Source : economictimes.indiatimes.com
By : Reeba Zachariah
Category : Hotel Marketing Consultants
The Indian hospitality industry is going through some major break-ups. India’s fourth largest chain Leela has split with its partner of 25 years, Kempinski, Europe’s oldest luxury hotels group. A month back, Pallazzio Hotels, which owns the 390-room property in Mumbai’s luxury haven Palladium Mall, ended its alliance with Shangri-La. Similarly, Swissotel parted ways with Bangalore-based Convention Hotels for its deluxe resort in Goa. And Shiva Satya Hotels and Intercontinental called off their alliance for a five-star hotel in Ahmedabad. Interestingly, all these splits are happening at a time when the hotel industry is adding rooms at double-digit rates. The trend signals the growing disconnect between hotel owners and hotel managers over the running of operations and expected returns on investment. The re-alignment is coinciding with the tough times the industry is witnessing – both occupancy levels and room rates are declining due to an economic slump, inflation and weak consumer sentiment. Industry watchers say more break-ups are expected in the near future.
“In good times, the relationship between hotel owners and hotel operators remains fine as business is smooth. But in bad times, the relationship is often stressed. This shake-up is a sign of the latter,” said Kaushik Vardharajan, MD of consulting firm HVS India. Typically, Indian hotel owners enter into alliances with international hospitality chains for branding, sales and distribution, and management of the properties. Rarely do global brands invest in properties. In case of Leela-Kempinski, the Indian hotel group owned by the Nairs had a sales and marketing arrangement with the Geneva-based chain. And in case of Pallazzio-Shangri-La, the latter managed the entire show at the central Mumbai property. The alliances range from a minimum period of 10 years to a maximum of 60 years and the fees depend on the type of arrangement. For management contracts, Indian hotel owners usually pay 3% of the revenues and 8% of the operating profit to global brands.
“There is pressure on the bottomline during a slowdown and hotel owners expect maximum returns on investments, putting pressure on hotel operators,” said Homi Aibara, partner at hospitality specialist firm Mahajan & Aibara Consultants. After splitting with the international partner, some Indian hotel chains have gone solo, charting their own growth strategy. For instance, Lalit Suri hospitality group renamed its properties Lalit after ending its relationship with Intercontinental. The Oberoi group too re-branded its five-star hotels as Trident after terminating its alliance with Hilton. “This realignment puts international brands in a difficult spot as a split upset their brand-building plans in India, one of the world’s fastest growing emerging markets,” said an industry observer. “It also leads to a decline in the number of properties in the country,” the observer said.
Leela, which owns eight properties, said the split will allow the chain to consolidate its sales and marketing network, while facilitating Kempinski’s direct penetration of the Indian market. The Indian hospitality industry has gone through a significant change in the past decade or more. From five to six hotel brands, the industry now has more than thirty brands dotting the Indian skyline. Most of the well-known global hospitality chains from Starwood to Wyndham have a presence in India. In fiscal 2013, India added 9,000 branded rooms, resulting in a total supply of 93,479 rooms – up 11% over the previous fiscal, HVS data showed.