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Taj's global ambitions: Room for improvement

Much of Indian Hotels' consolidated loss is attributed to the drag created by three properties in the US

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Indian Hotels Company, the owner and manager of Taj Hotels, reported a 29 per cent increase in net loss in the first half of this year at Rs 91 crore though its stand-alone operations yielded a loss of only Rs 2.3 crore.

Much of the loss at the consolidated level is attributed to the drag created by the three operational properties of the US, including the luxurious Pierre on New York's Fifth Avenue, where the company spent $100 million towards renovation, which is double its acquisition price, but far from generating returns.

Other acquired properties have not come cheap though. The company invested a total of $228 million in acquiring Boston's and in San Francisco five years ago. Following the downcycle in travel and hospitality hit by the economic meltdown a recovery has taken longer than usual for the company.

When asked about the turnaround in the US market, Anil Goel, executive director - finance, Indian Hotels said, "It's going to take a bit more time. The US itself is going through its own issues, it will take some time for the US to become much more buoyant and demand for hotel rooms to return so there is pressure there. Its not going to be easy, it will take us at least 1.5-2 years".

The Pierre (also called as Taj Hotel Manhattan) is one of the 17 properties the company has presently in its international portfolio. This current inventory of Indian Hotels, though represents 16 per cent of its total hotel inventory of 116 properties, it is minuscule compared to its global peers.

Indian Hotels, the second largest hotel company in India (by room inventory), has a global share of just about 0.10 per cent at little over 14,000 rooms against a total room supply of 13.44 million in the world, according to data supplied by research firm STR Global.

In comparison Intercontinental Hotels Group, the world's largest hotel operator by number of rooms, has a market share of 5 per cent with over 675,000 rooms across seven brands. Marriott International is close second with a share of nearly 650,000 rooms. Both companies are expanding aggressively in India.

"The US properties (especially The Pierre) have been a sore point for the company’s international foray. IHMS Inc, which includes the Pierre, Taj Boston and Campton Place registered the sixth straight year of negative performance (last year). While IHCL management has been guiding towards a turnaround in the US operations, there has been no change in performance. We believe it is largely to do with the fact that US is a much more mature market and hence IHCL has to spend a lot more on advertising expenses while its RevPARs are lower than peers due to market positioning", added a Morgan Stanley report.

Out of every Rs 10 generated by Indian Hotels, Rs 3 is generated outside India by the company, majorly arising out of the US. The immediate target of the Mumbai-based company is to increase the international share to 40 per cent and gradually take it higher from there.

"We are in a global economy we need to really balance our portfolio today and not be holding to one market. the idea is to have at least 40 per cent of our revenue coming from outside of India so that we can balance our portfolio in the long term, this will allow us to not have all our eggs in one basket", added Raymond Bickson, managing director, Indian Hotels Company 

Besides exploring the acquisition of Orient Express, which would provide faster expansion,  Indian Hotels Company, therefore is planning to increase its footprint independently too. For instance, the company recently formed alliances in China to manage 2-3 properties and is on the look out for more properties in Asia.

Not just Taj but the company's other brands such as Gateway (upscale segment) and Vivanta (upper upscale segment) are also going global. Three properties are now open (1 under Gateway and 2 under Vivanta) under the two brands. Low-cost brand Ginger too has international ambitions but it is focussing on the Indian market for the time being. 
 

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