• Operators make a passage to India

Starwood Hotels & Resorts has announced that its headquarters will relocate to India for a month, reflecting the relevance of South Asia as the company’s third-largest market.

The announcement was the latest sign of faith in India’s new government, with operators such as Kempinski Hotels also eager to get into the country.

Starwood’s executives will split their time between Mumbai and Delhi in March next year, following a tradition of relocations which saw the group operate out of China in 2011 and Dubai in 2013.

Starwood president & CEO Frits van Paasschen said: “This is a particularly exciting time for us to relocate to India. Its renewed focus on travel infrastructure is much needed, as travel demand is fueled by economic growth and a population expected to overtake China by 2030.

“We all know of India as a hotbed of technological innovation and global services. Coupled with the rise in entrepreneurship and investment, millions of people are joining its middle class every year. And, of course, this means millions of new travellers. At the same time, India is both unique and immensely diverse. Our extended time there will allow us to immerse ourselves and appreciate new approaches to the business of hospitality.”

Van Paasschen said that with South Asia as the group’s base, its executives would be within a five-hour flight from nearly 40% of its global pipeline of new hotels. Starwood currently operates 40 hotels in India with another 36 hotels under development. Across South Asia, Starwood said that it  remained on track to reach its goal of 100 hotels under operation or development in the region by 2016.

“Overall demand for hotels in India is growing and evolving as the domestic economy expands and international visitation increases,” added Simon Turner, president of global development. “We have a significant opportunity to continue to grow our footprint through both new-build and conversions across the luxury, upper upscale and mid-market segments in gateway cities, tier two markets as well as in resort destinations.”

Starwood was not alone. Kempinski Hotels told local press in India that the company was in negotiations to open hotels in Mumbai and Hyderabad and was considering resorts in Goa or Kerala. It currently has one hotel, in Delhi. Last year Kempinski ended a 25-year marketing alliance  with local group Hotel Leelaventure.

The enthusiasm was echoed by HVS, which released a report in September reporting that branded/organised hotel room supply had grown at a compounded annual average rate of 17.8% over the past five years, while demand for these rooms grew at 17.6% for the same period.

As a result, India-wide occupancies increased from 59.3% in 2012 to 57.8% in 2013 and 58.9% in 2014. “While occupancies have remained range-bound, average rates have declined for several years in a row,” said Achin Khanna, managing director, consulting and valuation, HVS South Asia. The country saw the  official count of branded/organised hotel rooms cross the 100,000 mark in the past year.

Khanna added: “The Indian hotel sector is very likely on the cusp of its next up-cycle. The demand for quality accommodation will continue to grow and while the inherent cyclical nature of the sector will bring about crests and troughs, the fundamentals of the sector are strong.”

The election of Narendra Modi as prime minister in May has given the country a fillip, with hopes running high that he can reform an economy seen as being bogged down in bureaucracy. The new government was elected with a convincing majority, taking 336 seats out of a possible 543. It is now expected to reform taxes, subsidies and labour laws as well as improving relations with its neighbours in south-east Asia.

The new government has already been pushing growth in tourism and has set in motion visa reforms which will mean that tourists from 40 countries including the US and UK will be able to apply for visas online.
Early October saw the IMF jump on the India bandwagon, describing the country’s economy as out of its slump and increasing its 2014/15 growth forecast by 0.2 percentage points to 5.6%, citing better exports and investment prospects under the new government.

“In India, growth is expected to increase in the rest of 2014 and 2015 as exports and investments continue to pick up and more than offset the effect of an unfavourable monsoon on agriculture,” the IMF said.
India’s economy that grew by 4.7% last year. Last month saw Standard & Poor’s raise its credit outlook for the country to ‘stable’ from ‘negative’.

Not everything in India is looking upwards, however. The travails of Subrata Roy continue, as the chief of the Sahara conglomerate was returned to his jail cell after failing to do a deal to raise USD1.6bn for bail. Roy had been operating out of a makeshift office in the prison to try and sell hotels including the Grosvenor House in London and the Plaza in New York.

A source close to the company told Reuters that Roy did not have enough time to complete the sale, commenting: “Any negotiation of big-ticket items takes time, out of which maximum time gets spent on conducting due diligence and working out the current valuations. Roy and his team are working hard and trying their best even in wake of the current restrictions that Roy is in now.”

In August rumours suggested that the Sultan of Brunei had bid USD2bn for the hotels, which was later denied. Speculation then suggested that Sahara would try to mortgage the hotels to raise the money.

 

HA Perspective [by Chris Bown]: Modi’s arrival at the head of the country long seen as a slumbering giant has raised hopes that this massive market may finally wake up. As China’s growth pace starts to ease off, the global economy could well do with India coming on stream to drive growth.

The difference is already being felt in the hospitality sector. Not so long ago, beleaguered local developers were queuing up to sell their luxury hotel properties, as occupancy levels dropped, and tourism numbers were spooked by terrorist attacks. Now, Modi is talking of easing bureaucracy to encourage more visitors, while the big brands are sensing the time to move.

Many will hope he make it easier to do business in the country, an environment described by Whitbread chief executive Andy Harrison as “challenging”. It has long promised great things, and analysts reckon the country’s hospitality sector should double in size from 2008 to 2018, to around USD36bn. The market offers opportunities both at the upper end, to satisfy growing international visitor demand, while a growing demand from locals will be for economy accommodation.

Starwood’s approach of taking the top team on a corporate camping trip seems a great way to get to really understand a market, and will act as a catalyst to take the company on from its 2015 target of having 100 hotels in the country. Competing are others including Carlson (which lays claim to be the leading international hotelier in India), and Wyndham, which has just announced 10 more signings to grow its Indian portfolio.

 

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