Last Updated 20 Apr 2022

Industry Analysis of Hotel Industry, India

Category Hotel, Tax, Tourism
Essay type Analysis
Words 2667 (10 pages)

Business structure and processes INDUSTRY ANALYSIS FOR HOTEL INDUSTRY, INDIA Shruti Garg 2012H149223P Department of Management 16th November’ 2012 Submitted to Dr. Jyoti TABLE OF CONTENTS 1. Introduction 1. 1 Background of Hotel Industry 1. 2 Structure of Hotel Industry 1. 3 Mid Market Segment 1. 4 Budget Segment 1. 5 Heritage Hotels 1. 6 Others 2. 5 Major Players in Market 3. Profiles of some Major Players 3. 1. Indian Hotels Company 3. 2. ITC/Sheraton Group 3. 3 The Leela Group 3. 4 The EIH Ltd. (The Oberoi Group) 3. The Ashok Group 4. Porter’s Five Forces Model 4. 1 Introduction 4. 2 Bargaining power of Suppliers 4. 3 Bargaining power of Customers 4. 4 Threats of New Entrants 4. 5 Threats of Substitutes 4. 6 Competition Rivalry between Existing Players 5. SWOT Analysis 5. 1 Strengths 5. 2 Weaknesses 5. 3 Opportunities 5. 4 Threats 6. References 3 3 3 4 5 5 5 5 6 6 6 6 7 7 8 8 9 9 9 10 10 11 11 11 11 12 12 Shruti Garg 2012H149223P 2|Page INTRODUCTION BACKGROUND OF THE HOTEL INDUSTRY The Hotel Industry comprises a major part of the Tourism industry.

Historically viewed as an industry providing a luxury service valuable to the economy only as a foreign exchange earner, the industry today contributes directly to employment (directly employing around 0. 15 million people), and indirectly facilitates tourism and commerce. Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consisting primarily of relatively static, single-hotel companies. However, the Asiad, held in New Delhi in 1982, and the subsequent partial liberalization of the

Indian economy generated tourism interest in India, with significant benefits accruing to the hotel and tourism sector, in terms of improved demand patterns. Growth in demand for hotels was particularly high during the early 1990s following the initiatives taken to liberalize the Indian economy in FY1991, as per the recommendations of the International Monetary Fund (IMF). The euphoria of the early 1990s prompted major chains, new entrants and international chains to chalk out ambitious capacity additions, especially in the metropolitan cities.

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However, most of these efforts were directed towards the business travelers and foreign clientele. In recent years, the hotels sector has grown at a faster rate than GDP. As a result, the share of hotels & restaurants in GDP at current prices has increased from 1. 2per cent in FY2000 to 1. 5per cent in FY2005. In constant (1999-2000) prices, the GDP from hotels and restaurants has increased from Rs. 222. 65 billion in FY2000 to Rs. 335. 49 billion in FY2005. As a result, the share of hotels and restaurants in total GDP at constant prices has increased from 1. 4per cent in FY2000 to 1. 40per cent in FY2005. 5 STRUCTURE OF THE INDUSTRY Hotels are an important component of the tourism product. They contribute in the overall tourism experience through the standards of facilities and services offered by them. With the aim of providing contemporary standards of facilities and services available in the hotels, the Ministry of Tourism has formulated a voluntary scheme for classification of operational hotels which will be applicable to the following categories: ? Star Category Hotels: - 5 Star Deluxe, 5 Star, 4 Star, 3 Star, 2 Star & 1 Star ?

Heritage Category Hotels: - Heritage Grand, Heritage Classic & Heritage Basic Shruti Garg 2012H149223P 3|Page MID-MARKET SEGMENT This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure travelers. This segment also caters to the middle level business travelers since it offers most of the essential services of the luxury hotels without the high cost since the tax component of this segment is lower compared with the premium segment. BUDGET SEGMENT These comprise 1 and 2 star hotels referred to as ‘Budget Hotels’.

These categories do not offer as many facilities as the other segments but provide inexpensive accommodation tithe highly price-conscious segment of the domestic and foreign leisure travelers. Shruti Garg 2012H149223P 4|Page HERITAGE HOTELS In the past four decades, certain architecturally distinctive properties such as palaces and Forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has classified these hotels as heritage hotels. OTHERS At any point in time, applications for classification are usually pending with the Ministry of Tourism because of which such properties remain unclassified.

The number of hotel rooms pending classification has declined from historical 15-20per cent to 5per cent of the total rooms available in the recent past. 5 major players in market ? The Indian Hotels Company ? ITC/ Sheraton Corporation ? The Leela Group ? The EIH Ltd (The Oberoi Group) ? India Tourism Development Corporation (ITDC) / the Ashok Group Shruti Garg 2012H149223P 5|Page PROFILES of some major players in the Hotel Industry THE INDIAN HOTELS COMPANY The Indian hotels company and its subsidiaries are collectively known as Taj Hotels Resorts and Palaces, recognized as Asia’s largest and finest hotel company.

Incorporated by the founder of the Tata Group, Jemsetji N Tata, the company opened its first property, The Taj Mahal Palace Hotel, Bombay in 1903. The Taj, a symbol of Indian hospitality, completed its centenary year in 2003. Taj Hotels and Resorts and Palaces comprises of 59 hotels at 40 locations across India with an additional 17 international hotels in the Maldives, Mauritius, Malaysia, UK, USA, Bhutan, Sri Lanka, Africa, the middle east and Australia. The company has had a long standing commitment to the continuous development of the Indian tourism and hospitality industry.

From the 1970s through 1990s, the Taj played an important role in launching several of India’s key tourist destinations. Working in tandem with the Indian government, the Taj developed resorts and retreats while the government developed roads and railways to India's hidden treasures. ITC/ SHERATON CORPORATION ITC – Welcome group Hotels, Palaces and Resorts, is today one of India's finest hotel chains, with its distinctive logo of hands folded in the traditional “Namaste” is widely recognized as the ultimate in Indian hospitality. Each of the chain's hotels pays architectural tribute to ancient dynasties, which ruled India from time to time.

The design concept and themes of these dynasties play an important part in their respective style and decor. With more and more hotels being added at strategic destinations, the group has joined hands with the Sheraton Corporation to strengthen its international marketing base. A successful marketing franchise for almost 25 years now, there are currently 10 ITC – Welcome group Sheraton hotels, and more in the pipeline. THE LEELA GROUP Founded in 1957 by Capt. C. P. Krishnan Nair, the Rs. 4. 5 billion Leela Group is engaged in the business of ready-made garments and luxury hotels and resorts.

The Leela Kempinski, Mumbai and The Leela, Goa are two of the best hotels in India, and have also won Considerable international acclaim. For this to have been achieved in 12 short years is Nothing short of Shruti Garg 2012H149223P 6|Page remarkable. Recently in 2001 Capt. Nair fulfilled his longstanding dream of constructing a palace hotel in the garden city of Bangalore. The Leela Palace Kempinski, Bangalore is built in art deco style recreating the grandeur of The Mysore Maharajas Palace. It is set amidst 8 acres of landscaped garden and waterfalls. It is a palace with the heart of a modern hotel.

Its 254Kovalam is Kerala’s largest resort, built on a rock face cradled between two wide sweeping Beaches with stunning view of the famous Kovalam coastline. THE EIH LTD (THE OBEROI GROUP) Asian elegance is the key to running hotels, if you ask EIH (better known as The Oberoi Group). The company owns and operates about 20 luxury hotels, about 10 mid-range hotels, and two inland cruises; The Oberoi Group operates primarily in India, but also in Australia, Egypt, Indonesia, Mauritius, and Saudi Arabia. Most of the company’s luxury properties bear the Oberoi banner.

The company in 2004 joined forces with Hilton International to rebrand most of its mid-range hotels as Trident Hiltons (the former Oberoi Towers is now known as the Hilton Towers Mumbai). The Oberoi Group also operates luxury cruises of the Nile River and India’s Kerala region. INDIA TOURISM DEVELOPMENT CORPORATION (ITDC) / THE ASHOK GROUP India Tourism Development Corporation (ITDC) was established in 1966 as an autonomous public sector corporation, entrusted with the task of helping develop tourism infrastructure and promoting India as a tourist destination.

The ITDC Ashok Group of hotel chains manages some of the best five star and luxury tour hotels in the Indian hospitality industry. The hotels run by the ITDC Ashok Group of hotel chains may be divided into different categories; these are elite hotels, comfort hotels and classic hotels. The ITDC Ashok Group of hotel chains manages 33hotels in 26 different tourist destinations all over India. The management of Ashoka Group believes in offering the best in the hospitality industry and the staff at each of the hotels run by the group is especially trained to be courteous and efficient.

The Ashok Group of hotel chains boasts of running some of the best hotels in the Indian hotel industry. The hotels that are a part of the elite and classic category of the ITDC Ashok Group are the Ashok Hotel in New Delhi, the Kovalam Ashok Beach Resortin Kovalam, Kerala, the Agra Ashok in Agra, Hotel Jaipur Ashok in New Delhi and the Qutab Hotel in New Delhi. Most of the hotels managed by the ITDC Ashok Group have had the privilege of playing host to several international and national dignitaries. Shruti Garg 2012H149223P 7|Page PORTER’S FIVE FORCES MODEL INTRODUCTION

Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organization external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization.

Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. Shruti Garg 2012H149223P 8|Page 1. BARGAINING POWER OF SUPPLIERS The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. • • • • • The high class hotels are operating by few hotel chains like-TAJ, EIH, ITC & THE LEELA PALACE so they have a control over the industry. There are no substitutes for spas and five star hotels.

The hotels customers are fragmented, so they have to reduce their bargaining power to attract the customers. The Taj, ITC& Oberoi are having various rates and tariffs, because they are having their own brand image. The hotel chains are operating different services like Spas, Boatels, Resorts, City Centers, Heritage HOTELS, etc. 2. BARGAINING POWER OF CUSTOMERS Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. ? ? ? ? The hotel industry is one of the most invested in its fixed assets. So they are trying to recover their amount quickly.

The suppliers are providing better information about them to attract the customers’. Here the buyers are highly informed. If the hotel price changes are moderate, the Customers have low margins and are pricesensitive. Some unseasoned timings the hotels are offering discounts and incentives toreduce the bargaining power of buyers. 3. THREAT OF NEW ENTRANTS The competition in an industry will be the higher; the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e. g. market shares, prices, customer loyalty) at any time.

There is always a latent pressure for reaction and adjustment for existing players in this industry. Shruti Garg 2012H149223P 9|Page • • ? ? ? The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and using the latter’s brand name. Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new entrants. Access to raw materials and Distribution channels are controlled by Existing players like TAJ, ITC, and LEELA PALACE. The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry.

In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%. Effective tax in the South East Asian countries works out to only 4-5%. 4. THREAT OF SUBSTITUTES A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. • • • • • Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the substitutes.

The hotel relationship with customer and costs also the reasons to switching to substitutes. The price variation of same class hotel services from various brands is one of the reasons to choose a substitute. The present demand and supply of hotel rooms is one of the reasons to choose a substitute. More fixed cost and switching costs affects the business. 5. COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. • • The top competitors in hotel industry are having the same services like five star, spas, boatels and motels, heritage hotels and palaces. The healthy competition among the all players is helping to increase the industry growth. Intense in metro cities, slowly picking up in secondary cities. Shruti Garg 2012H149223P 10 | P a g e SWOT ANALYSIS STRENGTHS • • • • • • • • A very wide variety of hotels is present in the country. There are international players in the market such as Taj and Oberoi Chains A manpower cost in the Indian hotel industry is one of the lowest in the world.

India offers a readymade tourist destination with the resources Natural and cultural diversity Demand-supply gap Government support Increase in the market share WEAKNESSES • • • • • • • • The cost of land in India is high at 50% of total project cost as against 15% abroad. The hotel industry in India is heavily staffed. High tax structure in the industry makes the industry worse off than its international. Only 97,000 hotel rooms are available in India today. Only limited value added services Poor support infrastructure Slow implementation Susceptible to political events. OPPORTUNITIES • • • • Demand between the national and the inbound tourists can be easily managed due to difference in the period of holidays. In the long-term the hotel industry in India has latent potential for growth. Unique experience in heritage hotels. Rising income. Open sky benefits. THREATS • • • Guest houses replace the hotels. Political turbulence in the area reduces tourist traffic and thus the business of the hotels Changing trends in the west demand similar changes in India 2012H149223P 11 | P a g e Shruti Garg • • • • The economic conditions of a country have a direct impact on the earnings in hotel industry.

Lack of training man power in the hotel industry. Fluctuations in international tourist arrivals. Increasing competition REFERENCES ? ? Ministry of tourism website: http://tourism. gov. in/TourismDivision/ Ministry of tourism – Hotel classification guidelines : http://www. hrawi. com/hotelrestaurant/Guidelines_for_classification_of_Hotels. pdf ? ? ? ? ? Hotel pictures: http://www. hotel-pictures. net/ Taj: http://www. tajhotels. com/ ITC Hotels: http://www. itchotels. in/ The Leela: http://www. theleela. com/ ITDC group: http://www. theashokgroup. com/ Shruti Garg 2012H149223P 12 | P a g e

Industry Analysis of Hotel Industry, India essay

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