Hotel Industry Growth Linked To Tourism And Infrastructure
The hotel industry has received a number of incentives in the 1997-98 budget. Fifty per cent of profits from new hotels planned in hilly areas, rural areas, places of pilgrimage and other regions of tourist interest are exempt from tax as well as expenditure tax.
Hotels to be located in areas other than the above, excluding the four metropolitan cities, can avail of tax exemptions on 30 per cent of their profits. Custom duty on project equipment has been reduced to 25 per cent ( 35 per cent) and that on speciality food items to 25 per cent (50 per cent) .
Reduction in customs duty on specified capital equipment will help to reduce the project cost for new players. At present, there are 683 approved projects in the pipeline totalling 35,452 rooms. Out of this, 587 projects with 26,674 rooms are of one, two and three star category .
The removal of surcharge, lower corporate tax and reduction in MAT are expected to benefit the hotel industry.
Moreover, hotels with expansion projects in the tourist destinations will benefit to a greater extent than those to be located in the metropolitan cities.
The government has been liberal in giving concessions to the hotel industry to boost foreign exchange earnings. But in the recent past, the industry has not done too well on this front. A steep rise in average room tariffs and depreciation of the rupee have exacerbated a decline in average occupancies in the first half of 1996-97, resulting in high operating margins.
In the first half of 1996-97, the earnings of the 40 selected hotel majors rose by 17.4 per cent to Rs 893.4 crore (Rs 760.7 crore). Operating profit increased by 17.5 per cent to Rs 338 crore (Rs 287.7 crore).
Gross profit went up 21.1 per cent to Rs 290.8 crore (Rs 240.1 crore). Net profit rose to Rs 214.7 crore (Rs 179.7 crore ) - up 19.5 per cent. Despite a decline in the average occupancy, the increase in the average room rates has sustained the profit margins of the hotel industry.
Operating profit margins of 40 companies at 37.8 per cent remains unchanged. Gross profit margins improved to 32.5 per cent (31.6 per cent) and net profit margins to 24 per cent (23.6 per cent). Major hotels such as Asian Hotels, Bharat Hotels, EIH Ltd, Indian Hotels, Hotel Leela Venture and ITC Hotels can look forward to better bottomlines.
By 2000 AD, as many as six to seven million tourists are expected to visit this country. As against the required 1.25 lakh hotel rooms, presently the country has about 55-60,000 hotel rooms.
The average cost per room is in the range of Rs 5 lakh for a budget hotel and Rs 35 lakh for five star deluxe in the metro cities. Such hotels are meant for the elite tourists. Unfortunately, the country does not have enough hotels that can cater to the average tourists who visit this country for its rich offerings of cultural and historical sights. It is wrong to assume that every foreign tourist who comes to this country has a lot of money to spend.
In fact a tourist looks for reasonably cheap and clean facilities. The country has not been able to build a network of hotels and other infrastructural facilities that can give the tourist his moneys worth. The hotel is not a product but a service involving human elements at every stage. Tourism and business promotion are basic to its functioning. The growth of the hotel industry is linked to tourism development.
Indias share in the world tourist traffic is less than one per cent, thanks to poor infrastructural facilities. Measures to encourage inflow of foreign tourists include improvement of infrastructural facilities, development of tourist attractions and strengthening of publicity and promotional efforts.
The luxury hotel segment derives its demand substantially from the business traveller, while the budget hotels cater primarily to tourist traffic.
Major hotel companies earn about 60-65 per cent in foreign exchange. The data for eight hotel majors shows that foreign earnings in 1995-96 increased by 54.8 per cent to Rs 957.9 crore (Rs 618.9 crore).
However, the share of foreign earnings in the total income of these companies increased marginally to 57.7 per cent in 1995-96 from 56.6 per cent in 1994-95. Only Asian Hotels and Hotel Leelaventure did well with 74 per cent and 73 per cent share of the total income respectively.
A strong and sustainable infrastructure holds the key to the tourist flow from within and from abroad who can get their money s worth by visiting a number of historical, religious and cultural places.