BUDGET HOTELS __________________________________________________________________

INTRODUCTION TO HOTEL INDUSTRY

A hotel can be defined, an establishment which supplies boarding and lodging not engaged in inter state commerce or any intra state commerce, competitive with affecting inter state commerce. With the establishment of money during 6th century BC came the first real opportunities for people to trade & travel. As the areas of movement widened, their need for lodging became greater. Today one of the fastest growing sectors of the economy of our time is the hotel industry. The hotel industry alone is a multi-billion dollar and growing enterprise. It is exciting, never boring and offers unlimited opportunities. The hotel industry is diverse enough for people to work in different areas of interest and still be employed within the hotel industry. This trend is not only in India, but globally too. According to World Travel and Tourism Council [WTTC], global tourism is projected to grow at 5.8% in 2004 and 4.5% over next 10 years [2005-14]. India would be one of the fastest growing market, which is expected to grow 10% in 2004 and generate economic activity of Rs1,846.3bn [US$ 39bn]. According to WTTC, India would grow 8.8% between 2004-2014 to generate economic activity of Rs7,028bn [US$ 90bn] by 2014.

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INDIAN SCENARIO
Prior to the 1980's, the Indian hotel industry was a nascent and slow growing industry primarily consisting of relatively static, single hotel companies. However, Asian games in 1982 and the subsequent partial liberalization of the Indian economy generated tourism interest in India with significant benefits accruing to the hotel and tourism sector in terms of improved demand patterns. Fortunes of the hotel industry are tied to the fortunes of tourism and the general business climate in the country, which is why the economic liberalization initiatives implemented since 1991, led to a soaring demand and supply gap in the hotel industry. This enabled Indian hotel companies to increase their ARRs by almost 50% between April 1994 and April 1997 and still enjoy extremely high occupancies of above 80% for most of this period. Foreign travelers consist of 80% of the total clients, while the rest are domestic travelers. In recent times, any discussion on the hotel industry only veers around the falling occupancy rates and average room rates and the trying times that the Indian hotel industry is going through. Nevertheless, the hotel industry has reported impressive earnings and revenue growth for the year ended March 2001. This was after a slack period in the financial year 2000, when net profits dipped on a negative sales growth. Business travel is the largest segment of travel and today India's corporate travel market is today estimated at no less than US$ 3 billion (around Rs 150 billion). An increase or decline in business travel mirrors economic trends. India with its 8 per cent GDP growth rate and stable economy has witnessed an all round development, especially in the travel and tourism sector. Business travel thrives best in a free and robust economic scenario and India is gradually moving in that direction. With liberalisation paving the way for healthy competition and business going global the Indian traveler too is evolving into a global traveler. A liberal foreign exchange regime and cheaper air-fares, ex-India are also factors responsible for catapulting business travel. Subsequently, with travel budgets of Multi national corporation running into several million dollars, airlines, hotels and all other service providers have rolled out the red carpet for this cash cow. Indian companies are now following suit, with almost all blue-chip companies having detailed travel policies. Travel costs have emerged as the third largest expense for corporate, after salaries and raw materials. These globe trotting Indians; have metamorphosed as a distinct market.

BUDGET HOTELS __________________________________________________________________ They are well traveled and demand the services they pay for. Of late, the government of India has started realizing the importance of tourism in the countrys economic

growth. Indias emergence as a super power and an overall buyout economy has led to an increase in foreign tourists arrival to a record level in 2004 which reached 3.5mn in 2004 and is expected to 5mn this year. All this coupled with the continued demand supply mismatch in rooms availability has turned favorable for the hotel companies with the room rates and occupancies touching an all time high. The present trend is expected to continue with the new capacities coming only after two to three years.

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REASONS FOR GROWTH OF THE HOTEL INDUSTRY

Rising foreign arrivals
Foreign tourist arrivals continue to surge. During January - September 2004, foreign tourist arrivals in the country have risen by 25.5% to 2.3mn. It is expected by the end of the calendar year tourist arrivals into India would cross the 3mn mark. Business travel into India has been on the rise with globalization and rising investor interest in India - one of the fastest growing economies in the world. Business travelers account for almost 75-80% of arrivals. The Incredible India campaign launched by the Ministry of Tourism has also gathered momentum and is showing results.

Domestic tourism also on an upswing

A growing economy, rising disposable incomes and easy finance available for holiday packages have led to increase in domestic leisure travel. Falling airfares have also contributed to increase in travel frequency within the country. The number of people who travel domestically (for religious, leisure or business purposes) has been rising. As per NCAER study, there are 5.5bn domestic tourists of which 7.7% are business travelers, 6% are leisure tourist and the rest travel for religious or social reasons.

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Tourist arrivals projected to grow at 6.5% CAGR until 2010

According to World Tourism Organization [WTO] foreign tourist arrivals in the country are expected to witness a 6.5% CAGR to 6mn by 2010 and to 10mn by 2020. We believe that the Indian Hotel and Tourism Industry is on a long term growth trajectory and domestic hotel companies who have expanded capacities in the last few years are well placed to capitalize on this boom.

Cyclical industry
The hotel industry is sensitive to changes in the domestic and global economy. General economic conditions and recession in the economy affects business travel and hence demand for rooms in the hotel industry. The hotel industry typically passes through phases of low occupancies when are unable to cover fixed costs and incur losses. Earnings rise multifold during boom periods. The hotel industry has passed through a slowdown in the last 2 years and we believe that the up-cycle has just commenced and would continue for next 2-3 years at least given positive economic growth forecasts.

External factors
The hotel industry is significantly affected by external factors ranging international socio-political environment to regional events (like the conflict in Iraq and SARS) which impact the level of travel and business activity. Tensions on border and travel advisories issued by western nations also affect the hotel industry.

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CLASSIFICATION OF HOTELS
On the basis of Star Categorization Like most of the countries in world, India also has hotels divided in different categories depending on their location, facilities, infrastructure, and amenities provided. All the star hotels in India are government approved with continuous control on the quality of services offered. Five Star Deluxe Hotels The most luxurious and conveniently located hotels in India are grouped under Five Star Deluxe Hotel Category. These hotels are located primarily in metropolitan cities like New Delhi and Mumbai and major tourist destinations like Jaipur, Agra, and Goa. Five Star Deluxe hotels in India are globally competitive in the quality of service provided, facilities offered, and accommodation options. Five Star Hotels These are top of the line hotels located mostly in the big cities. These hotels provide all the modern facilities for accommodation and recreation matching international standards in hospitality. Many of these hotels are situated in the Central Business Districts of the metropolitan cities or near the centers of transportation providing exceptional value for the business travelers. Four Star Hotels A rank below five star hotels, Four star hotels provide all the modern amenities to the travelers with a limited budget. Quality of the services is almost as high as the five stars and above categories. These kind of hotels are there for the travelers with a limited budget or for the places which might not be getting tourists traffic as associated with larger cities.

BUDGET HOTELS __________________________________________________________________ Three Star Hotels These are mainly economy class hotels located in the bigger and smaller cities and catering to the needs of budget travelers. Lesser in amenities and facilities, these

hotels are value for money and gives good accommodation and related services on the reduced price. Services would be the stripped down version of higher categories of hotels but sufficient to fulfill your basic needs. Two Star Hotels These hotels are most available in the small cities and in particular areas of larger cities. Catering to the backpacker tourist traffic, these hotels provide all the basic facilities needed for general accommodation and offers lowest prices. One Star Hotels The hotels with most basic facilities, small number of rooms, and location in the far flung areas are grouped under One Star Hotel category. These hotels are best when you are looking for cheapest available accommodation option (apart from camps and hostels).

All hotels between 4 stars to 1 star category are considered as budget hotels

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CLASSIFICATION BY SEGEMENT
The sector could be broadly classified into following 4 categories

Premium or Luxury segment

Comprises of 5-star or deluxe hotels catering generally to business and up market foreign travallers. Account for nearly 30 per cent of the room base. Comprises of 4 to 1 star hotels catering to average and domestic leisure travellers. Generally found in smaller towns and cities. Comprises of palaces, havelis and forts being converted into hotels. It involves effective preservation with commercial capability. Located at the outskirts of city could be from premium to budget category

Budget segment

Heritage Hotels

Resorts and Clubs

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CLASSIFICATION BASED ON THE TYPE OF PROPERTY

Hotel companies can be categorized as premium and budget on the basis of the classification of their properties. Most hotel chains have a presence across segments with the aim of catering to a wider market.

Premium Segment
Some hotel companies have brands catering only to the premium segment. The main domestic players catering to the premium segment include Asian Hotels, Bharat Hotels and Hotel Leela venture. The main foreign players in India catering to the premium segment include Hyatt and Le Meridian. In case of other domestic players such as East India Hotels, ITC Welcome group and the park hotel, over 65 per cent of the total rooms were in the premium segment. In case of other foreign players such as Marriot, over 75 per cent of the total rooms were in the premium segment.

Budget Segment
Most of the budget hotels in India are independently owned and are not branded. According to industry sources internationally, 80-85 per cent of hotels in the budget segment are branded, while in India only 15 per cent of budget hotels are branded. Most major hotel companies in India have that brands that cater only to the budget segment. In the medium to long term, the number of hotels and rooms in the budget segment is expected to increase due to the need for low priced accommodations (as a result of reduction in corporate travel). On an average, hotels in the budget segment charge Rs. 1,200 3,000 per room, per day. The average cost for setting up a budget hotel (80-100 rooms) ranges from Rs 3 5 million per room, as against Rs. 10 million for a hotel in the premium segment

BUDGET HOTELS 10 __________________________________________________________________

INTRODUCTION TO BUDGET HOTELS

There is no clear definition of budget hotels in India. All hotels below 4 star categories are lumped together as budget accommodation. This is the commonly accepted definition in the industry and the media. The importance being given to the budget hotels is correct because this category accounts for the largest number of hotels and hotel rooms in India, as also in other countries. As per published statistics of Ministry of Tourism, Government of India, there were 91,720 hotel rooms in all the approved and classified hotels in India in 2003. Out of this 27301 are 5 star and 5 star deluxe hotel rooms and the remaining 64419 are in the lower category hotels including heritage hotels and those which are awaiting classification. Thus about 70% of hotels in the country in the approved and classified category are accounted for by the budget hotels. More than 50 per cent of occupancy of a majority of hotel members of the countrys largest hotel association, the Federation of Hotels and Restaurants Associations of India (FHRAI) reportedly comes from the business travel segment. The average room rate (ARR) realised from business travelers is normally higher than from leisure travel, according to FHRAI reports. There will be another approximately 400,000 to 500,000 hotel rooms in the country in the unapproved category and all of them will be in the budget category. Unfortunately there is no reliable statistics in India about total number of hotels and hotel rooms other than those approved and classified by the Government. As for the progress made in construction of budget hotels during the last few years, this is a part of regular activity and there are a lot of budget hotels under construction. Both domestic and international tourists as well as occupancy in hotels have increased by about 15% during the last 2 years starting from the winter of 2002 - 03. Considering that hotels are a good business, there is a heightened activity in construction of new hotels during the last 2 years. All interested hotel companies, chains and other investors are increasing their investment in this sector.

BUDGET HOTELS 11 __________________________________________________________________ Majority of domestic travelers, whether they are for business or leisure, are targets for the budget hotels. About 25% of foreign leisure travelers also stay in budget hotels. This works like a pyramid where cheaper rooms occupy the widest base at the bottom and the pyramid tapers off at the top with 5 star hotels. The number of travelers and the hotel rooms are therefore much more in the lower category hotels. This is the position in all countries. It is thus certain that demand for budget hotels will continue to grow and at a much higher rate than the 5 star hotels. This is particularly so as the domestic travelers in India are many times higher in number than foreign tourists who mostly stay in 5 star and heritage accommodation. According to Government statistics, there are about 300 million tourists or tourist trips annually by domestic travelers compared to 3.5 million foreign tourists in 2004.

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PLAYERS
The players in the budget hotels category are mostly independent hotels. Even in the approved hotels, the branded hotels will be less then 5%. These belong to various international chains like Park Plaza, Park Inn, Choice Hotels, Country Inns and Suites by Carlson, Best Western, Holiday Inn, Howard Johnson and Days Inn. Some national chains like Taj Group and ITC also have few budget hotels but in very small number. If you see the entire segment of budget hotel rooms in India including approved and unapproved, then the percentage of branded hotels will be negligible. The ITC Welcomgroup, Taj Group, and Accor Hotels are in touch with the Indian Railways to set up budget hotels near railway stations. The hotels will be set up on land owned by the railways, and the hotel companies will handle the management. The project is being developed by the railways through a public-private partnership model, and the locations identified for the first phase include Kolkata, Bhopal and Madurai. Indian Railway Catering and Tourism Corporation (IRCTC) has invited tenders for budget hotels in Habibganj (Bhopal), Sealdah (Kolkata) and Madurai. While formal bids are expected soon, a number of players, including ITC Welcomgroup, Accor and Taj, are among the interested ones. These companies are in touch with the railway authorities and are expected to formally bid for these projects IRCTC has specified that at least half of the rooms in these budget hotels should be available at tariffs lower than Rs 1,000 per day. Hotel operators will be free to price the other rooms according to the services provided. Low-cost rooms will be airconditioned, but will not offer frills like room service or carpeted flooring. The second phase of this project will cover Anand Vihar and Nizamuddin in Delhi, Mumbai Central, Katra, Chennai Central, Ahmedabad, Lucknow, Amritsar, Pune, Nagpur, Visakhapatnam, Tirupati, Vijayawada, Coimbatore, Baroda, Ernakulam, Ooty, Rameshwaram and Kanyakumari.

BUDGET HOTELS 13 __________________________________________________________________

MARKET SHARE
The market share of budget hotels in Mumbai and in India will be about 90% if you take the number of rooms and occupied room nights in a year. This will account for both approved and unapproved categories. If you only take the approved category hotels, the market share of budget hotels will be about 70%. The target market for them is obviously budget travelers, both corporate and leisure. A large number of corporate travelers are in the middle level or lower level managers who have low traveling budgets and stay in the budget hotels.

THE GROWTH IN INDIA

Till now the growth in the Indian hotel industry has been lopsided. Though demand is the highest in the mid market segment, the luxury segment accounts for the most growth. Delhi for instance has 9,000 rooms in the starred category with 6,000 in the 5 star and 5 star deluxe categories. Further there is a shortage of 30,000 rooms. In this context budget hotels make sense for major hotel chains. During a downturn, deluxe hotels are hit first following the decline in foreign tourist traffic. Budget hotels which target domestic travelers would enable big chains to even out of fluctuations. If you take the all India scenario, the growth for new budget hotels may be about 10% over the next 5 years. In some cities, it can be more and in many cities where existing hotels are running modest occupancy rates, the growth rate will be less than 10%. The Mumbai hoteliers mission is t set up budget hotels at 90 minute intervals from each other on busy highways. The Kamat group today owns the Kamat chain of restaurants, the Orchid Hotel and many restaurants across the world. With the Kamfotel chain - a Rs. 500 crores investment to open 50 Kamfotels in the next seven years Kamat is entering the budge- hotel segment. Kamat is not the only one eyeing the budget hotel opportunity. In the last one year, a new breed big hotel chains, fresh entrants, foreign franchises has shown interest. Together they are redefining budget hotels promising good management, and higher standards of hyena and facilities.

BUDGET HOTELS 14 __________________________________________________________________ The idea is to deliver 80 percent of a 5 star hotel at 40 percent of the price this being the aim of Krizim Hotels that has budget hotels under the brand name of Lemon tree which is in Gurgaon. Even indiOne was unveiled in Bangalore which is owned by Indian Hotels. This was the accumulation of Indian Hotels five year - old project to develop a hotel which would deliver value at Rs. 1000 a day. Almost a year old, indiOne operates at near full capacity. Likewise, Lemon Tree Hotel clocked average occupancies of 92 per cent last winter a rare event in the hotel industry (For 5 star and 5 star deluxe hotels, the occupancy is between 30 and 78 per cent. Indian hotels spun off Roots Corporation, a separate fir to set up indiOne. The conceptualisation of indiOne was different from that of a Taj Hotel. The budget hotel is a good business proposition, especially when the interest rate for financing hotel projects comes down to 8 10 per cent as opposed to 18 per cent in the early 1990s. As many as six new chains are waiting in the wings. Next in line is Sarovar Park Plazas Hometel chain with its proprietary coming up in Bangalore. Even Indian Railways Catering and Tourism Corporation are setting up six budget hotels outside major railway stations on surplus land belonging to the Indian Railways. Besides indiOne, this is the only chain pegging tariffs below Rs. 1000. Global Hospitality majors like Accor Choice Hotels and Microtel are also getting in. Accor is bringing its Ibis chain here. Based on how Ibis fares it might bring in its hugely successful Formulae 1 budget chain which price-wise is one notch lower than Ibis. Attempts in the past by the major players to carve out budget hotels. The Taj Group had launched the gateway chain at a slightly higher price bracket than its indiOne brand. Then the Oberoi and the ITC welcome group had positioned their Trident and Fortune Hotels as Budget Hotels. Trident, however, morphed into a four star and lowpriced hotel, while Fortune chain has a mix of hotels 4-stars and low priced hotels depending on the cities they operate in.

BUDGET HOTELS 15 __________________________________________________________________

TARGET AUDIENCE
Majority of domestic travelers, whether they are for business or leisure, are targets for budget hotels. About 25 percent of the foreign leisure travelers also stay in budget hotels. This works like a pyramid where cheaper rooms occupy the widest base at the bottom and the pyramid tapers off at the top with 5-star hotels. The number of travelers and the hotel rooms are therefore much more in the lower category. It is thus certain that demand for budget hotels will continue to grow and at a much higher rate than 5-star hotels. This is particularly as the domestic travelers in India are many times higher in number than foreign tourists who mostly stay in 5-star or heritage accommodation. Simply putting it forward the target audience for budget hotels can be as under: 1) Business travelers who come and stay at Mumbai for long business trips. 2) Small families belonging to middle class visiting Mumbai as tourists 3) General middle class people 4) Decent and elite corporate crowd 5) Foreign Tourists

BUDGET HOTELS 16 __________________________________________________________________

SERVICES AND FACILITIES

The accommodation includes, providing a room along with bed to sleep. Other supplementary products also include travel arrangements, airport pick-ups etc. The hotels various other departments like the house keeping, front office, food and beverage, room service and maintenance, all provide the supplementary services to the customer Budget hotels, they offer minimum services and facilities to their guests as their main aim is to give rooms at affordable cost and cut out services and facilities which add to cost. For example they may have a self service restaurant. Some of the Services and Facilities offered by budget hotels are as under: Banquet & Conference Halls Currency exchange Coffee shop Rent-a-car facilities Doctor on call Laundry service Gym Safe Zone: 24 hour security, close circuit TV Credit cards acceptance Electronic locks Complimentary Airport pickups Secure Parking Day Care Centre Pub Business Center Wireless Internet Facility

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PRICING
As the hotel is a budget hotel the prices are low and affordable. All measures are taken so as to reduce the prices of the room. Efforts are made to cut down costs and offer rooms at affordable and cheap rates. For this the hotel cuts down man power to reduce its costs. For a 5-star hotel the average employers per room is around 1.18 but in budget hotels the average staff of the full hotel may not be more that 20. This is done by, Self service restaurants, by multi tasking, one employee performing many tasks, no bell boys etc. Smaller sizes of rooms as compared to others, efforts are made to make the maximum use of space and have as many rooms as possible. A budget hotel at an average may have 80 to 100 rooms. Indione is providing rooms at Rs. 950 for a night at Bangalore, the rooms available are without any frills. Usually budget hotels are priced between services offered. Budget hotels earn maximum revenue from the rooms, unlike luxury hotels which earn as much from food and beverages and extra facilitates. Typically for a luxury hotel the ideal ratio is of revenues from F&B and rooms is 1:1. But since F&B is minimized in budget hotels, the emphasis is on maximizing the room base. These hotels do maximum construction in revenue generating areas and reduce the back of the house. Usually forty per cent of the area goes into back of the house activates like kitchen and house keeping. Budget hotel also do away with high investment frills like swimming pools, spas and banquet halls. There are only one or two restaurants, and no bar. All this saves space staffing and maintaince costs. The soon to be launched Microtel is likely to rope in coffee chains like Barista and Caf Coffee Day to set up outlets at their hotel. Lemon Tree and indiOne have controlled staffing costs by outsourcing housekeeping, security and laundry. A hundred room 5-star hotel would typically require 120 200 people to run it. In contrast indiOne has only 30 people, out of whom only 7-8 are employees. Outsourcing can slash salary costs to 8-10 per cent of the total cost compared to 18-22 per cent in a 5- star hotel. Outsourcing is a good idea, during lean periods the hotel can work with fewer people, but with outsourcing quality of a service can become an issue of concern. Lemon Tree which has outsourced almost 60 Rs. 800 to Rs. 3500 depending on the city, location,

BUDGET HOTELS 18 __________________________________________________________________ per cent of its services has worked out a smart alternative. The hotel has promoted Black Fox Security management in which Lemon Tree has 50 per cent stake and an expert runs the company. Another Manpower heavy area is Food and Beverages. So reducing it to a cafeteria minimizes staffing requirements. Square Meal, indiOnes restaurant offer simple meals doing away with food dishes that need costly ingredients and equipment. There are no Menu cards either. If a menu card is there it would mean committing to offer all dishes at all times. Though indiOne is faring very well in Bangalore, there is a feeling that instead of a sub Rs 1,000 price point, a differential pricing system depending on the city would work better. This is because prohibitive land costs in cities like Mumbai and Delhi could throw the whole financial equation of the project out of gear. Typically room charges are fixed at one thousandth of the project cost. So for a hundred room hotel with a Rs. 10 crores cost, the sub - Rs. 1,000 price point works, but the moment the cost goes up the project becomes unsustainable.
BUDGET BRAND INDIONE (Indian Hotels) HOMETEL (Sarovar Park Plaza) LEMON TREE (Krizim Hotels) IBIS (Accor and Inter Globe) KAMFOTEL (Kamat Hotels) SLEEP INNS (Choice Hotels and Gupta Group) MICRO TEL (Microtel & The ABS Hotels) IRCTC (Hotels Indian Railways Catering & Tourism Corporation ) 1,000 Differential pricing across cities 1,800 2500 1,800 for Delhi 1,200 1,800 2,200 1,500 1,800 1,000 1,500 900- 950 ROOM TARRIFS (Rupees)

THE COST EQUATION

BUDGET HOTELS 19 __________________________________________________________________ Hotel development traditionally competed with domestic housing and other commercial construction, the construction industry today is competing for materials and capital. Most consultants prefer to look at a hotel from a room perspective in so much as calculating the hotel cost on a per room basis. This helps determine tariff rates once the hotel opens for business. Interestingly, the cost per room is ascertained not just on the basis of how much it cost to build and accessorise the room but the cost of other public areas of the hotel are also integrated proportionately into this figure. This figure, consultants stress, is critical to how the hotel turns out.

Land Factor
While other costs vary, land should not exceed 15 per cent of the overall cost because that distorts all assumptions about gestation and tariff structures. It is the very definition of starting off on the wrong foot. There are other implications to violating cost discipline, including loans not being serviced on time, which dents the reputation of the industry in general from the perspective of financial institutions. Hotel developers should ideally be able to pay back loans in less than seven years. Acquiring land at exorbitant prices, he says, can extend that period to more than 12 years.

Others Costs
There is no uniform system of allocation for hotel development budgets. A Hotel development costs are accounted for in numerous line items and categories. Individual accounting for specific projects can be affected by tax implications, underwriting requirements, and investment structures. For example, in a development project, furniture, fixtures, and equipment installation and construction finish work can overlap. Accounting for these items is not always the same from one project to another.

BUDGET HOTELS 20 __________________________________________________________________ But how much must one spend on lifting the aesthetic value of a hotel? The answer is one that points to the intangible. There are two elements to the construction of the hotel, of which the first one is relatively simple, i.e. the civil structure which is built of steel or is a reinforced concrete structure, and then comes the interior. A luxury hotel could be built at anywhere between Rs 25 lakh to Rs 100 lakh a room. For budget hotels, that price is considerably lower as specifications are not as significant. The emphasis is on basic functionality which is what the guest pays for. The quandary with excessive spend on accessories is that the value of it is not as overtly apparent as the service.

The Debt Factor

Another critical element to be factored into project cost is the servicing of the debt taken to build the hotel. Stressing on the need to reduce credit servicing pressure for new projects. Hoteliers must not view owning hotels as part of their core competency for too long. Hotel developers are considerably better placed to own hotels because they are able to price in all costs, especially those that can escalate quite quickly. It is their business. Debt is very critical in the capital mix, excessive debt should be avoided and measures should be taken debt is kept in control as it could hamper the profit and rate of return on capital.
BUDGET BRAND INDIONE (Indian Hotels) LEMON TREE (Krizim Hotels) SLEEP INNS (Choice Hotels and Gupta Group) MICRO TEL (Microtel & The ABS Hotels) HOMTEL (Sarovar Park Plaza) 9-10 lakh 7-8 crores for a 50 room property (including land) 10-15 crore per property 13-17 lakh 10 lakh Project Cost (Rs./Room)

INDUSTRY COSTS

BUDGET HOTELS 21 __________________________________________________________________

Operating Costs
The expenditure incurred by hotels can be divided into two broad categories fixed and variable costs. The variable component is linked to the occupancy and the facility usage (use of F&B and other leisure facilities) that produced the known level of revenue or expense. Fixed costs include Administrative and general expenses (a small portion is variable), marketing Property and taxes Insurance

Variable costs include Room expenses, Direct expenses for food and beverages and Management fees

There are some items that are classified as semi fixed expenses since they include both fixed and variable portions These include Energy costs Operation and maintenance expenses.

The key expenses incurred in operating a budget hotel are employee costs, F & B costs, fuel, light and power costs.

Employee Costs

BUDGET HOTELS 22 __________________________________________________________________ Employee costs, which form the largest cost component for the hotel industry are the key costs monitored in this sector. In India the manpower to room ratio of 1.8 per room is higher than the international norm of 1.5 per room. Budget hotels do not have many employees; the hotel may be managed by 10 to 15 people maximum. In indiOne have only 30 people, out of whom only 7-8 are employees. Budget hotels outsource activates such as laundry etc.

Food & Beverage Costs

It consists of the costs incurred for the operation of a hotels food and beverage and banquet facilities. In addition to employee cost incurred in F&B operations. F&B costs also include the cost of F&B supplies, kitchen stewarding expenses (such as cleaning supplies), and service department costs (laundering napkins and table cloths) Budget hotels have only one to two restaurants, they try and cut down the manpower employed in F&B operations. They may have self service restaurants. Budget hotels also outsource laundry and other such expenses which further reduce the costs.

Segment-wise contribution margin

BUDGET HOTELS 23 __________________________________________________________________ Room Contribution Room contribution primarily depends on average room rates (ARR) since costs such as manpower and energy, which are associated with rooms, are not significant. An increase in ARR results in direct increase in room contribution. Room contribution is the highest and accounts for 80 per cent of the total revenue. Budget hotels aim at earning most of their revenues through rooms. F&B Contribution F&B contribution depends on F&B revenue and cost. F&B revenue includes income from room service, restaurants and banqueting activities. The revenue from room service is directly dependant on the room occupancy in the property. Budget hotels earn revenue from this source also, as they have limited restaurants they do not earn much revenue from theses services.

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RESERVATIONS AND DISTIBUTION CHANNELS

Globally, electronic bookings (GDS plus internet) account a major share for hotel reservation. However the usage of the same is very low in India. For instance according to a Travel Click survey, involving 33 major hotel chains and brands, in 2004 electronic booking accounted for 58 per cent of the total global hotel reservations. In contrast, the share of electronic bookings in India was less than 25 percent.

GDS (Global Distribution System)

A global Distribution system is a network of electronic reservation systems used by buyers (travel agents and public) and sellers (hotels, airlines car rental companies etc.) to exchange travel related services. These systems have become supermarkets, linking buyers and sellers and allowing reservations to be made quickly and easily. According to sources, internationally, GDS accounts for over 55 per cent of the bookings made for city based hotels. The primary advantage of GDS for travel agents is that it offers single point access for reservation on all airlines, and other travel related products, in a format known as neutral display. In neutral display, screens display availability across several carriers, however neutral displays can vary across GDS.

CRS (Centralised Reservation System)

Many hotels companies especially hotel chains have installed this reservation system, connecting all properties.

Booker
The travel manager, executive assistants or secretaries, who are the link between the traveler and the hotel/airline, generally make corporate bookings.

BUDGET HOTELS 25 __________________________________________________________________

Tour agent/Travel agent (Booking via a GDS/CRS)

In the mid - 1990s, in the US, profits of travel agents were adversely affected, as airlines and hotels sold their products directly to consumers through the Internet, and direct negotiations with consumers. In addition commissions were reduced and a commission on ceiling was introduced. Hence, travel agents altered their fee structure and have been charging a fixed fee for the services rendered. Such fee based travel agents differ from commission based travel agents, and are known as travel management companies.

Marketing Alliances
Hotel properties/chains are often associated with marketing alliances. These alliances provide the hotel direct access to reservation network, promotion and internet coverage. Major marketing alliances include leading hotels of the world, leading small hotels of the world and airline tie-ups. Other alliances include small luxury hotels of the world.

Airline tie-ups
Hotels also have promotional tie ups with airlines. For instance, hotels could provide free accommodation for points accumulated under the frequent flyers schemes of air lines.

Internet
The use of the internet in making hotel reservations has increased due to increased internet penetration and cost effective access. Travel and tourism reportedly forms the second largest category of products sold through the internet. Branded budget hotels in India like indiOne and Lemon Tree and using the internet as it helps them in cutting down the over all cost and with which they can pass on the benefit to the people by providing rooms at economical rates.

BUDGET HOTELS 26 __________________________________________________________________

The primary elements for the extensive usage of Internet in travel bookings are The absence of geographical limitations to the market (direct communication between buyer and sellers) Huge reduction in transaction and processing costs. 24 x 7 x 365 availability Reduction in fixed sales outlets Reduction in clerical errors and administration costs The variety of products that can be delivered over the network; and The support provided to customer relationships.

PROMOTIONS

BUDGET HOTELS 27 __________________________________________________________________ There are a number of components for promoting the business which are used by blending the different constituents in such a way that effects are proactive but the process of persuasion is cost-effective. Budget hotels rely less on promotions as their aim is to give rooms at economical rates, promotions add up to the cost which will effect the price hence budget hotels use minimal promotions. Branded budget hotels such as indiOne and Lemon Tree use promotions more than unbranded budget hotels. These are some of the promotions used by hotels Website advertisements FM advertising in cities Email Blast: E-mail to all travel agents and corporate Travelers card for frequent travelers various offers and discounts to be offered Meal coupons / discount Launch party for corporates / tour operators Pop up ads Advertisements on trolley used in airports Press release in regional language news papers Airport transfer system Promotion through travel agents. Discount coupons

REGULATORY AUTHORITES AND TAXES

BUDGET HOTELS 28 __________________________________________________________________ Hotels: Regulatory Authorities Requirement Approving Authority

Approval of project

Director General of Tourism (GOI) and Department of tourism state concerned

Catering establishment license Bar License Labour Registration No-objection certificate from Police Import License

Municipal Corporation Excise Department Directorate of Labour Superintendent of Police Director General of Foreign Trade(DGFT)

Fire prevention fitness Fitness license of electrical installations Money Exchange License Sales Tax and registration Hotel Transport and Car Barrels, oil storage, gas tank Cold storage Music in lobby and other areas Sanction of water supply, electricity, LPG, sewage collections

Fire officer Chief electrical Inspections Reserve Bank Of India Sales Tax officer Regional Transport Officer Inspector explosives Collector of excise and customs Performing rights society of India Municipal Corporation , Electricity Board, local development authority and land ceiling authority

Clearance and approval of plans of site

Urban arts commission

Taxes

BUDGET HOTELS 29 __________________________________________________________________ The central government charges service tax to the hotel. The hotel collects this service tax from the people using the services on behalf of the government and further pays it to the government. Service tax % (Feb 05) 8.0 10.2 10.2

Banquets Conferences Health clubs, dry-cleaning

The state government charges luxury tax on rooms and, sales tax and turnover tax on food and beverages. State wise luxury tax and sales tax (March 2003)
State Andhra Pradesh Assam Bihar Delhi Goa Gujrat Haryana Himachal Pradesh Jammu and Kashmir Karnataka Kerala Madhaya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Luxury Tax (%) 0-5 10-20 7 0-12.5 8 7.5-15 10 0-10 7.5-15 10 0-6 0-10 5-12.5 5 13 Sales Tax (%) 8.0 0-8.8 8-25 0-20 8.8-22 13.2 0-12 0-8 0-31.5 0-20 9.2-90 9.2 1-20 0-8.8 0-8.8 0-34.5 1-10.5 4-32.5 12-17.25 Turnover tax (%) 1.0 -

SOME PLAYERS IN THE INDUSTRY

HOTEL KUMARIA PRESIDENCY

BUDGET HOTELS 30 __________________________________________________________________ Location The Hotel is a five minutes drive from the international airport, Facing International Airport, A.K. Road, Marol, Andheri (East) Mumbai - 400 059. Access Rooms Check In / Out Time Tariff Single Double Service Charge Luxury Tax Cuisine Air-Conditioning Credit Cards Other Facilities : 1/2 km from International Airport, 3 km form Domestic Airport : 29 : 12.00 Noon : INR : 2145 : 2420 : 6% : 10% on Single Room, 6% on Double Room : Indian, Chinese & Continental : Centrally Air-Conditioned : Master, Visa & Amex : 24 Hr. Coffee Shop & Pub, Kanika Restaurant & Bar, Conference Centre, 2 Banquet Halls, Courtesy Coach To & From Hotel and Airport.

HOTEL TRANSIT, MUMBAI - HOTEL IN MUMBAI (BOMBAY) (3 STAR HOTEL IN MUMBAI)

BUDGET HOTELS 31 __________________________________________________________________ Location Hotel Transit is situated in close proximity to the Mumbai Airport. Hotel Transit Mumbai is located 2 kms. from Railway Station, and 20 ft from Centaur Hotel Bus Stop. Accommodation at Hotel Transit Transit Hotel offers 54 luxuriously appointed rooms for the stay of its guests in Mumbai. Transit offers five customized Suites with designs based on the Themes from Indian Heritage. Dining at Hotel Transit There are several F&B outlets at the Transit hotel Red Grill: It is the restaurant and bar of the hotel that serves Indian dishes. Street Side Caf: It is the Authentic International Cuisine Caf. Sizzlers, Mock tails, are Pastas are amongst the must checkouts here. Facilities at Hotel Transit Conference and banquet facilities are available at the Transit Hotel of Mumbai. The HARDVARD HALL offers a well-trained staff and accommodates up to 75 pax. Harvard Executive is the Plush discreet Conference/Meeting Hall of the Transit Hotel that can seat up to 25 people. VCR, OHP or many other facilities are available here. Complimentary Airport transfers round-the-clock are also available.

HOTEL BAWA INTERNATIONAL - HOTEL IN MUMBAI (BOMBAY)

BUDGET HOTELS 32 __________________________________________________________________ Location Hotel Bawa International is located at Nehru Road Extn, Vile Parle (East), close to domestic airport. It is 2 kms. from Vile Parle Railway Station and 3 kms. from Bus Stand.

Accommodation at hotel Bawa International Hotel Bawa International has 76 rooms, which include 72 double rooms and 4 suites. Dining facilities at Hotel Bawa International The in-house restaurant of Hotel Bawa International serves Indian, Chinese and Continental cuisine. Facilities at Hotel Bawa International Banquet-cum-Conference halls for 40 and 80 covers respectively are available at Hotel Bawa International.

Room Category Single Occupancy Double Occupancy Executive room 3800 3800 Deluxe suite 6400 6400 Super deluxe suite 7400 7400

HOTEL AIRPORT INTERNATIONAL, MUMBAI (HOTEL IN MUMBAI)

BUDGET HOTELS 33 __________________________________________________________________ Location The Hotel is located 1/2 km. from Domestic Airport, 1 km. from Vile Parle Railway Station and 1 km. from Bus Stand. Accommodation at Hotel Airport International Hotel Airport International has 28 air-conditioned Rooms which include 10 single rooms and 18 double rooms. Facilities at Hotel Airport International Striking dcor, professional staff ,H/C running water, Telephone and C.T.V. Services at Hotel Airport International Hotel Airport International offers Room service, Airport transfers, Doctor on call, Laundry, Fax, and E-mail. Tariff Check in /out time: 12 noon Room Category Executive room Deluxe room Superior deluxe room Single Occupancy Double Occupancy 2000 --2500 3000 4500 5000

LEMON TREE HOTEL (GURGAON)

BUDGET HOTELS 34 __________________________________________________________________ Lemon Tree Hotel Located within Udyog Vihar offers between 50-120 high quality rooms (fully air conditioned, with instant high speed net access, two telephone instruments, a functional work table, refrigerator and running hot and cold water);a multi-cuisine restaurant, recreation and entertainment facilities, a fully equipped business center with meeting rooms, a fitness center and a swimming pool (optional). Service offerings will also include round the clock reception, housekeeping, laundry and room service Business Facilities The hotel offers instant high speed net access from all residential rooms in addition to the business center, conference room and board room. The hotel's business center is equipped with a LASER jet B&W printer, a color printer, thermal binder, scanner, photocopier and two individual workstations with Pentium 4 systems and TFT screens. These are fully equipped to function as mini offices. Accommodation at Lemon Tree Hotels:The Lemon Tree Hotel, Udyog Vihar has 49 rooms. Standard single rooms : Superior single rooms : : Superior single/double : rooms Twin rooms : 31 rooms with single beds 02 rooms with single beds 01 room for the physically challenged 03 rooms with queen sized beds and a sofa cum bed 12 rooms with two separate beds

Tariffs

BUDGET HOTELS 35 __________________________________________________________________ Room Category Standard Single Room Superior Single Room Twin/Double Room Check out time: 12 noon Rs. 3000 3600 4200

Restaurants and Dining The hotels bright and inviting 24 hour Coffee Shop called The Citrus Caf. Serving breakfast lunch and dinner

IndiOne (Bangalore)

BUDGET HOTELS 36 __________________________________________________________________ Location: hotel is located opposite the KTPO Exhibition Complex, next to Perot Systems building in the area around Dell, SAP Labs, iGate & GE Medical Systems offices in KIADB in Whitefield. 25 minutes away from Bangalore Airport, 30 minutes away from Indiranagar, 45 minutes away from City Bus Terminal and Railway Station Dining Facilities : the hotel has a restaurant called The Square meal, a self service restaurant. Serving breakfast lunch and dinner. Other Facilities

Cyber cafe Meeting room - seats 10 people Laundry facility same day laundry Gym - with treadmill, exercise cycle and weights Digital safe deposit boxes ATM Safe Zone : 24 hour security, close circuit TV Secure Parking Doctor on call Credit cards accepted

Accommodation at IndiOne: 101, Single Rooms: 72 rooms with single beds. Twin Rooms: 20 rooms with two separate beds. Double Rooms: 8 rooms with a queen-size bed. A room for the physically challenged Check out: 24 hours from check in. Tariffs Room Category Single Double/Twin Single Occupancy 900 950

EMERGING TRENDS
SERVICE APARTMENTS

BUDGET HOTELS 37 __________________________________________________________________ The cost effectiveness of service apartments is making them second home for expatriates and business executives on the move. The concept of service apartments, though a recent phenomenon in India, is an established global concept. Service apartments are the latest trend in accommodation, offering the comfort and convenience of a home without the hassles of having to maintain or look after it. Ideally suited for medium to long staying guests, service apartments are a natural choice for corporate employees or expatriates relocating to a particular city, nonresident Indians visiting the country for long spells, people renovating their homes and of course foreigners visiting the city for long durations. The concept of service apartments offers a cost advantage and a longer term commitment, both from the service provider/receivers perspective. A service apartment is more spacious and is equipped with all the amenities that a long-staying guest needs. During a certain market research it was found that executives in India really do not want to cook but would like to fix an occasional breakfast, heat packaged food, and store food. So we will provide a big refrigerator, microwave and toaster. With most apartment hotels strategically located in the city centre, mainly in the commercial and financial districts of metropolitan cities, the concept is particularly popular with business travelers, both mid-level and senior management level business executives.

BUDGET HOTELS 38 __________________________________________________________________

CONCLUSION
After completing this project I feel that there is lot of scope and openings in this large and every growing sector of hospitality. The government is also taking initiatives for the growth of tourism and the torisism of India growing this will surely effect the hotel industry in a good way. The concept of branded budget hotels is entering India, with multinational hospitality organizations like Accor with Ibis, there is a room for growth of this type of hotels. As many metros still are short of rooms budget hotels is and will be the right way to fill the gap of excessive demand. The government has also increased the foreign direct investment limit to 100 per cent in hotels. Many companies are setting up new budget hotels establishing chains; indiOne is going to launch 60 such hotels in the next five years. International players are also coming in with join ventures. The economical price of these hotels is giving the people value for money and encouraging them to use these hotels for business trips and leisure trips. Budget hotels are very economical to a middle class person; they are increasing employment, creating revenues for the government. The future belongs to these budget hotels which are going to give other type of hotels a tough time.

BIBLOGRAPHY
Internet and Websites:

BUDGET HOTELS 39 __________________________________________________________________

www.indione.com www.lemontreehotels.com www.indiainfoline.com www.tata.com www.rediff.com

Books and Reports

Business World June 2005

Crisil Report on Hotels May 2005 Mr. Suri (Secretary General FHRAI) Mr. Partha Chaterjee (Taj Group of Hotels)

Annexure I
Indian Hotels Company unveils indiOne
Redefines the hospitality industry with an innovative, first-of-its-kind of Smart

BUDGET HOTELS 40 __________________________________________________________________ Basics Hotels June 25, 2004 After a century of pioneering achievements in the Indian hospitality industry, the Indian Hotels Company Ltd (IHCL), today renewed its commitment to innovation with the unveiling of indiOne, a first-of-its-kind of Smart Basics Hotels. Ratan N. Tata, chairman, IHCL inaugurated the first indiOne hotel at Whitefield, Bangalore. Developed in association with renowned corporate strategy thinker, Dr C K Prahalad, the indiOne hotels are designed to be functional, while providing an extremely comfortable, clean and safe stay at an affordable cost. The 'Smart Basics' a new category of hotels signifies simplicity, convenience, informality, style, warmth, modernity and affordability. Indigenously designed and developed by IHCL, the guiding principle behind the design was to create a unique space that is conducive not only for guest comfort and relaxation but also for their work requirements. The design of the hotel, from the rooms to the furniture and lighting systems, have been thoughtfully created to offer users a unique sense of welcome. Unveiling the first indiOne, Mr Tata said, Last year, Indian Hotels celebrated the centenary of its flagship hotel in Mumbai. One of the challenges identified then was to innovate and to lead. This spirit of innovation is evident through the indigenous development of indiOne and is a giant step forward for Indian Hotels. It is only apt that we unveil this important initiative in a year when the Tata Group is paying tributes to the lives and times of J N Tata, J R D Tata and Naval Tata. Priced at Rs 900 for a single room and Rs 950 for a double room, the indiOne hotels will create a new category in the domestic hospitality landscape, while giving a major fillip to Indian tourism and other ancillary industries. The primary objective behind the launch of indiOne is to provide a superior product offering and consistent experience to travelers, far beyond the present offerings in the industry. indiOne caters to corporate executives, traders and self-employed professionals, tourists, pilgrims and leisure travelers who are looking for a clean, secure, convenient hotel, without having to pay premium prices. Speaking on the occasion, Mr Raymond Bickson, managing director, IHCL said, In the last few years, the dynamics of the entire industry has changed and a category like the Smart Basic hotels has emerged as a compelling business opportunity. We do believe that significant demand exists in the metros, secondary and tertiary cities across the country. The indiOne hotels are modern, modular and scalable and will provide guests with a consistent experience. The first hotel in Bangalore has 101 well-appointed rooms, with a choice of single, twin and queen-sized rooms. The rooms are individually airconditioned and provided with electronic locks, wood laminate flooring, comfortable beds, a work area, a 17-inch flat screen colour television with satellite channels, direct-dial telephone including STD facility, mini-fridge, tea / coffee maker, 24 hours hot / cold water and toiletries. The indiOne hotel also has a restaurant, meeting room, gymnasium facilities, a cyber caf, 24-hour reception, an ATM, digital safe

BUDGET HOTELS 41 __________________________________________________________________ deposit boxes, 100 per cent power back up, as well as wi-fi connectivity in the public areas and individual rooms. Adds Dr C K Prahalad, co-creator of indiOne, The launch of indiOne is a cause for celebration, not just for IHCL but also for the Indian industry. This represents an important innovation from India in a traditional industry. The increased economic momentum in India and globalisation of its businesses presents immense potential for a path-breaking hospitality offering like indiOne. This new category augers well for the consumer, empowering them with a unique and reliable choice. IHCL has conducted extensive qualitative and quantitative research on various aspects of a travellers needs. The research was primarily aimed at understanding travel patterns, hotel usage, service needs and expectations. The exhaustive research has culminated in the identification of the potential of a category of Smart Basics and the conceptualisation and design of indiOne. Roots Corporation Limited (RCL) is a wholly owned subsidiary of the Indian Hotels Company Limited (IHCL). Incorporated in December 2003, RCL operates IndiOne, a first-of-its-kind of Smart Basics hotels across the country.

Indian Hotels plans 60 budget hotels in 5 years

Business Standard August 10, 2004 Indian Hotels Company, owners of the Taj group of hotels, is planning to open 55-60 smart basics hotels (budget hotels) in the next five years, said Tata group chairman Ratan Tata during the 103rd annual general meeting of Indian Hotels Company. The group launched the first prototype in Bangalore in June under the brand name Indione. As these hotels will be catering to the economy segment, predominantly focusing on domestic clientele, these will be far less prone to fluctuations than the luxury and upscale segments. In the long run, the group expects that this segment will help in derisking its current revenue stream. The luxury division contributes 49 per cent to the Taj groups revenues. The company has chalked out a capital expenditure of Rs 167 crore in the current year that includes renovating some of its properties. It will be opening the Taj Wellington Mews, an 80-room luxury service apartment facility, in the last quarter of this year. The company has invested Rs 240 crore for setting up the service apartments. As part of its growth strategy of following an asset light strategy, the group has secured management contracts for hotels in Mauritius and Kovalam in Kerala. Tata said, There has been a recovery in the travel and hospitality industry driven by growth in the economy and the fact that international travel increased by 18 per cent after three years of difficulty. Foreign tourist arrivals for the financial year 2003-04 increased by 2.9 million, the highest ever recorded for India. Domestic tourism also increased by 15 per cent in the same period.

BUDGET HOTELS 42 __________________________________________________________________

Check out these niche hotels Sangeeta Singh and Nanditta Chibber | November 05, 2005
Staying in plush hotels will no longer be only for high-flying executives and the wealthy. The hotel industry is getting into all kinds of hotels - from economy and budget to upwards of three stars. And besides building new hotels, players are redoing old hotels and properties, managing and leasing them, all of which means more style and comfortable stays for travellers. What's more, real estate developers are making attending conferences and seminars an experience to reckon with. For instance, Delhi-based InterGlobe Hotels, which is a joint venture between InterGlobe Enterprises and Accor Asia Pacific, plans to build 25 hotels under the brand Ibis in 12 years, five of which are already under execution. So, while Mumbai and Pune will see two Ibis hotels each of over 150 rooms, Gurgaon and Jaipur will have one each with the former having over 215 rooms. All these hotels will have three star facilities. InterGlobe, however, is not restricting itself to three stars - under Sofitel and Novotel brands it is managing five-star category hotels, and three-to-four star ones under the Mercure brand. Novotel Hotels are coming up in Gurgaon, Pune and Mumbai. InterGlobe is also developing and managing an international standard convention centre in Hyderabad, which will have its first large conference, 'Pravashi Bharti' in December. "The facilities there are mindboggling. Within a fraction of a second, several halls can be converted into large convention halls, partions can be created this is something India has never seen," says Uttam Dave, president and CEO InterGlobe Hotels. The size speaks for itself - spread over 2,90,000 sq feet, Hyderabad International Convention Centre can accommodate 6,000 persons. According to Dave, the occupancy rates of over 70 per cent suggest that there is enough space for several new hotels to come up. "The possibility of a turnaway factor, where people postpone visits because of lack of accommodation, is also high. Besides, demand is rising at around 15 per cent," says Dave. To make the best of the opportunity, other companies like the Kamath's and Taj are also coming up with their budget hotels. IndiOne, a Taj project, is developing 30 projects, from the commercial town of Bangalore to holy places like Hardwar.

BUDGET HOTELS 43 __________________________________________________________________ Not just that - companies are also waiting for the opening bids for the Commonwealth Games, to be held in 2010. According to Dave, the government will see serious bidders only when rates are reasonable. "Sometime back, the Delhi Development Authority had two to three rounds of auctions of properties in Delhi, but because the rates were so crazy, there were no takers," says Dave. While some hoteliers are getting into developing properties in IT parks, holy cities, smaller industrial towns and national parks, others like InterGlobe are focussing on central business districts. According to Dave, there is a lot of assured business in CBDs and increased inbound travel is facilitating that. "While inbound travel has grown by 25 per cent in the last two years, the hotel industry is not growing at the same speed, and unfortunately the government is not considering hotels a priority sector along with infrastructure and housing," says Dave. So, what does the hotel industry expect prime land at discounted prices? "No," Dave is clear, "we want to pay market prices, but the procedure should be expedited." Will the government take this seriously? Leisure hotels Leisure Hotels is tapping natural, cultural and spiritual destinations for the midmarket traveller. Started in 1989, the company today has 11 properties. The company's getaways in Corbett - Corbett Hideway, a luxury resort and Corbett Riverview Retreat - are its premier brands. It has formulated the concept of developing and selling cottages at the Corbett Riverview Retreat, and also maintaining and using them for tourists. Restoring a haveli in Uchagaon along the Ganga, its new venture will promote it as a river-dolphin viewing destination. With the success of their ventures, and as the company is now also managing properties, Vibhas Prasad, director, business development feels that "we have reached a stage where we can manage the properties of our choice". The company's core competency of managing and publicity has broadened its vision of expanding in managing properties for others. Leisure Hotels targets niche segments of the leisure traveller to destinations where luxury resorts and hotels were previously not considered profitable. But the success of The Himalayan View Retreat in Ramgarh, Chardham Camp in Uttranchal, Haveli Hari Ganga in Haridwar and the others tells a different story. Sarovar Hotels

BUDGET HOTELS 44 __________________________________________________________________ Started in 1991, Anil Madhok's Sarovar Hotels are now a leading multi-brand hotel management company. Sarovar Hotels manages, franchises and markets 32 hospitality centres across business, leisure and religious destinations. Its affiliation with Carlson Worldwide continues under the Park Plaza and Park Inn brands; and now it has launched Sarovar Premier, Sarovar Portico and Hometel brands as domestic brands, encompassing five-, four-, and three-star categories respectively. The Park Plaza Royal Palms in Mumbai and The Promenade in Pondicherry are two recent additions in the business hospitality sector. At the Jim Corbett National Park, the company is refurbishing the Solluna Resort, rebranding it as Solluna Sarovar Premier. Sarovar Hotels 'Park Inn' in Badrinath is one of the first ventures introducing four-star hospitality in pilgrimage destinations. According to Anil Madhok, managing director, Sarovar Hotels, "Future plans include developing of hometels - our three-star, limited service, no-frills brand." After the launch of the first one in Bangalore in November 2005, Mumbai, Pune, Gurgaon, Hyderabad and Jaipur are on the cards with "a target of 50 hometels in the next 7-10 years", adds Madhok.

Demand for budget hotels in India on the rise Publish Date : 10/4/2005 Source : Travel and Aviation News
With a sharp rise in the number of tourists in India, the demand for "Budget hotels" is turning desperate. Keeping in view the increasing trend of arrival of tourists to the country, requirement of accommodation in budget category of hotels during the next five years has been estimated at about one lakh hotel rooms The country witnessed a growth of 14.3 per cent of tourists during the year 2003. This percentage was increased by 23.5 per cent in 2004. The domestic tourism, which was about 308 million during the year 2003, registered increase of about 14 per cent during 2004. "A budget hotel, ideally speaking, is a three-star or a four-star hotel with cheaper costs. But it will incorporate all the features and facilities required by a business traveller. As any traveller, I will need cleanliness, hygiene, good quick service, telecommunication such as internet and telephones. I would also look for good and quality food. If you remove the top end items like high valued marbles, woods in all the rooms and provide smaller rooms, it will cut down the costs drastically, "says Patu Keswani, Managing Director, Lemon Tree Hotel.

BUDGET HOTELS 45 __________________________________________________________________ India is certainly the fastest growing travel market. Establishment of nation-wide internationally-branded economy hotel network will fill a major void in the Indian hospitality sector. At present, the budget hoteliers are targeting the group, which is at the lower end of the deluxe hotels and at the upper end of the guest houses. "An organisation has different departments. Not all the staff members are designated to senior-level positions. The staff at lower-management-level are the people that generally prefers these hotels. But still the higher officials prefer to go to the five star hotels," says Sunil Verma, Managing Director, Hotel Royal Castel. These hotels promise all of the amenities, facilities and levels of comfort you would expect from a five-star hotel. At the same time maintain the meticulous standards required by the travel and tour operators worldwide. "Fifty per cent GOP is what we operate on and we guarantee an 18 per cent return on investment. We don't invest in any hotel unit where we are not guaranteed on the 18 per cent return of investment. So we have a very high profit-making venture and that is why we are in this business," says Cyrus Madan, Deputy General Manager (Operations), Lemon Tree Hotel. Not just business travellers but also families who come on vacation are happy to go with this option. "I would prefer a budget hotel because one can eat to one's satisfaction at cheaper rate. Otherwise, in a deluxe hotel one has to pay minimum 3,000 rupees in this regard," says B.P.Kundu, a customer of a budget hotel. For setting up of over 100 budget hotels in the country, the Ministry of Tourism (MoT) is leasing out Government lands to the private sector units. Similarly, leading Indian and international hotel chains like Marriott, Hilton, Accor and Inter Continental are also establishing budget brands across the country. With a view to streamlining the scheme to provide subsidy to the budget hotels, the Ministry of Tourism, Government of India has introduced a scheme "incentive to accommodation infrastructure". Under this scheme, the capital subsidy is granted to newly approved hotel project in 1-star to 3-star and Heritage Basic categories in the country except the four metropolitan cities-- Delhi, Mumbai, Kolkata and Chennai. The incentive is in the form of capital grant of 10 per cent of the total principal loan taken from designated financial institutions or up to Rs. 25 lakh to 1-star, Rs. 50 lakh to 2- star, Rs. 75 lakh to 3-star and the Heritage Basic category project, whichever is less. (ANI) Lemon Tree to grow in other cities Maitreyee Handique | September 17, 2004

BUDGET HOTELS 46 __________________________________________________________________

After setting up the first 49-room Lemon Tree hotel in Gurgaon in June this year, Delhi-based Krizm Hotels (Pvt) Ltd is ready to develop three more business budget properties -- a 100-room hotel in Pune, a 160-room hotel in Chennai and another 45room hotel in Gurgaon -- all at a cost of Rs 65 crore (Rs 650 million). The three properties will be ready within one-and-a-half years. In keeping with the company's target of opening 25 hotels in seven years, Patu Keswani, managing director of Krizm Hotels, says they are negotiating to have a presence in Bangalore, Hyderabad, Jaipur and Chandigarh. The company will also look at Vadodara and Surat. "Our preliminary assessment report shows that there is a demand for the Lemon Tree product in these cities," says Keswani. In Jaipur, Lemon Tree may come up on the top floor of a shopping mall. Clearly, after the no-frill airlines wave, it is the budget segment in the hospitality industry that is growing rapidly. Apart from Lemon Tree, others in the segment are Sarovar Park Hotels and Resort Ltd (Hometel), Choice Hospitality (Clarion), the Tatas (IndiOne, Taj Residency) and the Oberois (Trident). But with the demand for budget hotels growing three to five times more than the leisure five-star hotels, more players are likely to enter the market. But Keswani isn't worried. "With competition, customers will be able to gauge for themselves what our product stands for." With its aim of remaining within two kilometre of any business centre, the company has bought its Pune property in the Rajiv Gandhi Infotech Park. The Chennai property is similarly located close to the software Tidel Park I. "Both Pune and Chennai are the fastest growing software centres," says Keswani, adding that 40 per cent of its business clients have previously stayed at five-star hotels. Besides, with its first property fully operational, the hotel is also beginning to understand the habits of domestic consumers. "Our target is to achieve at least 50 per cent operating profit every year," says Keswani. Krizm Hotel is promoted by 40 private equity investors.