In times of growing competition in the hotel industry , the South is emerging a hot destination for many domestic and global brands. With demand tapering down, the spurt in hotel rooms brings rates under severe pressure. “But, it's only a medium-term issue,” says Mr T. Nataraajan, Honorary Secretary of South India Hotels and Restaurants Association, and Chief Executive Officer of GRT Hotels Resorts, a leading hotel chain in the South. Excerpts from an interview:
What's your take on the current performance of the hotel industry in the South?
Though yet way below the peaks of 2007-08, the hotel industry in the South is doing reasonably well. Occupancy levels are fairly decent at 65-70 per cent. This is despite the ongoing European crisis.
There seems to be a glut in hotel rooms in the South, of late …
Yes. But, the growth is not well spread out. Chennai, Hyderabad and Bangalore are the places where a lot of new five-star properties have come up in recent times. Some more are under various stages of construction, and are likely to be launched in a year or two. But, there is a great need for three-star or budget hotels in these cities.
Won't this lead to over supply of 5-star rooms in these cities and bring rates under further pressure?
As of now, Chennai and Bangalore have just enough number of rooms. But, in Chennai, there is going to be a spurt in supply in the next two years. For example, projects such as ITC's Grand Chola with over 600 rooms, Leela close to 250 rooms, JW Marriott's 300 rooms, Park Hyatt's 300, SRM and Westin together another 500 rooms, will certainly make the city a oversupplied market in the medium term.
In Hyderabad, the supply slightly outstrips demand, and, therefore, room rates have come under pressure. If you take Thiruvananthapuram or Kochi, there are not many new projects.
But, discounts are rampant in these cities even now. Does it mean excess supply in the market already?
Currently, yes. Rack rates have no relevance in the market today. We only talk in terms of BAR (best available rate). If you take Bangalore, there are days when hotel rooms were sold for above Rs 20,000 for a night. But, the same room is now selling at Rs 6,000 or Rs 7,000.
There is a definite pattern of occupancy going down during week ends, in particular. Rates offered by hotels are far below the published tariff. The actual realisation is very low. This is mainly because of global economic issues. Once they get ironed out, the situation will improve. But, as I see it, even in the long-run a little bit of rationalisation will happen.
Do you see any emerging trend in the MICE (meetings, incentives, conferencing and exhibitions) segment in this part of the country?
Of course, yes. I see a positive trend. South is turning out to be an attractive MICE market. Particularly, Chennai, with huge convention centres such as Chennai Trade Centre – Grand Chola, once launched, will have huge convention facilities. In fact, the entire South – may be, barring Kerala, as there is not enough number of rooms coming up in the near future - will become a sought-after destination. It will, of course, depend on the respective State Government's support. As it is, there are three or four medical conferences with over 3,000 delegates attending them, are being held in Chennai every year. Currently, these delegates are some times put up in medical colleges and hostels. Because there are not enough rooms available in the city.
Is there still a great demand for three-star or budget hotels in these cities?
Of course, yes. However, this has now been taken care of by serviced apartments to an extent. But, more importantly, I feel, the growth has to happen in tier II and tier III cities. If you take Tamil Nadu, smaller cities such as Coimbatore, Madurai, Salem or Tiruchi now have good road network. But, there are no good hotels or even restaurants in most of tier II and tier III cities. So is the case with Andhra Pradesh and Karnataka. In Andhra Pradesh, except in Tirupati, there are not many good hotels.
Then why not hotel companies put up properties there?
That's because the land cost is very high. It will not be viable, considering the long gestation period. The government must come forward to help hotel companies by offering land parcels at subsidised prices to improve tourism infrastructure in these places.
What according to you are the key challenges the industry faces?
First of all, lack of government support. In its recent budget, the Tamil Nadu Government has proposed 14.5 per cent tax on liquor second sales. Liquor is something that already suffers heavy tax at the first point of sales. There's already 14.5 per cent tax on food. In addition there are service taxes. This does not augur well for the F&B business.
The Government should allocate more funds for tourism promotion. When Governments of Singapore and Malaysia spends over $150 million to promote their countries, our budget is way below $10 million, which is very negligible.
To top it all, the hotel industry should be accorded ‘infrastructure' status and enable it to gain access to better financial support from banks. Hotel is a capital-intensive business. Excluding land cost, it takes around Rs 3,500 per sq.ft. to construct a decent hotel. And, it takes at least five years for the promoter to see return on his investment. But, he is not given more than 7-8 years to repay the loan.
Manpower shortage is another major issue. The industry does not get enough people.