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Oberoi Hotels to cut spending, investment

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Ltd, which runs the Oberoi group of hotels, will curtail its and minimise operating costs over the next few years to tide over difficult times.

In addition, the commission of company chairman and chief executive, P R S Oberoi, has been reduced by 20 per cent, that of Vikram and Arjun Oberoi, joint managing directors and S S Mukherji, vice chairman, stands reduced by 25 per cent.

Speaking on the sidelines of the 59th annual general meeting, said: “The industry is going through a very difficult situation. I don’t see any revival till the winter of 2010-11. The pick-up may start a little earlier. We won’t make much capital investment for the next year or perhaps a little longer. We will have to curtail investment cost.”

When asked if the reduction in commission would set an example for other employees in the form of a pay-cut, Mukherji said a part of the performance award for an employee was based on the company’s performance, which would automatically go down, so there would not need to be more of a pay cut.

The company has outlined an investment of Rs 350 crore in the next two years, of which Rs 100 crore has already been spent in renovation activity in The Oberoi, Mumbai, the company’s flight kitchen business and other projects.

At present, the company has 4,022 rooms across its properties and would add another 2,600 by 2012. Apart from The Oberoi, Mumbai, the company has very little equity investment in new projects, most of which are management contracts. EIH has no equity investment in the hotel in the Dubai project, which is under construction, in Abu Dhabi where the hotels are under planning stage or in the Gurgaon and Dehradun projects.

The company has an equity investment of 26 per cent in the Trident hotel at the new Bangalore International Airport and in the Oberoi hotel at Cyber city in Hyderabad, where it has a 17 per cent stake.

To cut operating cost, the company has adopted temporary shut-down of wings of existing hotels. It has done so in Agra, Jaipur and Udaipur. It expects to bring down operating costs by 10-15 per cent in a full year through this measure.

However, post-terrorist attacks, the security cost was a major burden. For large properties the company would have to spend up to 40 lakh for the equipment and manpower, taking the total to Rs 5-6 crore if all larger hotels in major cities are considered.

“The cost can be as high as Rs 5 lakh per month for 30-40 security staff. The government is talking about bringing CISF; we don’t know how much the cost will go up,” said S S Mukherji, vice chairman.

The company has pegged the restoration cost of The Oberoi Mumbai, ravaged by last November’s terrorist attack, at Rs 120-130 crore. The restoration was making steady progress and it is expected to be re-opened in the first quarter of 2010, added Mukherji. Trident hotel at Bandra Kurla will open shortly: the hotel is complete, some licences are awaited.

EIH has received an insurance amount of Rs 65 crore for business interruption caused on account of the attack. The property damage cost was yet to be worked out, which would happen after the hotel was reinstated, said Mukherji

The occupancies in Mumbai have failed to pick up after the 26/11 terrorism assault; average occupancy hovers around 45 per cent in Mumbai. The room rates at EIH have dropped by around 30 per cent compared to last year.

Oberoi also expressed concern on the impact of the recent H1N1 pandemic. “I would not be able to quantify the impact, but I am deeply concerned the pandemic could further restrict global travel. Till now we have not faced any cancellations. But if it’s not controlled before the winter, it will have an impact,” he said.

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