Impact of recession on Hotel

Industry
Presented by:

Name Roll No.

Aditya T 171
Prathmesh 155
Sanjeevan 164
Ekta 126
 What is Recession?

Recession is a decline in a country's gross

domestic product (GDP) for two or more
consecutive quarters of a year. A recession
is also preceded by several quarters of
slowing down.

GDP= Consumption + investment + government spending + (exports-imports)

 Current Global Scenario…..

The state of turmoil in global financial markets has generated new

concerns for the hospitality industry.

The aggregate sales of hotel companies grew by 9.1% during Dec 08

quarter, much slower than 17.4% during Dec 07 quarter.

The dip in margins can also be attributed to foreign exchange losses

posted by companies on account of appreciation in the value of USD viz-a-
viz Indian Rupee.

Earnings from foreign tourist have surged by 15.2 % to Rs. 299.9 billion,
during April to Dec 2008-09 period as compared to the corresponding
period a year ago.
 Current Global Scenario…..

Total dollar earnings fell by 12.5% from USD 1149 million in Dec 07 to
USD 1005 Million in Dec 08.

This decline can be attributed to the sharp 19.5% depreciation in the

value of Rupee on year to year rupees.

Indian Hotels and Hotel Leela Venture were the worst hit by the foreign
exchange losses of 9.4 Cr. and 9.3 Cr. Respectively (as per CMIE)

India is expected to see Asia's biggest drop in corporate travel

spending, falling 25% this year compared to 2008.

When evaluating hotel companies during this down-cycle, Hotels are

paying close attention to changes in average daily room rates as an
indication of how quickly it may recover once the economy improves.
 Current Global Scenario…..

The state of turmoil in global financial markets has generated new

concerns for the hospitality
industry.

Existing hotels in India are also likely to benefit from the improved
performance of the non-room sources of income, namely Food &
Beverage (including banquet operations), Spa, Corporate Club
memberships and other ancillary services.

India is expected to see Asia's biggest drop in corporate travel

spending, falling 25% this year compared to 2008.
 Indian Hotel Industry

Products

Key Players

Significance
 Products

2. Rooms

4. Conference Rooms

6. Banquets & Halls

8. SPA facility

10. Restaurants & Bar

12. Recreation facility

 Key Players

1) ITC Limited

2) Asian Hotel

3) Taj Hotels

4) The Leela Venture

5) Trident Hotels

6) Kamath Hotels
 Significance
• Hotel Industry has been built as an infrastructure for tourism in
which the scope of earning is almost infinite, considering the
potential of this global industry.

• Hotel industry is never a commodity supply like a package, process

for promotion of rooms and supply of food, but demands hospitality
as well.

• First pre-requisite of hotel industry is forecast of future demand, in

terms of demand that the right supply at right place, right time and
right price is built up.

• One hotel room alone creates three direct & nine indirect job
opportunities which makes it a labour intensive industry

• Hotel is a essential destination facility that a country must provide to

built up its tourist image.
Project Study

 Problem Statement – Industrial and

economic growth/ slowdown has direct
impact on the Indian Hotel Industry
Project Study
Background

 Hotel background of Mumbai based hotels

(Establishment of hotels, Categories of
hotels (2,3,4,5), Occupancy of hotel during
specific period 2007-08 and 2008-09.
Sample size
There are 92 hotels in all category.
We need to segment hotel in %age wise
 2 star are 9 = 9/92 x 100 = 8%
 3 star are 41 = 41/92x100 = 44%
 4star are 24 = 24/92x100 = 26%
 5star are 18 = 18/92x100 = 19/%
Total sample sizes for research will be 30 hotels
So,
 8/100x30 = 03 hotels (rounded)
 44/100x30 = 13 hotels
 26/100x30 = 08 hotels
 18/100x30 = 06 hotels
                       30 hotels
Sample Size
 Now, Out of 9 hotels (2 star) we
need to randomly choose only 3
hotels
 Now, Out of 41 hotels (3 star) we
need to randomly choose only 13
hotels
 Now, Out of 24 hotels (4 star) we
need to randomly choose only 8
hotels
 Now, Out of 18 hotels (5 star) we
Variables affecting slow down in hotel
industry

Independent Variables
 Stock Market

 Country GDP

 World GDP

 Industrial Growth
Variables affecting slow down in hotel
industry

Dependent Variable

Performance of hotel industry

Primary Data: Through Questionnaire
Secondary Data: Through published data

Category of Hotel Room Occupancy Room sales

07-08 08-09 07-08 08-09
2 75-50 50-below 67lacs 38lacs
3 75-50 50-25 96lacs 54lacs
4 100-75 75-50 23cr 14cr
5 100-75 75-50 40cr - above 40-30cr

Category of Hotel Banquet Sales Revenues Restaurant & Bar

07-08 08-09 07-08 08-09
2 18 lacs 8 lacs 24 lacs 17 lacs
3 24 lacs 19 lacs 35 lacs 26 lacs
4 2 cr 1.5 cr 5.5. Cr 2.4 cr
5 15 cr 7cr 47 cr 28cr
 Primary Data: Through Questionnaire
Secondary Data: Through published data

Category of Hotel Revenues Fitness centre Revenues shopping arcade Revenues business centre
07-08 08-09 07-08 08-09 07-08 08-09
2 NA NA NA NA NA NA
3 NA NA NA NA NA NA
4 95 lacs 60 lacs 50 lacs 35 lacs 12 lacs 4 lacs
5 5cr 2cr 3cr 1cr 42cr 18cr
Primary Data: Through Questionnaire
Secondary Data: Through published data

Category of Hotel Cost of Operations

07-08 08-09
2 68 lacs 43 lacs
3 1-1.5 cr 60-65 lacs
4 15-20 cr 12-13 cr
5 89cr 54cr
 Negative Impact

1) Unemployment due to low business

3) Reduction in Foreign Exchange

5) Reduction in FDI.

4) Decline in growth of foreign tourist arrivals (FTAs):

India receives huge tourist inflows from the UK and US. Due to recession,
many countries like the UK, US, Australia, etc had issued travel advisory
notes.

This has led to huge cancellations/postponements of room bookings by many

foreign tourists to the tune of 35-40% in the last 3-4 months.
 Positive Impact

2) Reduction in interest rates.

4) Reduction in taxes.

6) Entry for new players.

8) Customer can book at the last minute & have opportunity to

negotiate.

10) More discounted hotel deals and easy availability.

12) Discounts in luxury services.

 Conclusion
First, increases in occupancy are accompanied by increases in
operating expenses. For every room that is filled, there are
additional costs such as housekeeping, laundry and utilities that
must be paid. When room rates decline while variable operating
expenses remain stable, margins are compressed.

Second, and most importantly, cuts to ADR are difficult to recoup

when the operating environment eventually improves. After slashing
room rates in an effort to fill a hotel, attempts to restore those rates
to previous levels are likely to be met with significant resistance. As
such, the ability to benefit from an improving economy will be
delayed.
 Thank You