Demand Determination Of Hotel Industry Tourism Essay

Price of hotel depend upon their services provided and market price of another hotal and thought the hotels will increase their published tariff by 5-10 across the board from October this year. “Inflation in food, recession, rupee depreciation which has increased our import cost of products and F&B from abroad, and the overall hike in service tax are a few reasons why hotels will hike the published tariff after months. Price provide on the basis of their location and preference of customer.

Income of target consumer

India occupies the sixty-eighth position among the top tourist destinations in the world for 2011. To encourage the tourism sector, the government in recent times, has taken some measures which will benefit the sector. According to the latest Tourism Satellite Accounting (TSA) research, released by the World Travel and Tourism Council (WTTC), the demand for travel and tourism in India is expected to grow by 8.2 % between 2010 and 2019. This will place India at the third position in the world. India’s travel and tourism sector is expected to be the second largest employer in the world. Capital investment in India’s travel and tourism sector is expected to grow at 8.8 % between 2010 and 2019. And services for all income level of people and services for business class people tourist and vesting people

Availability of finance

The major source of financing to hotel industry tourism finance cooperation of India (TFCI) has been providing specific project-related services to various clients. It has also undertaken appraisal of individual projects for various state government agencies/individual clients. TFCI has also successfully handled projects involving development of viable project concepts around lakes/water bodies , development of a multi-facility amusement park complex etc TFCI has been providing specific project-related services to various clients.

Replacement of demand

The demand of the hotel industry is directly connected with global and local economic growth and investor confidence. A strong underlying economy is a pre-requisite for sustained recovery. Unfortunately, the year 2011 has not been a year of economic recovery either in India or globally. After two exceptionally bad years, the global hospitality industry was expected to recover in 2011. Despite encouraging signs in the first half of 2011, there was growing uncertainty during the latter part of the year. As a result, recovery has been fragile during 2011. The situation in India mirrors this overall global trend.

India’s rapid economic growth has already set the stage for fundamental changes in the country’s population. With more disposable income, the demand for travel and tourism has also grown. Although, currently domestic tourists constitute a very small chuck of the total tourist pie, the segment is growing.

Promotion schemes

For attracting more foreign and domestic tourists to India, Department of Tourism has taken up several drives. The objectives of this scheme are, The Scheme aims at enlisting the support of NRIs, preferably NROs to promote Orissa as a preferred destination among their friends and acquaintances. They could be Businessmen, Housewives, Students or any other professional who in their spare time motivate their friends to visit Orissa. They shall be disseminating information on Orissa Tourism and market Orissa Tourism products amongst their friends and relatives along with potential tourists visiting the State. They will be enrolled as Special Tourism Promotion Officers, STPO who will be entitled to get some incentives on the business generated through them while the tourists booked through them will get some discount. Their enrollment will be honorary and they will be only entitled for incentives on the business generated through them. They cannot create any lien or liability on behalf of the State Department of Tourism India Ministry of Tourism would also provide financial assistance to tourism service providers approved by the Ministry of Tourism, Government of India.

Excise duty structure

In recent years government has taken several steps to boost travel & tourism which have benefited hotel industry in India. These include the abolishment of the inland air travel tax of 15%; reduction in excise duty on aviation turbine fuel to 8%; and removal of a number of restrictions on outbound chartered flights, including those relating to frequency and size of aircraft. The government’s recent decision to treat convention centre’s as part of core infrastructure, allowing the government to provide critical funding for the large capital investment that may be required has also fuelled the demand for hotel rooms

According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fueling hotel room rates across India. According to estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a cost-effective tourist destination.

Prospects

In the long term, the demand-supply gap in India is very real and that there is need for more hotels in most cities. The shortage is especially true within the budget and the mid market segment. There is an urgent need for budget and mid market hotels in the country as travelers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.

The United Nations World Tourism Organization (UNWTO) expects growth to continue for the tourism sector in 2012, although at a slower rate. It forecasts international tourist arrivals to grow in the range of 3% to 4% in 2012. WTTC indicates that this growth will be moderate as the bounce-back for tourism destinations that faced specific challenges last year, will be offset by a weaker performance in other countries. Travel & tourism in India is expected to perform well in 2012. UNWTO predicts that India will receive 25 million foreign tourists by the year 2015.

Despite the economic and political scenarios worldwide, demand for business travel has remained relatively robust. Companies are likely to increase spends and the multiplier effect of healthy salary increases will drive discretionary spending, especially on leisure travel. The affluent segments plan to spend more on travel in 2012, creating opportunities for the hospitality sector in the luxury space India’s room supply pipeline represents 17% of the Asia-Pacific pipeline. It was moving at a CAGR of 10.8% for last 10 years and is now poised to grow at a CAGR of 6% in next 5 years. The intense supply pipeline would be backed by addition of room capacity by all the hotels both in India and Internationally. The supply pipeline would beef up also on account of improved foreign tourist arrivals, corporate travels, etc. International hotels like Carlson, Strawood, Marriot, etc are the ones which have chalked out plans to acquire the sufficient market share, thus, giving a thrust to the Indian supply pipeline.

profile of players in the Industry

Best Hotel Chains of India

Taj Group of hotels in India: The most popular name that is almost synonymous to hospitality in India is that of the Taj Group. Offering the best hotels across various genres like business hotels, heritage resorts, luxury hotels and even sea resorts, the Taj Group is definitely the best in the field.

The Oberoi Group of Hotels in India: One of the most prominent names among the hotel chains of India is the Oberoi Group. It also owns several properties in exotic places like Australia and Mauritius. With its world class facilities and efficient staff to manage and play the perfect Indian hosts, the Oberoi hotels is no doubt a great feather on the grand cap of tourism in India.

Hotal leela

One of the finest hotel groups in India, with hotels in Mumbai, Bangalore, Goa, Kovalam, Gurgaon, Udaipur and New Delhi, The Leela Palaces, Hotels and Resorts provide the discerning business and leisure travellers with a warm, relaxed and most importantly, memorable stay with an unrivaled fusion of Indian hospitality, world-class service and amenities. Hallmarking the essence of India, at every Leela Hotel, you will find stories that await you at every nook and cranny and the fine line between business hotels and luxury resorts seamlessly merge. The proximity to international airports and central business districts, strategic locations, individuality, and the intrinsic Indian culture and heritage distinguishes the group from the rest. The ‘Guest is God’ philosophy truly represents The Leela Palaces, Hotels and Resorts.

5. Distribution channel

How the customer books his room can make a big difference to a hotel’s bottom line. Intermediaries can take a good chunk out the gross amount a guest pays for his overnight. A room booked through a travel agent and the GDS (global distribution system) typically costs the hotel 15% of the reservation’s total. Contrary to popular belief, third-party websites are no bargain either for the hotelier, as they keep about 13% of a booking’s value.

So-called “merchant” websites (such as Priceline.com or Hotwire) which basically buy inventory from hotels usually average a 33% mark-up on the rooms they sell. Bookings arriving via the central reservation system of voluntary chains (such as Minotel) can cream over 25% of the client’s original payment between travel agent, tour operator and chain fees. Many tour operators working in mass leisure destinations only pay 50%-60% of the normal room price to the hotelier who is lodging their clients.

Fortunately for hoteliers, the predominant distribution channel for hotels remains direct contact with the property (via telephone, fax or e-mail), which, according to Horwath’s Worldwide Hotel Industry Study, accounted for 34% of all advance reservations in 2002, but which is down from 38% in 1995 . This proportion varies between 27.5% for hotels in Africa and the Middle East and 40.5% for hotels in Europe.

Thus, overnights generated by electronic means of distribution still constitute much less than half of the total at about 24% (includes travel agent and GDS in figure 1 below). Although internet distribution has grown rapidly from (0.8% of the total in 1996 to 3.3% currently, according to Horwath), it is still relatively unimportant. Furthermore, this study predicts a rise to a total of 20% of bookings by internet in 2005, split 11% – own website and 9%- third party. Jupiter Media Matrix makes a slightly less optimistic prediction, forecasting the percentage to rise from 7% in 2001 to 16% by 2007.

Hotel companies use both rate parity and rate integrity while selling their hotel rooms. Rate parity can be defined as maintaining consistent rates for the same product in all online distribution channels regardless of what commission the OTA makes. The concept of rate integrity isn’t as clear cut with some arguing it is simply trust in the fair price of a room.

 In general though, rate integrity isn’t something concrete; it is something the hotelier must have in mind when setting rates. “Whether it’s maintaining integrity through rate parity by justifying price discounts, avoiding price slashes, or a combination of all these practices, it is important for hoteliers to have a consistent rational rate structure,” says Mourier.

As hotels compete and try to step up their direct online booking share, it’s important to assess how rate parity and integrity impact their business. According to Vishal Jain, chief products officer at travel technology company Rate Gain, rate parity affects the distribution partners or channels more while rate integrity affects hotel’s brand value. He argues that parity issues with your brand site (bigger distribution partners having cheaper better-value offers than your own site) will directly affect brand trust and value but can also lead to loss of business from more profitable channels. It can also lead to decreased visibility on other channels.

“The trend that parity for hotels seems to be ‘having better deals at large OTA sites’ is something we have uncovered consistently in the parity reports we publish regularly at Rate Gain,” says Jain.  One reason for this could be the extensive parity tracking and automated alert systems that OTAs have successfully put in place to keep hotels on their toes; something the corporate office and brand HQ is unable to do with their own hotels. It gets even harder for those hotel companies that do not own and manage the hotels since they have even less control on the properties but the parity anomalies hurt them both financially as well as with their brand’s value.

Assessing Channels Properly 

Regarding parity and rate integrity on retail pricing in both direct and indirect channels, Preferred Hotel Group’s Brij Bhushan Chachra who is director, revenue account management in India, Middle East & Africa, says each channel needs to be measured on its merits and value proposition it brings to the table.

Today each channel has different value propositions and cost structures and as businesses it is important to ensure a company maximizes the same for its hotels.

When it comes to OTAs, hotel companies need to work out the total value the business gets in terms of marketing and exposure and not to forget the ‘billboard effect’. It is important for hoteliers to safeguard their channels and ensure there is value parity across the board. Chachra defines value as this: the benefit a consumer derives from a product in correlation to price paid to satisfy their individual requirements. In this context, one has to make sure that all segments are priced based on the current demand-supply situation which will yield optimal results from all the segments. There is a need to make efforts to get rid of static rates for all segments and move to dynamic pricing across the board.