Vivek Nair, Vice Chairman and Managing Director of Hotel Leela Ventures said, “It is both, a slight drop in the average room rate as well as in the occupancy rate. This period between April and September is considered the low season in the industry when foreign tourists do not come in. So the real test will be after October.”
Excerpts from CNBC-TV18’s exclusive interview with Vivek Nair, Sushil Gupta and CK Baljee: Q: What is the reality on the ground particularly from markets like Mumbai and Bangalore. Is the slowdown quite perceptible? Nair: The Mumbai market has been holding forth, there has been a decline of about 5-6% compared to last year. In Bangalore, there is larger decline on the mid market segment, though in the top segment the decline is not as much as in the lower segment. Q: When you speak of a decline, are you talking about average room rates, which have started slipping, discounts which have been started giving or the occupancy rates which have come down quite significantly? Nair: It is both, a slight drop in the average room rate as well as in the occupancy rate. The rate so far has come down to about 4-5% compared to same period last year. This period between April and September is considered the low season in the industry when foreign tourists do not come in. So the real test will be after October. We will find that the foreign tourists inflows are increasing by 11-12% every year. That happens because of the economic slowdown in the western countries. Q: What has been the experience in Delhi? Have average room rate and occupancy started dipping? Q: Is it only driven by foreign traffic or only domestic traffic is slowing down? Q: What is your experience in Bangalore, just heard Mr Vivek Nair saying that Bangalore markets have gone a bit soft, can you just outline what has been your experience? Baljee: Our experience has been very positive. In fact our company has shown a growth of 35% in the last quarter. Bangalore is not as bad as it has made out to be because there is some knee-jerk reaction for the last one month or so because people have been cutting down their travel but then business travel, which is what Bangalore is really dependent on would come back to normal immediately. There will not be any great problem; if a businessman has to travel he will travel. If you really look at the size of the Bangalore market, it is very small in terms of the capacity available. There are about 3,000 rooms available in the entire city. When they have about 60 hotels announced, they are going to open it and today these hotels are just not gone off the ground. So, I am very positive about the Bangalore market. New capacities won’t come out to that extent therefore the hotel industry would definitely continue to enjoy. Maybe not a dream run as it was in the last five years but it will continue to do well as far as Bangalore is concerned and I am positive about some other cities also where we are present.
Q: Could you outline by how much rates have actually started slipping because there are card rates and rack rates but there are also significant discounts happening in various parts of the country? Q: Is it business traffic, which has been primarily hit and leisure traffic has not been hit to that extent? Gupta: The business traffic has been hit more. The leisure traffic is also not growing as it has grown in the past few years but overall there is a little downturn in the industry. But, this is the right time to build more capacities. All businesses are cyclic in nature, so there is nothing to get concerned over it. In India, we do not have a very large capacity compared to China. We have hardly 100-20,000 rooms in the organized sector, which is nothing. So as far as the outlook for the industry is concerned, I am quite positive on that.
Q: Any chances of execution delays now happening because the market is soft and people like you would not want to bring fresh supply to the markets in these conditions? According to industry reports, about 35-40% of new projects are seriously affected because of the credit crunch. RBI stopped the ECBs (External Commercial Borrowing) for the industry last year and lots of projects were raised on that basis and resorting to Indian rupee funds is extremely expensive. Also term lending to hotels is equated with real estate lending. Therefore, there is a extra provision of 150% as a result of which interest rates are typically 2-3% higher than service sectors or manufacturing industry. On account of this there are some reports that 30-40% of projects and exclusion are getting delayed, which is a worrisome factor. We in the Federation of Hotels have pleaded with the government to relax the ECB norms and they have done it by allowing imported equipment to be allowed under ECB route that took place about 2 months ago. They are still persisting with the plea that even rupee expenditure in India should be availed of through the ECB route. Q: Which markets according to you are showing strength at this point in the hotel sector and which markets are relatively weak? Baljee: As far as we are concerned most of the markets are showing positive because we have two hotels in Pune and now they are doing exceedingly well. Hyderabad is okay but since our hotel is new it’s picking up and it has done better than last year. There was a little slowdown in Jaipur during the Gujjar problem but now it’s back to normal and is doing well. Mysore is doing much better than what it was last year although its all about market. So overall, the situation is positive and there is more supply coming in. The new players might want to back out because most of the real estate people are facing cash crunch in their core business that is construction. So they might pullout. Whoever now has 100-50 hotels might have second thought of it. Interest rates are high today about 12% or so but we are used to interest rates of 18%. When we opened the hotels here that time we were paying 18% rate of interest. For us, even 12% is okay. We did get 8% sometime back but 12% is not all that bad and so we are going at with all our plans in other cities like Hyderabad, Mumbai, Ahmedabad, Jaipur. We are going with all appliances and there is not that serious a problem. We have not used ECB so we are not familiar with that. We are using local banks, banks are very supportive and most of projects are getting funded. 12% is the interest rate today. Q: Any fears of oversupply in any of the key metro markets once some of the plant capacities come on stream in the next few quarters? Gupta: Not really as my colleagues have mentioned. Many new players might drop their projects but I do not see any problem. As I have told earlier, the supply in India is very low. So, there is no concern of oversupply. It might happen for a temporary phase of six months to one year or so. But overall, there is still chance for the growth in the industry. |
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Sushil Gupta_90.jpg)
CK Baljee
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