Tarandeep Singh’s Blog

Just another WordPress.com weblog

The Great Economic Downturn & The Great Indian Tourism Industry

Let’s go back to the year 2001, the year wherein we witnessed the crash of tourism for once owing to 9/11 attacks. The personal tourism activity recorded for that year stood at USD 645.06 Billion. The business travel & tourism was aggregated at USD 110.71 Billion. These figures for the following year went up to USD 662.76 billion and USD 134.49 billion. And did we say at that time that tourism has come to an end? The entire world was suffering from the fear of terrorism and hence was reconsidering their travel plans. Our country that depends heavily on the western world for its incoming business traffic was wondering on how to tackle the depleting numbers. The message was loud and clear. It was then that the country took some steps that marked the beginning of a new source market, a new trend. The domestic tourism was by now far forgotten. A few good campaigns, launch of Incredible India over a period of time and an active interest by the local state tourism bodies ensured that we are marketing our products to our internal customers who are cautious but at the same time have that risk taking ability. These are the people who stand by roadside and eat those pani purris, these are the ones who will stand in a local Mumbai train early in the morning with half of their body almost hanging outside. So with a healthy appetite and a spirit of adventure, our great Indian tourist was ready for a new beginning. Something that he never anticipated but always strived for. The results were astonishing. The year 2002 saw the corresponding Personal and Business T&T grew to USD 662 billion and USD 134 Billion. Something similar was seen in countries like Singapore that got affected by SARS in 2003 and remember this was also the year of the Gulf War. Tourism at time generated over USD 10 billion in revenue annually or about 5% of the country’s GDP. The numbers were down but not the spirit and the belief. While 2002 saw a total of 7.6 million visitors, the first half of year 2003 saw these numbers down to 2.5 million. But in order to boost the city state’s travel industry, the Singapore Tourism Board set for promotional tourism campaign on two sections, healthcare and education services. It also set up more overseas offices to tap fast-growing markets like China, India and ASEAN countries. The Singapore ROARS and Step Put Singapore campaigns not only minimized the impact of SARS on businesses but also staged a rapid recovery for the tourism industry. When the STB and International Advisory Council for Tourism met for to discuss and explore key issues and trends facing the city tourism industry, the key agenda was not short term. The agenda was to position Singapore as a destination for the next 10 years to ensure tourism remains sustainable engine of economic growth. And we all are witness to the growth and comeback that this nation has recorded. I see no harm when our Finance Minister talk about cutting down on hotel and airline fares. Our industry works on volumes and that helps in a big way to bring down our overall costs. This is true for any industry and for long we have been asking to give tourism an industry status. The month of November 2008 saw a steep 10% decline in occupancies in NCR. While the ARR hike was able to boost a higher REVPAR over last year, it’s definitely not a very positive trend. Companies are looking at budget hotels, guest houses and day trips to cut costs. If its recession, its’ for everyone and the first thing that gets the cut is travel & boarding. And you do not need any Revenue Managers today to guide you on how to cut costs. Travel planners are keenly looking out on the best fares available across various airlines and hotels to ensure that they are able to save each and every penny. And why not, my personal belief is that this should be done throughout the year. You don’t need an economic downturn to teach you the basics of business. The economic downturn is in fact proving to be a mixed blessing for online travel companies, with budget travel and cruise lines benefiting from the current environment. According to Hitwise, UK online traffic to budget travel companies increased by 5.3 percent in September compared with the previous year. The websites of cruise companies experienced an 8.2 percent increase in traffic over the same period. Each of the top three budget travel websites in the UK – easyJet, Ryanair and Travelodge – has experienced at least a 20 percent increase in UK Internet traffic over the last 12 months. Almost 60 percent of visitors to cruise websites are aged 55+, with a further 16 percent coming from the 45-54 age-group. If these figures are any indicators of the global trend, I think we have a great opportunity at hand. Demographics will play a role in the growth of the various sectors online, but the economic downturn will also have an impact. Customers are now looking for all inclusive deals as a way of saving money, and online channels offers travelers with one way of achieving this. India is seen as a growing market for international airline traffic and the current market size is nearly $5 billion (Rs21,000 crore) a year. India, with its huge middle-class population of over 250 million, is like Airways, untapped gold mine. With its present international travel market not even covering 2% of the population, the country offers large opportunities for airlines. Deutsche Lufthansa AG, Singapore Airlines Ltd, Cathay Pacific Airways Ltd, British Airways Plc. (BA) and Emirates are in the process of increasing the frequency of their flights and connecting new destinations here. Everything that goes down has to come up and vice versa. So, when a rebound happens there (in global markets) these carriers will have an advantage as they would have already built capacities in India. Hong Kong Dragon Airlines Ltd (an affiliate of Cathay Pacific), Saudi Arabia’s Sama LelTayaran Co. Ltd (popularly known as Sama), and AirAsia Berhad are also launching operations in the country As for hotels, investment in the right city and right segment is always important and more so in the current times. Good location will be the criteria for the future development. Having a good mix of investments in premium, mid and budget segments will give the group a better robustness to weather the challenge ahead. The fact of the matter is that there is still a mismatch between supply and demand of rooms in India. Bad times, like the good ones, don’t last forever. Yet again a time will come when companies and people will resume their usual spending when the rooms are in short supply. While the next twelve to eighteen months will be challenging, things will be back to normal if we stand up to this challenge. The demand-supply mismatch will again come into the picture with continued shortage of rooms, which will again drive companies to develop hotels Tough times don’t last, only tough people do!!

Advertisements

April 12, 2009 Posted by | Hospitality & Tourism | , , , , , , , | Leave a comment

HOSPINOMICS

Yes that’s the word I derived for understanding and addressing Hospitality Economics.
The world economy is seeing a downtrend and it’s just the beginning considering that we in India are yet to see the summers of 2009. But as I have maintained and I being the optimist, I am hopeful that the recession is going to be here but not more than 12 to 18 months.
.
If you look into the past you will indeed realize that as hoteliers, we are the first one to enter recession and the last to come out of it. This means that our Hospinomics is kind of an indicator of the overall economy. The downturn starts and the first thing that companies look at are their travel and hotel budgets. So with the above trend and looking at 12-18 month scenario, 2010 is by far the time when we can start looking at recovery and I just hope it happens beginning Sept 2010 when we start preparing for the much awaited Commonwealth Games.
.
But that’s about recovery, I am also certain that this is going to be the most severe of the recession and we are yet to gauge the coordinates of the losses – that could be in terms of unemployment levels, net worth loss or commercial losses. Let’s not discount the fact that Terror Attacks also had a role to play in this.
.
I had a chance to chat up with Mr Vimal Singh, (he has spent a good part of his years in the US and India and was the one who brought Holiday Inn in India) Managing Director for Golden Tulip Hotels in India and he had an interesting observation. All economic cycles have a recession, followed by a recovery that is followed by a rebound. And when these cycles rebound they are in fact bound to cross the capital point that they marked in their last cycle. Second, such cycles are accompanied by a period of unreasonable consumer, investor and manager pessimism. This is followed by a period of relative confidence, that is followed by a period of reasonable (hopefully not, unreasonable) joyously unrestrained & enthusiastic (exuberant) confidence.
.
We are in the first phase of those cycles. How long we will be in them depends on Obama’s and Manmohan’s (O&M Factor) success of their governments’ monetary and fiscal policies plus credit market restructuring (And yes the entire world economies will definitely have their roles to play as well). However, inevitably, the other phases of both cycles will occur.
In the background are several secular inevitable economic trends. First, BRIC (Brazil, Russia, China and India) economies must eventually grow. They are driven by population dynamics (generally more youthful and larger populations than the rest of the world) and rapidly expanding or burgeoning capitalist economies. Second, Western Europe and North America are just entering the 60+ club (the salt and pepper club referring to their grey hair) demographic whose net worth will eventually recover and whose free time will spur leisure travel and hospitality demand. These secular trends serve as a backdrop to the positive cyclical phases not yet entered. This gives some reason to be optimistic about the economic future when it comes. And, it will come!
.
Having said that, there will be a few challenges that will remain – Global Warming, Depleting Non Renewable Energy Sources, Terrorism & Politics. All will continue to co-exist and we will have to plot them our charts of cyclical trends.
.
To ensure a positive Hospinomics, hotels will have to seek ways to maintain margins, improving productivity and most importantly MOTIVATING STAFF and remember to keep the pressure on themselves rather than putting on consumers. And this is required as the customers are well informed and well read and notice everything. When you have new kids on the block in sales (and unfortunately that’s the scenario you can’t change or do not want to change), they will feel the pressure and eventually go all out in desperation to get the business. And all this means is erosion of your bottom lines and to some extent competition between may be your own two hotels in the same location.
.
The luxury travel is also going through a change of phase. It will soon be replaced by up market eco tours and adventure vacations. Luxury need not be confined to a business traveler looking at 1000 USD a night suite in an up market branded hotel.
.
The luxury consumer is going through three issues on his whiteboard:
1. Liquidity – People are losing money and loosing by the hour. But the fact is that it’s only on paper
2. Frozen Capital – Much of the investment was less liquid than stocks and bonds; instead it was in private equity (subject to capital calls) hedge funds (being locked down) and lenders (now tightening credit).
3. Asset Value Declines – in art, real estate and collectibles. And we all know what Real Estate has gone through and as I read in an article, even Hussain’s paintings have seen correction in their price points.
.
For a positive Hospinomics, the key mantra will be T3 (Trust, Transparency & Trust) and this will be both internal and external.
.
I remember the advt of MasterCard. You can buy Travel and the works by MasterCard (read money) and then there are precious moments that cannot be bought. I am looking at a different picture now. Travel is increasingly becoming about the things money cannot buy – experiences and emotions are treasured and these are the ones that are dictating the new rules.
.
Discounting (I love this word!!) is NECESSARY. Let’s face it and not count on the numbers of adhoc rates that we have issued (If you would have been wise enough to offer decent price points earlier, you would not have been reading this blog anyways). But yes Discounting has to be specific and should target markets which give you good yields.
.
A recent study indicated that Eco Tourism will continue to grow @ 30% and is expected to make around 25% of world travel by 2012. What are we doing about it?
A new trend in hotels is coming soon. Hyatt’s new Andaz brand as the new kind of business hotel that features a warmer welcome and local culture. It was referred as “Bleisure”.
.
Embracing and facilitating consumers’ new behaviors is the key to survival. Counting on the power of new technology to enhance customer relationships, Sheraton introduced a social networking facility on its site, on which travelers are invited to share travel stories, recommendations and photos. It says that “Tying together the advantages of a known, global brand and the capabilities of the Internet, a personalized travel experience could be created to surprise and delight.” And I completely agree and pop goes the question – What are we doing about it?
.
I recently came across ASSOCHAM study on Commonwealth Games. According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Commonwealth Games 2010 are likely to push India’s Foreign Exchange Earnings (FEE) through tourism alone in 2010 to an estimated level of over USD 16915 million, as these are expected to grow at cumulative rate of 20 per cent in next two years.
.
Through tourism last year, FEE’s were measured at USD 11747 million. The optimism as to why tourism will register a cumulative growth of 20 per cent in next two years is based on the fact that, by then global meltdown will have subsided to make India a leading tourist destination, especially due to the fact the focus its policy makers (I talked about the O&M factor) are attaching on hospitality sector. The ASSOCHAM estimates that if India’s tourist arrival in October 2008 was 4.53 lakh, during 2010 Commonwealth Games which will conclude in October, the foreign tourist arrival is likely to double.
.
In October 2008, tourism alone fetched India USD 900million with tourist arrivals of over 4.50 lakh, especially from countries like UK, Japan, South Africa, Australia, Singapore, Mauritius, Middle East and Far East etc. The Recession and Terror Attacks were yet to happen by then.
In the last couple of years, FEE’s earnings on an average have been growing at robust average of over ten per cent and there is no reason that their average rate of growth will accelerate during Commonwealth Games for which India is creating lot of facilities by renovating its majority of tourist sites. Also, advertising strengths and intellectual superiority and skills of India’s Ayurvedic, Medical and Clinical Tourism including Religious Tourism are expected to draw a large crowd during the forthcoming Games for multi purposes.
.
All in all, Savvy strategies are needed to combat recession and hopefully Hospinomics will be back on track soon!!

April 12, 2009 Posted by | Uncategorized | , , , , , | 2 Comments