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M.O.

P VAISHNAV COLLEGE FOR WOMEN

Tourism & hotel industry in India: The role of Tourism & hotel industry in the graph of Indian economy is flourishing by attracting a huge number of both foreign and domestic tourists travelling for professional as well as holiday purpose. Indian Tourism industry contributes 5.9% of countrys GDP and provides employment for 41.8 million of inhabitants. The tourism industry witnessed a stupendous growth in the year 2006 by 14.3% and reached 3.89 millions in 2007.There was huge foreign exchange earnings of 25.6% in the year 2007 because of increase in arrival of foreign tourists towards India. People travelling from India to abroad and states within India have increased by 25%. The United Nation World Tourism Organization has estimated that the outgoing tourists will reach around 50 million by 2020. According to the European Travel Commission the average expenditure per trip of Indian tourists travelling abroad has increased from US$611 in 2000 to US$822 in 2006. The booming success of Indian tourism Industry has lead to a drastic change in the hospitality department as well. The increase in the ration of the tourists has resulted in setting up of the wide range of hotels, residing areas, development of tourist spots, increase in tourist fare and increase in hotel rates. Indian hotels have created 65,000 additional hotel rooms in the past 2 years. India I likely to set up forty hotels of global brands by 2012 and is expected to reach US$11.41 billion by 2013. The Indian tourism industry offers e- booking of flight tickets, train tickets and hotel stay, which shows the technological advancement of the tourism & hotel industry in India and the online tourism has accounted for a turnover of US$800 million which is apparently 14% of the entire travel & tourism industry. The role of Tourism industry in India also features medical tourism that includes therapies like meditation, yoga, ayurveda and other conventional system of medicines and is currently estimated at US$333 million and is most likely to reach US$2.2 billion by the year 2012.

EXHIBIT: 1 TOURIST ARRIVAL TO INDIA FROM FOREIGN COUNTRIES FROM 1981-2008

Year 1981 1982 1983 1984 1985 1986 1987 1988

U.K.

U.S.A

Canada 25358 25991 29857 25135 29022 39837 37677 37498

France 57272 59267 50158 47148 44091 65948 64432 69799

116684 82052 120772 136823 124205 119544 160685 86806 95847 95651 95920 125364

Sri Lanka 75842 76143 81716 75449 69063 75631 74351 70640

Germa Japan ny 55471 29032 50885 52120 48930 45738 64811 72300 77543 29103 26662 29566 30573 36402 46240 49244

Malaysi a 26458 26552 25796 22993 23265 26209 28480 29635

166590 134876 200509 122888

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M.O.P VAISHNAV COLLEGE FOR WOMEN

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

229496 134314 231551 125303 212052 117332 244263 152288 274168 158159 300696 176482 334827 203343 360686 228829 370567 244239 376513 244687 345085 251926 432644 348292 405472 329147 387846 348182 430917 410803 555907 526120 651803 611165

40306 41046 36142 43386 47800 56441 63821 74031 78570 80111 82892 84013 88600 93598 107671 135884 157643

78001 79496 69346 74304 70694 73088 82349 93325 91423 97898 85891 100022 102434 78194 97654 131824 152258

67680 68400 70088 71935 76898 89009

78812 71374 72019 84422 83340 85352

58707 59122 46655 60137 49616 63398 76042 99018

33120 34278 30617 35201 35334 40762 50039 53370 60401 47496 52613 60513 57869 63748 70750 84390 96276

114157 89040 107351 99853

122080 105979 99729 118292 93993 89565 120072 85033 129193 83881 112813 80011 73373 98159 80634

108008 646891 59709 109098 76868 77996

128711 116679 96851 136400 120243 103082

TOTAL NO: OF TOURISTS ARRIVED= 4447167

TOTAL NO: OF TOURISTS ARRIVED= 5081504 TOTAL NO: OF TOURISTS ARRIVED= 5366966

EXHIBIT:1 INDIAN TOURISM COUNCIL (GOUR KANJILAL @ BLOGSPOT.COM)

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M.O.P VAISHNAV COLLEGE FOR WOMEN

EXHIBIT: 2 INTERNATIONAL TOURIST ARRIVAL IN INDIA FROM 2004-2011

SWOT Analysis

Strength  India has a rich cultural heritage and the unity in diversity tag attracts a lot of tourist towards India, the snow capped Himalayas, backwaters of Kerala, Kulumanali, Golden temple of Amritsar, Jaipur palace, the Tanjore temple, Mughalai gardens, Mysore palace etc.  The Indian hotel industry is facing a mismatch between the demand and supply, leading to higher room rates and occupancy levels and the common wealth games in 2010 has lead to more demand of rooms in five star hotels thus leading to the expansion of the sector.  The government of India realized the importance of Tourism in India and proposed to a budget of Rs.540 crores for the development of infrastructure and new destinations and circuits in Interiors of India. The department of tourism has already started the Incredible India campaign to promote tourism in India.

EXHIBIT: 2 INTERNATIONAL TOURIST ARRIVAL IN INDIA FROM 2004-2011

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M.O.P VAISHNAV COLLEGE FOR WOMEN

 Indias share in International tourism and hospitality is expected to rise over the long term as the foreign players in the hospitality industry are heading towards India.

Weakness

 Even though there are a lot of tourist spots in India, they are not equipped with required infrastructure and this hinders the development of the tourism industry, for example, North eastern region in India  The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry.  The hotel industry in India is heavily staffed. This can be gauged from the facts that while Indian hotel companies have a staff to room ratio of 3:1; this ratio is 1:1 for international hotel companies.  In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%.In India there are only 1,10,000 hotel rooms as of April 2011, which is not able to fulfill the demand before the sector Opportunities  Since there are a lot people coming into India for Medical tour, religious tour, cruise, casinos etc, there are venues to develop international; conferences, tradeshows, exhibitions etc  As there are more visitors to India the demand for hotels has also skyrocketed  Moreover these days leisure trips have increased because of the open sky policy and so there are a lot of domestic people also visit tourist spots thereby increasing the potential growth of the industry

Threats  There cannot be a total dependency on international tourism as there are wide fluctuations in that and domestic tourism must also be given equal importance and they must also be promoted  The entry of International hotels into the Indian market gives a heavy competition to the existing hotels  Guest houses replace the hotels. This is a growing trend in the west and is now catching up in India also, thus diverting the hotel traffic.  Political turbulence in the area reduces tourist traffic and thus the business of the hotels. Example Insurgency in Jammu Kashmir.  Changing trends in the west demand similar changes in India, which here are difficult to implement due to high project costs.  The economic conditions of a country have a direct impact on the earnings in hotel industry and lack of training man power in the hotel industry.
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M.O.P VAISHNAV COLLEGE FOR WOMEN

The following are the sectors that take care fo the activities that supports the tourism and the hotel industry     Airlines Tour operators Railways & Road networks The government

EXHIBIT: 3 FOREIGN EXCHANGE EARNINGS IN TOURISM FROM 2004-2008 MONTH January February March April May June July August September October November December TOTAL
3

2004 460.67 452.96 400.37 304.77 252.51 303.72 384.87 375.80 320.33 423.97 531.25 575.78 4769.00

2005 532.19 536.07 505.74 378.38 333.15 375.47 470.08 435.49 401.83 497.63 597.50 667.33 5730.86

2006 632.43 594.64 547.17 473.44 368.56 401.23 497.27 456.76 424.70 594.05 711.61 822.48 39025

2007 4698 4401 4144 3218 2543 2849 3436 3080 2594 3785 4533 5079 44360

2008 5438 5182 5035 3773 2988 3409 3870 3626 3143 4248 4935 5083 50730

Trends that will shape up the future of tourism & hospitality sector are     
3

Low cost carriers Budget hotels Service apartments Loyalty travel Season travel package at subsidized rates

EXHIBIT:3 INDIAN TOURISM COUNCIL (Gour Kanjilal@blogspot.com)

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M.O.P VAISHNAV COLLEGE FOR WOMEN

 Special package for heritage tourism Challenges for the tourism & hospitality sector are:       Shortage of skilled employees Retaining quality workforce Intense competition Customer expectation Manual back ends Poor infrastructure facilities

Critical success factors for the Indian hotel industry      Site and location Positioning Financial flexibility Brand equity Special facilities

FDI IN TOURISM Need for channelizing FDI in tourism:  The foreign tourist arrival are expected to raise by 10 millions in the year 2012 and the domestic tourism is expected to increase by 15%-20% as per the expectation of the ministry of tourism as per the growth rate based on the last decade Government of India is allowing 100% FDI in Hotels and Tourism, through the automatic route and also identified the investment opportunity of about $8-10 billion in the next 5 years in tourism sector. India has significant potential for becoming a major global tourist destination. It is estimated that tourism in India could contribute Rs.8, 50,000 crores to the GDP by 2020 (approx. 1800 million USD) if you properly plan to develop and invest on Connectivity Infrastructure, Tourism Infrastructure, Tourism Products, Capacity Building and Promotion & Marketing (WTTC report). It is estimated there is a need of around 10 Billion US $ required for development of tourism as per the different state tourism estimates for the next five years. When you think about the long term capital requirement of all states, it is estimated around 56 billion US $ for the next 20 years. Though the Government of India is allowing 100% FDI in automatic route to India in tourism sector, there is a wide gap between the demand and supply of hotel rooms and other tourism infrastructure projects, we have attracted the FDI for a volume of 660.87 million US $ which is 1.46 percent of the total FDI inflow into our country from April 2000 to December 2007.

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M.O.P VAISHNAV COLLEGE FOR WOMEN

Reasons to invest in this sector  Economic liberalization has given a new impetus to the hospitality industry.  The Indian hospitality industry is growing at a rate of 15 percent annually. The current gap between supply and demand expected to widen further as the economy opens and grows.

 The travel and hospitality industry continues to be the sector, which has largely profited from the fast growing economy of India. This has largely been due to the 3.9 million tourist arrivals in FY06 (15%growth) over the previous period. The compounded growth in tourist inflow over the last ten years (FY96-FY05) has been 8.2%, while in the last five years, growth stands at 9.1% per annum.  This increase in the number of tourist arrivals in the country lifted the countrys standing in the world tourist destinations. The country is ranked fourth among the worlds must see countries. The sector continues to face certain problems.

 The country continues to be marred by poor infrastructure facilities like poor road management, rail, air and sea connectivity.  As per the 2004 findings, the total number of approved rooms by the Government of India stands at around 99,000 (estimated). These rooms are further classified into various segments out of which, Five star and Five star deluxe hotels account for around 27% of the total capacity, three star hotels(22%), four star (8%), two star (9%), one star and Heritage hotels (2% each) and the rest is divided between unclassified and unapproved hotels.

 A rapidly growing middle class, the advent of corporate incentive travel and the multinational  Companies into India have boosted prospects for tourism. India's easy visa rules, public freedoms and its many attractions as an ancient civilization makes tourism development easier than in many other countries.

 The five star hotel segments have grown the fastest during the last five years at a CAGR of 12%. Further, this segment can be divided into 3 sub-segments Luxury, Business and Leisure. The growth in this segment indicates the genre of travelers coming into the country. Over the last few years the country has witnessed a large influx of business travelers in the country owing to relaxation of the governments stand on Foreign Direct Investments (FDI) for most of the sectors in the country.  Many foreign companies have already tied up with prominent Indian companies for setting up new hotels, motels and holiday resorts. The entry of McDonalds, PepsiCos Kentucky
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M.O.P VAISHNAV COLLEGE FOR WOMEN

Fried Chicken, Dominos and Pizza Hut has given an international glitz to the hospitality sector.

 It costs an average of US$50-80 million to set up five-star hotels with 300 rentable rooms in India. The gestation period is usually between three and four years. The following are few reasons of low FDI in this sector EXHIBIT: 4 HIGHER TAX RATE

EXHIBIT 4: CONFERENCE IN TOURISM CHALLENGES IN INDIA MAY 2008 (IIM,K)

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M.O.P VAISHNAV COLLEGE FOR WOMEN

EXHIBIT: 5 COMPARISONS OF TOURISM EXPENSES WITH OTHER ASIAN COUNTRIES

EXHIBIT:5 CONFERENCE IN TOURISM CHALLENGES IN INDIA MAY 2008 (IIM,K)

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M.O.P VAISHNAV COLLEGE FOR WOMEN

These are the components to be emphasized in the Business Plan on Tourism & hotel Industry

Market penetration:  As far as the tourism sector is concerned market penetration must bridge the gap between interior tourist spots and the prominent locations  There must be combination of market & promotion mix for an effective campaign  As far as hotels are concerned the mid segment and small segment market penetration must take place Pricing strategy:  The pricing strategy must be framed as per the package offered Innovation:  Innovation is required in retaining the foreign visitors as well as creating a demand for domestic tourism  Innovation is required in bridging the gap of demand and supply in the hotel industry with new designs/models of hotels  How technology can be used to penetrate into the rural tourist spots of India and create a market

STRATEGIC POSITIONING, MARKET RESEARCH, PROMOTION STRATEGY AND PRICING STRATEGY ARE REQUIRED TO FRAME THE ABOVE DECISIONS

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