average room rates while occupancy
dropped 4.7%.
In Mumbai, occupancy has also been falling in each
month of 2008. Stronger average room rate growth
resulted in a positive revPAR performance until
September when it fell into negative territory.
October was a particularly difficult month when revPAR
dropped 26.6% driven by a 22.4% drop in occupancy
while average room rates dropped 5.4%. Mumbai
however, still achieves the highest average room rates
in the country at INR 12,794 and year-to-November
revPAR ended up increasing by 0.7% to INR 8,642.
Source: STR Global
Terrorism affecting tourism
A rise in terrorism has tarnished India’s reputation in
2008. The terrorist attacks in Mumbai that captured
world media attention have damaged its tourism
industry and growing status as a world commercial
capital. This attack followed a string of terrorist activity
in Jaipur, Ahmadabad, Delhi and the technology capital
Bangalore throughout last year.
These attacks will affect hotel performance across India
in the short to medium-term and when December data
becomes available, it will give an indication of the
damage to average room rates and occupancy caused
by the Mumbai attacks. If history repeats itself, then
hoteliers in India may see travellers return quite quickly
as they are becoming more resilient to terrorist attacks.

All eyes on India 3

Coping strategies
India is fighting back and several proactive strategies are
being put into play. At a recent medical tourism
conference, the Tourism Secretary reassured that
security plans are being upgraded for the 2010
Commonwealth Games in Delhi when all eyes will again
be on India. The country will take this opportunity to
promote its medical tourism industry and will take
medical tourists to popular tourist spots at government
expense if they visit during the Games.
Buy two get one free
The government is also considering numerous strategies
to promote repeat, medical and domestic tourism and
investment in infrastructure. Examples of initiatives
being considered include: offering free air travel and
accommodation for foreign tourists who visit India for
the third time, picking up the bill for tour operators
promoting domestic and medical tourism and income
tax exemptions for hoteliers if they invest 50% of profits
into infrastructure.
India’s gracious hospitality industry is resilient and its
stature and reputation will be restored. Given the
current back drop of the global economic downturn
and the recent Mumbai terrorist attacks, there are
several obstacles to overcome in the short and
medium-term. Before the Mumbai terrorist attacks,
India’s hoteliers were already facing challenges and the
attacks will exacerbate these. However, important and
proactive coping strategies are being put into place.
The long-term outlook for India’s tourism industry
remains a positive one. Projected economic growth is
still among the strongest in the world and the building
boom continues.

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