Good days again

Even in their heydays, aviation and hospitality performed way below their potential in India. Then a complex combination of price wars, short-term overcapacity and global economic meltdown pushed these industries into a sea of red with mounting losses, widespread layoffs and stalled investments. Therefore, when the first signs of recovery appeared around January 2010, caution preceded celebration. But as the first quarter of the year ends, there are definitive signs of an upswing.

Foreign tourist arrivals in January-February 2010 were higher than during the same months of 2009. A study by the World Travel & Tourism Council (WTTC) forecasts that, between 2008 and 2018, India will report the highest annualised real growth of travel and tourism demand worldwide, at 9.4 per cent. Travel and tourism accounted for 5.92 per cent of GDP in 2007-08, the latest year for which figures are available. By 2020, tourism-related activities will contribute about Rs 8,500 billion to the GDP.

But, despite the sector's high contribution to the economy, the government has proposed an outlay of just Rs 1,050 crore for tourism infrastructure in the 2010-11 Budget. This is about 0.1 per cent of total government spending. Meanwhile, the industry is gaining from better occupancy rates, increased FTAs, a growing airline seat capacity and reach. The hotel industry, so far focussed on the big cities and the luxury category, is now offering greater depth and width (read: mid-market and budget category) and non-conventional destinations.

Hotel occupancy rates have gone up to 65per cent overall from 60per cent in 2008-09 Foreign tourist arrivals are up 13per cent to 10.9 lakh in the first two months of 2010 India's airlines carried 8.05 million passengers in the first two months of 2010, 1.29 million more than they did during the same period last year

On the flip side, India is widely believed to be a much more expensive destination than its Asia-Pacific counterparts like Thailand, Malaysia and Singapore. To illustrate, a standard queen-bed three-star Ibis Hotel room in Gurgaon will cost you $95.43 (Rs 4,485). A similar three-star Ibis Hotel room with one double-bed in Bangkok would cost Rs $39.32 (Rs 1,848). A key reason for this anomaly is the huge deficit of budget hotels. Branded budget hotels offering clean and safe rooms across the country could trigger exponential growth in domestic tourism. But can they bridge the gap? Domestic and foreign brands are trying their best—in the face of archaic policies.

A hotel's promoter has to approach up to 40 different agencies to obtain 70-110 licences and clearances. Nothing is spared: the fountain, neon sign, letterbox, dustbin, the bathroom fittings— all need approval of some kind. In Singapore, a promoter needs six licences from six agencies. As far as physical infrastructure is concerned, the new airports at Hyderabad and Bangalore, along with those being redeveloped at Delhi and Mumbai, promise better air travel. Then, the government can encourage more low-cost airlines and speeding up highway projects.

This BT special on Travel & Hospitality dissects the problems (shortage of hotels, sagging infrastructure), prospects (the rise of budget hotels) and takes a look at the years ahead.