US hoteliers target mid-segment

With the Bangalore market already having presence of most of the reputed hotel brands across the high and middle segment, hoteliers from the US are eyeing off-beat tourism spots in Karnataka. Some of them are evaluating mid-segment hotels in the state to take advantage of benefits offered under the new Tourism Policy of 2009-14.

The hoteliers, who are members of the Asian American Hotel Owners Association (AAHOA), have come to Bangalore to meet Karnataka government officials and Federation of Indian Chambers of Commerce and Industry (FICCI) members to evaluate opportunities in the state.

“Our members are here to look for business opportunities. Some of our members are keen on setting up presence in Karnataka. We find the Bangalore market a little saturated but there is a lot of potential in various tourist spots in the state,” said Tarun Patel, Chairman of the AAHOA. AAHOA members own 22,000 hotels in the US which makes up 45 per cent of total lodging. Most of them operate in the 80-120 hotel room category or the mid-segment level, which is estimated to be the fastest growing sector in the hospitality sector in Karnataka at present.

A recent report by Evalueserve on investment opportunities in hotel infrastructure in India states owing to the economic crisis, the hospitality sector in Karnataka has undergone major changes.

“There has been a shift from the star segment hotels to the budget segment. Budget hotels set up during 2000-2007 are now at an advantage. On the other hand, luxury hotels established in 2007 have been the worst hit,” said the report. It added that the sector is also losing business due to the government policy of levying 12.5 per cent luxury tax on rack rate, which is considered to be the highest in India.

The report found that high-end consumers are opting for cheaper accomodation such as serviced apartments, guest houses and budget hotels that are well spread in the state, leading to a drop in occupancy levels at luxury hotels by 25 per cent in end-2008.

The Lalit Suri Hospitality Group is also looking at presence in the mid-segment in a big way in the coming years. “We are planning to set up 25 new hotels in the mid-segment in the next few years of which work on 5-6 of them has already begun,” said Jyotsna Suri, CMD of the company. She said the company is planning to invest around Rs 750-800 crore developing hotels in the mid-segment, which will be sourced through internal accruals and loans. The company has 17 hotels in the luxury segment at present.

To encourage investment in the hospitality sector, the government has, through its Tourism Policy of 2009-14, taken a number of initiatives. It has started offering incentives like 50 per cent exemption on stamp duty for investment below Rs 50 crore and 75 per cent exemption on stamp duty for projects of Rs 50 crore and above. It is expecting to attract investment of around Rs 25,000 crore till 2014 for tourism projects.