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“PESTLE ANALYSIS - HOSPITALITY INDUSTRY”

Hospitality Industry

Hospitality is about serving the guests to provide them with "feel-good-effect". "Athithi devo bhavha" has been one of the core values in the Indian culture. In India, guest is treated with utmost warmth and respect and is provided the best services.

Today hospitality sector is one of the fastest growing sectors in India. It is expected to grow at the rate of 8% between 2010 and 2016. Many international hotels including Sheraton, Hyatt, Radisson, Meridien, Four Seasons Regent, and Marriott International are already established in the Indian markets and are still expanding.

The Indian hospitality sector can be broadly classified into two broad categories:

Hotel industry

The hotel industry can be further categorized into three segments: hotels, restaurants and contract caterers.

Hotels: The hotels in India can be broadly classified into the following segments:

1. Star rated hotels

2. Heritage hotels

3. Budget hotels

4. Unclassified hotels

Star Rated Hotels

These are mainly situated in the business districts of metro cities and cater to business travellers and foreign tourists. These are considered to be very expensive. They are built over an area of up to 18000 sq. meters. These account for about 30% of the industry. The star hotels are further classified into six categories:

Five Star Deluxe & Five Star: These are restricted to the four metros and some major cities like Bangalore and Hyderabad. The customers of these hotels are mostly foreign business and leisure travelers, senior business executives and top government officials.

Three Star & Four Star: These are located in all major cities as well as tourist destinations. Their customer group ranges from middle level business executives to leisure travelers.

One Star & Two Star: These are located in major cities as well as in small cities and other tourist destinations. Their customers include usually the domestic tourists.

Heritage Hotels

These hotels are affordability and include hotels running in palaces, castles, forts, hunting lodges etc. The heritage hotels are further classified as:

1. Heritage Classic: These include hotels built between 1920 and 1935.

2. Heritage Grand: These include hotels built prior to 1920.

3. Heritage: These include hotels built between 1935 and 1950.

Budget Hotels:

Budget hotels especially cater to domestic travelers who favor reasonably priced accommodations with limited luxury. These are characterized by special seasonal offers, low and good services.

Unclassified:

These are low-priced motels spread throughout the country. A low-pricing policy is their only selling point. It accounts for about 19 % of the industry.

Restaurants: These typically include fast food chains, ethnic restaurants, fine dining and coffee bars. The major players include Barista, Mc Donalds, Ruby Tuesday, Bercos, etc.

Contract Catering: This includes any catering business unit that is formally not a part of the hotel industry but is closely allied to it. Some of the major players in this category include Sodexho, Compass Group, etc.

Travel & Tourism Industry

India is fast becoming the hottest tourist destination in the region. The visitors include business travellers, leisure travellers and persons of Indian origin with foreign passports. It is being predicted that India may achieve an average growth of 12% per annum in tourism for many years to come. Apart from international tourists, the domestic tourist market, including business and leisure travellers, is also flourishing. This market is estimated at around 300 millions tourists per year. The industry also expects a boom in spiritual and medical tourism in the domestic sector at a growth rate of 10% to 15% over the next few years. Growth in tourism will definitely lead to a boom in hotels and restaurants. Though there is a shortage of rooms at present, it is going to be over soon enough, as top international players are heading towards India to establish themselves here. A steady growth of about 10% in new hotel projects is expected for the next few years.

Major Players in Hospitality Industry

* ITC Hotels

* Indian Hotels Company Ltd. (The Taj Hotels Resorts & Palaces)

* Oberoi Hotels (East India Hotels)

* Hotel Leela Venture

* Asian Hotels Ltd.

* Hotel corporation of India

* ITDC Hotels

Features of the Indian Hospitality Industry

* The industry is more dependent on metropolitan cities, with Delhi and Mumbai being on top.

* The average room rate (ARR) and occupancy rate (OC) are the two most critical factors that determine profitability. ARR depends on location, brand image, star rating, quality of facilities and services offered. The occupancy rate depends on other seasonal factors.

* India is an ideal destination for tourists. The growth prospect is also are very high.

* In the hotel sector, a number of multinationals have strengthened their presence. Moreover, Indian hotel chains are also expanding internationally. A combination of all these factors could result in a strong emergence of budget hotels, which could potentially lower the cost of travel and related costs.

Data Collection

For this study, secondary data has been preferred. This data has been collected from different sources such as newspapers, magazines, books and websites. The contribution of website is high. Also the online articles and research reports by government are taken into consideration while preparing the report.

Methodology

The analysis tools used in this report includes SWOT and PESTAL analysis. SWOT gives the internal and external factors related to the industry; moreover the PESTLE analysis gives the information regarding the impact of the external factors on the growth of the Hospitality Industry.

SWOT Analysis

Strengths

1. Natural And Cultural Diversity: India has a rich cultural heritage. The "unity in diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of Kerala, snow capped Himalayas and the quiescent lakes are incredible.

2. Demand-Supply Gap: Indian hotel industry is facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector.

3. Government Support: The government has realized the importance of tourism and has proposed a budget of Rs. 540 crores for the development of the industry. The priority is being given to the development of the infrastructure and of new tourist destinations and circuits. The Department of Tourism (DOT) has already started the "Incredible India" campaign for the promotion of tourism in India.

4. Increase In The Market Share: India's share in international tourism and hospitality market is expected to increase over the long-term. New budget and star hotels are being established. Moreover, foreign hospitality players are heading towards Indian markets.

Weakness

1. Poor Infrastructure: Though the government is taking necessary steps, many more things need to be done to improve the infrastructure.

2. Slow Implementation: The lack of adequate recognition for the tourism industry has been hampering its growth prospects. Whatever steps are being taken by the government are implemented at a slower pace.

3. Susceptible To Political Events: The internal security scenario and social unrest also hamper the foreign tourist arrival rates.

Opportunities

1. Rising Income: Owing to the rise in income levels, Indians have more spare money to spend, which is expected to enhance leisure tourism.

2. Open Sky Benefits: With the open sky policy, the travel and tourism industry has seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels.

Threats

1. Fluctuations In International Tourist Arrivals: The total dependency on foreign tourists can be risky, as there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance and measures should be taken to promote it.

2. Increasing Competition: Several international majors like the Four Seasons, Shangri-La and Aman Resorts are entering the Indian markets. Two other groups - the Carlson Group and the Marriott chain - are also looking forward to join this race. This will increase the competition for the existing Indian hotel majors.

3. Terrorism: The increasing terrorist activities in the country have already affected one of the best tourist destinations - Kashmir, and further terrorist activities can reduce the number of tourists in India.

External Environment Analysis (PESTLE)

The effect of the external environment on the Hospitality industry can be studied using the PESTLE analysis.

Political

The political factors are the main driving forces of the industry. The Indian hospitality industry is built on the backbone of Government support and the industry cannot sustain itself without it. The various archaeological sites and the places of historical importance are in the hands of the Government. Moreover the roads and the railways are also controlled by government. Even the airlines industry depends on the support of the government. Any policy change that comes into force can have dramatic effect on the way the industry players perform. For example, the Government charges high rates of taxes on the star rated hotels and this has always been a cause of disagreement between the hotel associates and the Government. There are many areas where the growth of tourism has not been rapid or has seen dramatic fall because the political environment has not been conductive. For example Kashmir.

Economic

The hospitality industry not unlike the other industry grows with the increase in the spending of the people. The more the people spend the more the industry grows. The spending power of the people has been increasing in the country and all over the world. Since we are concentrating on the international tourists, the large increase in the spending power in most developed countries has left a large amount of idle cash in there hands. This has led to a tourism boom the world over and India has been no exception. Moreover the growing economy leads to widening of domestic businesses which results into increase into business related trips in the country itself. This has lead to an increase in the demand for better hotels. This has led to an increase in the number of hotels in the country.

Social

Tourism, which is a part of hospitality industry, was always looked upon as something that led to the destruction of the social fabric of place. The more the amount of outside people coming into a place, the more the perceived risk of the place losing its original identity. A good example is Goa. Goa was the haven for the hippies, when hippy culture was at its heights in the 80's. They came to Goa in thousands and changed the whole culture of the state. There people became cautious, especially of the international guests of the country. However some places such as Kerala and Rajasthan have been able to strike a balance between their own culture and the demand of the international guests, showing a good hospitality and also earning handsome profits in the bargain. People are now adopting themselves to the fact that the hotel and tourism industry pays and it can be a major source of income for them.

Technology

Although technology does not seem to be a major influence at the first glance, it plays a major part in the promotion of a place. Better communication facilities are one of the first prerequisites for the growth in the hospitality industry. This has been made possible with technology. Improved technology in the field of communication at cheaper costs has resulted in many remote and inaccessible areas of the country getting connected to the rest of the world. This connectivity has made these places visible to the world. Better communication means access to media. And this is very important if any place wants to be on the world tourist map. Even the hotels have started to promote themselves and the place to attract visitors. Similarly better transportation facilities have lead to a dramatic increase in the number of tourists visiting any particular place, resulting to a rapid growth in the hospitality industry. The presence of an airport and the availability of frequent flights are a great convenience to any traveller. Moreover the internet has also helped in the growth of hospitality industry; online ticket booking, online hotel reservation etc services have increased the accessibility of the hotels and modes of transport for travelling.

Legal

There are a number of legal issues that are faced by the hospitality industry, some of the main issues includes development of a fair and transparent process in determining the rates, ministry of tourism, land acquisition and compensation, environmental issues, international participation, reservation by government for hiring the employees, currency issues and also issues related to the regional differences in policies related to tourism and hotels. All these legal factors create a great impact on the business of the hospitality industry.

Ecological

The quality of the environment is essential for tourism and hotels industry. However, tourism's relationship with the environment is complex. The various activities likned with hospitality industry such as construction of general infrastructure such as roads and airports, and of tourism facilities, including resorts, hotels, restaurants, shops, golf courses and marinas create a negative impact on the environment. The negative impacts of tourism development can gradually destroy the environmental resources on which it depends. On the other hand, tourism has the potential to create beneficial effects on the environment by contributing to environmental protection and conservation. It is a way to raise awareness of environmental values and it can serve as a tool to finance protection of natural areas and increase their economic importance.

Challenges for the Indian Hospitality Industry

1. Shortage of skilled employees: One of the greatest challenges for the hospitality industry is the unavailability of quality workforce in different skill levels. The hospitality industry has failed to acquire good professionals.

2. Retaining quality workforce: Retention of the workforce through training and development in the hotel industry is a problem moreover the attrition levels are too high. One of the reasons for this is dissatisfying wage packages. Though there is boom in the service sector, most of the hotel management graduates are joining other sectors like retail and aviation.

3. Shortage of rooms: The hotel industry is facing heavy shortage of rooms. Though government is trying to motivate investment but still the shortage will persist.

4. Intense competition and image of India: The industry is witnessing increasing competition with the arrival of new players, new products and new systems. The competition from neighbouring countries and negative perceptions about Indian hospitality industry restricts the growth of tourism. The image of India in the eyes of other countries is influenced by poverty, political instability, safety concerns and diseases; this creates a negative impact on the tourism and hotel industry.

5. Customer expectations: As India is emerging as a destination on the global travel map, expectations of customers are rising. The companies have to focus on customer loyalty and repeat purchases.

6. Manual back-end: The reputed players in hospitality industry have IT enabled systems for property management, reservations, etc., but then also most of the data which actually make the company work are filled manually or are simply not tracked.

7. Human resource development: Some of the services required in the tourism and hotel industries are highly personalized, and automation can substitute for personal service providers. India focuses more on white collar jobs than blue collar jobs. The shortage of blue collar employees will invite various threats to the industry.

Future of Hospitality Sector

Tourism in expected to grow over the next few years at a high rate due to the changes taking place on the demand and supply sides. The main factors that will account for the further growth of tourism and hotels will include the following:

* Change in standards of living

* More disposable income

* Better education

* Long leisure time

* Aging population

Due to the growth of tourism sector, infrastructure will also improve, competition will increase and better services will be provided. Many international players like Le Meridien and Accor are targeting Indian markets to expand their business. With government's full support in to the industry through developing infrastructure, open sky policies and increased competition, the hospitality industry is getting consolidated and has a good opportunity to grow further.

References and Bibliography

www.wikipedia.com

www.allbusiness.com

www.hospitality-industry.com

www.business-standard.com

www.hospitalitynet.org

www.hospitalityupgrade.com

www.hospitality-index.com


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