For the hotel industry, the past few weeks have rekindled memories of the hard times during the economic downturn of 2008, when the sector had seen a slump. However, the crisis that had affected the hospitality industry for almost two years, offered various lessons the industry is now finding handy.
“The times are not as bad, but we are much better prepared to handle the situation. Unlike in 2008-09, this time, we are aware of what is happening,” said Dilip Puri, managing director (India) and regional vice-president (South Asia), Starwood Hotels and Resorts.
Hotels are trying to reinvent processes and rationalise costs to tide over the current crisis. Many hotels have cut sales and marketing expenditure on mainstream advertising. Sanjoy Pasricha, vice-president (sales and marketing), Leela Hotels, said, “We are pulling back about 10-15 per cent of the sales and marketing expenditure. We are turning more aggressive on public relations and other below-the-line activities to achieve a balance.”
Companies are also cutting staff-to-room ratios. “We determined we could drop the ratio from 1.8 to 1.6, and still maintain efficiency,” Puri said.
Most hospitality chains plan to reduce energy consumption by targeted amounts in the coming years. While the Starwood group has set a target of reducing energy consumption by 30 per cent by 2020, Marriott Hotels is trying to reduce energy consumption on room base by five to 10 per cent annually.
This year, foreign tourist arrivals have seen a drop, and this has led to lower occupancies in hotels. Rising airfares have only added to the tourism industry’s gloom. Austerity drives have also ensured business hotels, especially five-star ones, do not benefit from conferences and meetings. “It is not just the government, even the corporate sector has started taking austerity measures,” Pasricha said.
P R S Oberoi, chairman Oberoi Hotels and Resorts, had recently stated he expected slow growth in the short to medium term. “After two exceptionally bad years, the global hospitality industry was expected to recover in 2011. Despite encouraging signs in the first half of 2011, there was growing uncertainty during the latter part of the year,” he stated.
The hotel sector recorded a 20 per cent loss in May, as occupancies remained low and average room rates subdued. For the coming year, the hospitality industry expects flat growth in occupancies and only a marginal rise in average room rates. Industry experts say even as additional inventory has arrived, demand is yet to balance supply.
“What is more disturbing is the occupancy and average room rates so far this year have been the lowest for these months since 2006, barring 2009, which was an unusual situation...One must address the softening of the market, as the new hotel inventory has also come on board,” said Jean-Michel Casse, senior vice-president (operations), Accor Hotels.
Most hotel companies saw declines in profits for the fourth quarter of 2011-12. Rising costs led to a fall of 31 per cent in the net profit of Indian Hotels., while at Rs 45.13 crore, EIH recorded a 32.7 per cent drop in net profit. Hotel Leelaventures, however, recorded a 20 per cent rise in profit.