Govt austerity drive to hit hotel business by 10%

Govt is taking slew of measures which bars them from holding conferences, meetings in 5-star hotels

Government's recent austerity drive is going to impact nearly 8 to 10% of the hotel industry business from meetings, incentives, conventions and events, also referred to as MICE activities.

In order to reduce the fiscal deficit, the government is taking a slew of measures, which also bars them from holding conferences and meetings in five star hotels.

“Every rupee, dollar counts. So this would have a negative impact. However the four metros and some of the state capitals will be impacted more than the others. Government spending in the five star is not very large,” said K B Kachru, Executive Vice President, South Asia, Carlson Rezidor Hotel Group.

While most government conferences take place in Indian Tourism Development Corporation’s hotels, the public sector companies do use private hotels for such events.

There is also no clarity if the same would be followed by the public sector units and government funded stays of foreign and ministerial delegations in luxury hotels. The impact, currently expected to be marginal, can become significant if the scope of these measures widens.

“Many of these bookings are made a year in advance. More than conferences, it is through delegations that government gives business to the five star hotels. However, the move has come close to the peak travel season so we are safeguarded,” said Dilip Puri, managing director-India and regional vice president-south Asia, Starwood Hotels and Resorts.

Hotels have been struggling with challenges posed by falling rupee, inflation, economic slowdown and a general fall in demand. In times, when the average room rates globally have risen, in Asia it is down by 2% for the first half of 2013 as per Hotels.com data.

The subdued demand has adversely impacted the occupancy levels in the sector as well. For hotels banking on the MICE sector, this is further bad news.

“Government is the biggest generator of demand, so the move will impact hotels’ business. However even companies have also become austere in their spending these days. So we have to continue providing value propositions to generate demand,” said Gopal Rao, regional general manager, Intercontinental Hotels Group.