Impact of recession on Hotel Industry

Presented by: Name Aditya T Prathmesh Sanjeevan Ekta Roll No. 171 155 164 126

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-aviz 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.

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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 2 3 4 5

Room 07-08 75-50 75-50 100-75 100-75

Occupancy 08-09 50-below 50-25 75-50 75-50

Room sales 07-08 08-09 67lacs 38lacs 96lacs 54lacs 23cr 14cr 40cr - above 40-30cr

Category of Hotel 2 3 4 5

Banquet Sales 07-08 08-09 18 lacs 8 lacs 24 lacs 19 lacs 2 cr 1.5 cr 15 cr 7cr

Revenues Restaurant & Bar 07-08 08-09 24 lacs 17 lacs 35 lacs 26 lacs 5.5. Cr 2.4 cr 47 cr 28cr

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

Primary Data: Through Questionnaire Secondary Data: Through published data

Category of Hotel 2 3 4 5

Cost of Operations 07-08 08-09 68 lacs 43 lacs 1-1.5 cr 60-65 lacs 15-20 cr 12-13 cr 89cr 54cr

Negative Impact
1) 3) 5) 4) Unemployment due to low business Reduction in Foreign Exchange Reduction in FDI. 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) 4) 6) 8)

Reduction in interest rates. Reduction in taxes. Entry for new players. 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

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