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InterGlobe Hotels is prime example for successful collaboration and consolidation

Notwithstanding the short term challenges, J B Singh, President & CEO of InterGlobe Hotels, feels that the long term outlook of Indian tourism and hospitality industry is strong and positive. In an interaction with Hospitality Biz, he shared his views on the current and evolving industry landscape in the country

Thursday, January 7, 2016, 09:00 Hrs  [IST]

JB SinghQ.What are the demands trends that you expect to dominate and drive the hotel industry in India ?
A.
With the Indian tourism and hospitality industry contributing to the Gross Domestic Product (GDP) at a compound annual growth rate of 10% (2006 to 2014), totalling $37.3 billion in 2013, India ranks 13 among 184 countries in travel and tourism’s contribution to GDP. As a result, the hotel industry in India is growing with a positive long-term outlook, with expected revenue growth in the range of 9–11% for 2015–16.

Thanks to the rising Indian economy, which is steadily growing at more than 7% annually, Indians are traveling more and spending more. However, despite the economic prosperity, the Indians still do not believe in splurging and look for value in every purchase or investment. The consumer consumption trends/pattern will definitely play a major part in driving the growth of hospitality industry in India. The consumers are very well informed. They are discerning, well-travelled and keeping in mind the new demographics and the new consumers, they are looking at greater value and International standards.

We at InterGlobe ensure that we do not compromise on the comfort standards. Each ibis hotel is built scientifically to provide the same experience across locations.

In addition, the government has had a sharp focus on bolstering the tourism sector in India led by pro-industry policies. The New Tourism Policy aims at increasing the sector’s contribution to the GDP to 6.8%. Encouraged by new concepts such as Wellness Tourism, Cultural Tourism and also by policies such as e-visa and visa on arrival for foreign tourists, commitment to improve infrastructure etc., the sector has shown progress. But one has to observe that a lot of this opportunity still remains untapped and there is scope for immense growth

Q.Despite marginal improvements in hotel occupancy across markets in 2015, the rates (ADR) continued to drop.  Do you see any major demand drivers in coming year, which would push hotel rates upwards?  
A.
I wouldn’t say so much as the rates have slid but they have remained stable. In the first half of this year the encouraging news was that the first time India wide occupancy crossed 60% mark in the last five years.

The story of last five years has been one of supply growth. Interestingly, the demand growth has managed to keep pace with the supply growth thereby keeping occupancies unchanged around the late 50’s. However, visibly the supply is slowing down in most markets while the demand outlook remains very strong. This will mean that both the rates and the occupancies will firm up in the medium term. However, before the rates correct itself, we expect occupancies to improve further. This year should therefore result in higher occupancies and stable rates.

As far as InterGlobe Hotels is concerned, at a portfolio level, we expect 2016 to be around the 70% occupancy mark with a blended rate of Rs 3,200 including the five new properties we expect to open this year.

IBIS Hotel

Q. The year 2015 is coming to a close without seeing major project announcements?  Do you see any reason for new investments to pick up again in the New Year?  
A.
The last couple of years have been quite challenging for all industries. We at IGH have been fortunate to have grown through these years due to improved performance and addition of new hotels. In fact, we will be adding 5 more hotels by March 2016.

In general, however, I agree that there have not been many major investment announcements.  It’s quite natural for an industry which was reeling from high real estate cost, very difficult regulatory environment, delayed project execution and difficult demand supply -dynamics to lose its earlier sheen.

However, with tourism coming back in focus  (with the current government) easing of visa norms, softening of real estate market, improved access to low rate long term capital (through the infrastructure status to the industry), improving demand and slowing supply,  I expect the investment scenario to improve if not this year certainly over the next couple of years.

Q.How do you view the consolidation effort happening in the global industry?
A.
The consolidation is yet another sign of the changes in the hospitality segment. With the emergence of multi-location strategies, increasing number of hotel aggregators and blurring lines between organised and unorganised sector, there is definitely a high level of competitiveness. Given this scenario, consolidation of appropriate company synergies is critical.

Such acquisitions result in increased manpower efficiencies, merging of loyalty programmes, better and improved branding and an ability to drive cost improvements through better buying power as well as lower third party commissions. It also often results in access to markets which the acquiring brand/company may not have had in the past.

InterGlobe Hotels is a perfect example of how the collaboration works really well. Ibis is a unique consolidation between InterGlobe Enterprises and Accor Hotels. There is no such unique partnership in India as of now. IGH has had a fantastic run since its inception nearly a decade ago. With 10 operational hotels and nine more under development (combined room count of nearly 3,500), we now are a significant player in the country in the mid-market space.

IBIS Hotel


Q.How many ibis Hotels had you planned to develop when the JV between InterGlobe Enterprises and Accor Asia Pacific was formed in 2004? How far have you  been able to fulfill that commitment over the last decade?
A.
There was no specific commitment as far as number of ibis hotels was concerned when the JV was formed. However, InterGlobe Hotels have the exclusive mandate to develop ibis brand in India, and as per the mandate we have been able to develop 10 hotels with a combined inventory of 1850 keys over the last 10 years.  These hotels are currently operational in cities like Gurgaon, Delhi Aerocity, Jaipur, Pune, Navi Mumbai, Mumbai Airport, Nashik,  two in Bangalore , and Chennai.

We have nine hotels currently under construction out of which five of them are scheduled for opening in the current financial year.  The new destinations are Chennai City Centre, Hyderabad Hitech,  Goa (Calangute), and Kochi.  We will also be opening the second phase of Ibis Delhi Aerocity soon.  With these new openings, our total inventory will reach  2,600.  In terms of investment, we have committed INR 2,000 cr with a debt-equity ratio of 60:40.

Q.Since metro cities are somewhat saturated with supply over runs, what would be your strategy going forward while picking up destinations for development?
A.
As far as destinations are concerned, our goal was to target Tier I cities in the first phase.  However, hotel development is strategic and at the same time opportunistic, and hence we have made few investments in the Tier II cities as well. But the fact remains that being a mid-market brand, we can still harness and tap into several micro markets within the metros.  For instance, in Mumbai, we have two operational hotels – one near the airport and another one in Navi Mumbai.  We also have two hotels under construction at LBS Road and CST in the city.  Still, we feel that there are micro markets like the whole Malad area, Goregaon, etc. where opportunities exist.  The same is the case with Delhi NCR.  There are so many micro markets within these cities and we feel that we are under represented there.

 
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