Should You Tighten Your Seat Belts In 2012?

Industry experts gauge the market to see whether your business travel expenses will rise or decline in the coming year

The euro-zone economic crisis coupled with the depreciating rupee against the American dollar has seen 2011 end in uncertainty for India’s hospitality sector. However, with persistent demand in the industry that contributes (both directly and indirectly) about six percent to the GDP, experts say that there is no need for business travellers to hit the panic button.

The annual airline and air travel survey by TripAdvisor released in December did register that business travellers who are light flyers reduced their air travel in 2011 by over 25 percent from 2010. However, the reduction of air travel by moderate flyers was marginal, and business travellers, who are largely heavy flyers, travelled 10 percent more this year. This indicates resilience despite fluctuating airfares. Nikhil Ganju, Country Manager of TripAdvisor India said, “Despite the current economic environment and challenges faced by the airline industry, India has witnessed robust passenger growth in the past year and it seems that it is the heavy flyers which are contributing significantly to this growth.” Also, despite its turbulent times, flyers still voted for Kingfisher Airlines as its favourite carrier, a title it shared with Jet Airways.

The World Travel & Tourism Council has, moreover, predicted that investment in the travel and tourism sector in India will rise 8.7 percent from Rs 1,233 billion to Rs 2,827.5 billion in 2021. The clear demand for hotel rooms has also caused a flurry for expansion from both domestic and international hospitality brands, as well as entry of new players. The growth of tier II and III cities as well as the emergence of micro-markets within the metros have also spurred the interest of hospitality brands as well as airlines; both domestic and international airlines are increasing frequencies to these cities. The 100 per cent foreign investment in the hotel and tourism related industry could also pave the road for further growth in the sector. The Federation of Hotel and Restaurant Associations of India has said that the present 200,000 hotel rooms spread across categories and guest houses do not suffice; the demand-supply gap is of over 100,000 rooms.

This bodes well for business travellers, as room rates will not increase significantly, according to Rahul Pandit, the President and COO of Lemon Tree Hotels. He explains, “The inventory expansion ahead of demand expansion will lead to price consolidation in the short team, while in the long term, churning of ROI will drive consolidation of branded inventory.” He expects the mid market business and domestic leisure segments to grow the fastest, riding on the expansion of the Indian middle class wallet and shared nuclear family holidays that provide social connect to the aspirational young urban middle class. “Metros and demand dense markets should see an early double digit increase, and non-metros single digits, while inventory oversupply micro-markets will struggle to hold on to their current year gains.”

Philip Logan, the General Manager Delegate of Accor Hotels, Bangalore, however, feels there is always room for price variance across all market segments. “This means that in certain micro-markets where modern new products, improved service offerings and strategic location are provided, rates will continue to rise. Rates for older product or outdated service providers will see their rates moderate somewhat as consumers have become very savvy.” Despite the cyclical nature of the hotel business, he adds that Bangalore and India will remain a growth market for many years to come. “Tourism, leisure and MICE remain large potential growth markets for Bangalore. Despite tougher global times, overall market demand continues to strengthen and will continue to grow when the global economy strengthens.”

While Logan opines that all segments have potential to grow, he adds a note of caution: each city and micro-market has capacity absorption constraints. “Hence, five-star products where none exist, or an imbalance of supply-demand in certain metros means that we can enter with a new hotel product. An upscale brand like Novotel, a mid-scale brand such as Mercure, an international economy brand such as Ibis and international budget hotel brand as Formule1 have enormous opportunities across Greater Bangalore and India in general. Boutique niche brands such as M Gallery by Accor also are finding space in unique Indian locations.” The increase in the number of hotels benefits everyone, he explains. “The overall market demand improves local employment opportunities, dining options and lifestyle and quality of life. Gross domestic consumption increases with business trade, increased government taxation which all adds to greater societal returns and in the end, everyone benefits fundamentally.” With every new hotel, shopping mall and business, overall consumer outlook improves and in turn builds a platform for further consumer spending, ‘Positive Economic Spiral’ or ‘ripple effect’, he elaborates.

To create this positive scenario, Ashwin Narayanan, the Chief Operating Officer of Travel Tours Group, feels that the government needs to take concrete steps to curb inflation and stall the free fall of the Indian rupee vis-à-vis the world currencies. “In 2012, I would like to see a fair priced system with sufficient availability of airline seats, hotel rooms and convention space. A fair pricing will help create the right demand and will assist corporations and individuals in closing businesses – help expedite the decision making process.” However, he knows that things can go downhill as well. “What could happen is that high inflation in India coupled with the economic slowdown and recession in USA and Europe will lead to a reasonable amount of caution with buyers in India. Considering operational costs are high, the airlines and the hotels will have a tough time balancing their pricing and this could be perceived high and lead to delays in purchase.

In short, we will end up spending more time closing business. Customers could get extremely cautious about their spend – to the extent that they could even delay their purchase or indefinitely postpone the same.”

According to Thomas C Thottathil, the AVP – Corporate Communications of Cox & Kings, the not so bad news about travel in the coming year is that while holiday package rates have not appreciated like other goods, the depreciation of the rupee will leave a few dollars less in the hands of Indian travellers for shopping. “The good news,” he adds, “is that with more hotels opening up in India in tourist locations, you can expect hotel rates to remain competitive and thereby making holidays affordable.” However, the airline industry might not face the same fate. “Air fares in India are bound to go up as airlines curtain flights and they price their airfares more realistically.”

Tom Wright, the General Manager – South Asia, Middle East & Africa, Cathay Pacific Airways Ltd., has this to say about the rationalisation of airfares in India. “Aviation is a very complex cyclical business that is very sensitive to demand and costs. Major issues such as rising costs and fuel prices will have a huge effect on the airfares.” But he has exciting news as well. “We are introducing Premium Economy Class and the New Economy Class on our long-haul flights from March 2012. Passengers will be able to book their onward flights from Hong Kong on the new product from April 2012 onwards. We will also continue in investing in new systems and processes that enhance our offerings and make us more efficient such as our new passenger reservations system known as PSS. We’ll also be adding more fuel efficient aircraft and continue to grow our network. Looking ahead, we are likely to face a very challenging year in 2012, as the world’s economy is clouded with uncertainties – volatility in the financial markets. We are not blind to the challenges ahead and would continue to take a cautious and careful approach to the business.”

The uncertainty has led to an air of caution. Anil Paranjpe, MD and CEO of Prolific Hotels and Hospitality Services Pvt Ltd, feels that business travel could slow down, affecting both the airline and the hospitality sector as companies would resort to a “travel if you must” policy. “The FDIs of the world pulling out their investments from the country are telltale signs of the cash crunch that is going to hit the economy. This could result in high interest rates that would see projects across the industry being deferred or even shelved. The survivors and those who will come on top will be the ones who read the market dynamics correctly as the market forces can make or break the organisation.” He explains, “Companies that have the sustainability in terms of reserves will have the capacity to hold on but they too would have to look at ways and means to curtail unnecessary expenses. The worst affected would be the premier airlines and the top of the line five-star hotels as corporates will look for reasonably good alternatives. The downturn in the economy in 2008 saw a lot of company guesthouses spring up in majority of the cities. Paucity of funds can make a cautious consumer look for better alternatives as he would bet his last rupee on the best buy.”

The challenges ahead do not rest solely in the aviation sector. According to Pandit, there are challenges that loom ahead for the hotel chain in the Indian market – “Combating inflationary pressures due to slowdown in the economy and the high cost of funds, expensive real estate, obdurate regulatory environment and the hunt for talent.” For Logan, the concerns involve taxation, inflation and rising costs of utilities. “We also would like to see the Indian government improve visa access to free blockages for greater tourism. The topics of improved infrastructure and greater market deregulation policy are also of concern to all businesses. These comments are echoed by most business groups and are not unique to hotels. We would also like to see greater deregulation of liquor licensing so we can responsibly service our ever-increasing cosmopolitan and international guests.”

As business travellers, the mixed tidings need not deter you. Thottathil suggests measures to cut costs and travel smartly. “If travelling within India on leisure, take a mid-day flight or later morning flight. It is cheaper. While booking a hotel, stay in three-star hotels as these are more affordable. Check their reviews on third party sites to give you an indication whether it is safe.” While travelling overseas, he recommends booking air tickets on airlines that are cheaper. “Normally, for long haul destinations such as Europe and USA, try Gulf carriers as they are cheaper compared to European carriers. Of course, it will be a bit inconvenient at times but you may save upto Rs 10,000 per ticket!”

The Internet and online travel services are another boon for travellers. Says Prashant Chauhan, Director of MyGuestHouse.net, a portal for quality budget accommodations, “The online travel industry is gaining pace. Travellers can now have a look at a large pool of options with multiple price ranges and that too with just a click. With the ease of use, travellers can book their stays there and then.” However, he admits that the trudging economy can deter the process. “Over the past two years, India has experienced one of the highest inflation rates in major emerging markets. These fluctuations have a direct effect on the travelling rates.” His recommendation to business travellers is to forget the frills and opt for budget travel. “There are many high starred hotels providing the same services that a medium starred hotel can also provide. So spending lavishly for the services that are not required or available at lower prices seems pointless to me. Budget travel is smart travel. He also encourages the use of public transportation, consulting locals for intra-city expeditions, and referring to online portals that offer good deals.

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