Travel and Tourism continues to be the fastest growing sectors in India. As per the World Travel and Tourism Council (WTTC) India ranks 8th globally in terms of contribution of travel & tourism to GDP. In 2018, the sector generated US$247.3 Bn, accounting for 9.2% of India’s GDP and posted a YoY growth of 6.7%.

1. EXPLORING HOSPITALITY TRENDS
Travel and Tourism continues to be the fastest growing sectors in India. As per the World Travel and
Tourism Council (WTTC) India ranks 8th globally in terms of contribution of travel & tourism to GDP. In
2018, the sector generated US$247.3 Bn, accounting for 9.2% of India’s GDP and posted a YoY growth of
6.7%.
Being the largest market amongst other South Asian nations, it has been the key driver for growth of the
sector in the region. Domestic travel spending generated 87% of the direct Travel & Tourism GDP in 2018.
The leisure wallet also continued to dominate, accounting for 95% of the direct Travel & Tourism GDP of
the country, much higher than the world average (78.5%).
Industry estimates forecast a CAGR of 6.7% for the coming decade and the Industry could reach INR 35
trillion by Cy29 and account for 9.6% of the GDP. The industry supports 43 million jobs in the country
(8.1% of total employment). (Source: FICCI – India Inbound Tourism 2019)

2. India offers a diverse portfolio of niche tourism products, including cruises; adventure; medical; wellness;
sports; meetings, incentives, conventions, and exhibitions (MICE); eco-tourism; films; rural and religious
tourism. India is also an important spiritual destination for both domestic and international travelers.
Further, introduction of the medical visa (M-Visa) and e-Visa is expected to encourage foreign tourism in
India
However, in comparison to advanced tourism economies like Greece, New Zealand, and Thailand,
amongst others, in which the sector contributes to >15% of their GDP, India has enough headroom to
scale up and increase tourisms’ contribution to its GDP. Globally, tourism contributes to ~10.3% of the
world GDP.

3. Considering the positioning of the per-capita income curve of India, its GDP size, changing demographics,
the industry is poised interestingly. While the foreign tourist arrival numbers lend strong support for the
growth of the sector, the domestic tourism segment is at the cusp of inflection (if one were to consider
what happened in China in 2005) and that could propel the industry on to the next growth trajectory.
INDUSTRY OVERVIEW
Hospitality Sector in India:
The sector is a cyclical one and witnessed a strong uptrend during 2003-08. The topping out just before
the global financial crisis and in the ensuing slowdown the sector underwent a gut bursting downturn.
From 2015-18, the industry weathered adverse situations and started posting consistent growth. With
deleveraging being the focus, there was moderation in investments throughout the industry and as a
result cash discipline improved. In 2018, the industry achieved the highest occupancy levels at 65.3%;

4. highest Average daily rate (ADR) since 2012 at INR 5,920; RevPAR for Mumbai, Hyderabad, Pune and Jaipur
at a 10-year high; RevPAR for Ahmedabad, Bengaluru and Delhi highest since 2010, 2011 and 2012,
respectively.
Cyclicality in the Indian Hotel Industry:
Demand Drivers:
The demand segmentation of the Industry can be broadly classified as:
penetration Business Travellers / MICE – Business Travel accounts for ~ 71% of demand of the hotel chains
and has high correlation with the economic activity across the country. The short duration consumer is
usually time-conscious and price-insensitive i.e. ready to pay a higher price in exchange for flexibility of
being able to book a room at the last minute. The mid-to-long-term duration travellers are mostly there
to work on a project and may or may not be price sensitive depending on how their trip was planned.

5. Leisure Traveler – Currently, leisure demand accounts for ~29% of the total room demand and is expected
to grow at a CAGR of 8.7% over 2019-23. These are either foreign or domestic travelers whose primary
purpose of visit is holiday or sightseeing. Among non-business foreign tourists, the primary motivation for
visiting India is largely cultural attraction followed by conferences and conventions, tourist attractions like
beaches, wildlife, hill resorts, etc. Majority of these travelers are domestic travelers and with a growing
economy and rising income levels, the number of such travelers is increasing. With the entry of online
travel agents (OTAs) it has become easier and cheaper to manage and book travel schedules.
Airline Cabin Crew – Airline cabin crew forms another important segment because of the repetitive and
predictable nature of the business that they provide. Usually, these are a part of an annual contract
whereby, in return for a fixed rate, a certain number of rooms are provided on demand for cabin crews
with discount rates in the range of 40% and 50%.

6. Weddings and Social travels – India’s wedding tourism industry and destination weddings have been
growing at 25% over the last few years. The industry size was estimated at INR290b in 2017 and is
expected to be INR450b by 2020. Rising middle-class population, the NRI connect, celebrity endorsements
and high degree of personalization are the key drivers of the wedding tourism industry. Industry Supply
in India:
The Indian hotel market is comparatively under-penetrated. The industry has seen supply grow at 9.8%
CAGR for 20 years till Fy17. It is further expected to grow at a pace of 6.9% CAGR Fy17-22.
In 2018, the industry reported an addition of 8200 rooms. Midscale and upscale segments witnessed the
largest growth in the industry. Average inventory per hotel as of February 2019 was only 73 rooms.
Excluding Lux-Upper scale hotels, the average inventory is only 64 rooms. Just 19% of total supply is for
the leisure segment compared to 17% in 2014.
Going forward, we can expect inventory creation to be slow with fewer projects being undertaken
especially in the luxury-upper upscale and the focus being in the midscale economy. Several of the new
projects that have been undertaken will be completed by Fy21 or later.
Reducing Demand-Supply Gap:
The hotel industry primarily relies on four levers: supply, demand, occupancy, and ARRs. The industry as
a whole saw a down cycle – lower demand, occupancy and ultimately ARRs – during Fy08-13 due to the
economic slowdown led by various domestic and international factors. It however, started to see an up-
cycle – demand outpacing supply, higher occupancy and ultimately higher ARRs – post this period driven

7. by higher disposable incomes and thus higher discretionary spending, ease in booking and travelling and
a surge in MICE and domestic travelers.
Industry Overview:
Fy19 also saw a slowdown because of a moderation in consumption and high air ticket prices, but this is
expected to recover by the second half of Fy20 with favorable market conditions coming into play. As per
Horwath study, demand is expected to grow ahead of supply through Fy21, but a disruption on either side
could negatively impact the sector.
The industry is focusing on expanding operations through the management contract route and increasing
capital efficiency. It is also going through a cycle in which companies are now deleveraging and reducing
capex.
Future Trends and Opportunities in India:
• Shifting Towards Asset Light model: Budget and midscale hotels are increasingly adopting
leasing/management contracts models to exhibit high growth. Traditionally, under these models,
the developer (lessor) undertakes the development risk while the operating risk is borne by the
operator (lessee). These models result in superior operating and financial performance for hotel
operators.
• Online Travel Market: India’s e-commerce market was worth $2.5 Bn in 2009 and scaled up to $24
Bn in 2017. The online travel market was predominantly known for Air and Rail ticketing and these
constitute ~75% of the market. However, with the entry of global travel brands, mixed with a
tech-savvy consumers and new hotel openings by various national and international brands at
different domestic locations, online hotel bookings have emerged as a prospective opportunity
for both online travel companies and hoteliers.
• Foreign Investments: The tourism and hospitality sector are among the top 10 sectors in India to
attract the highest Foreign Direct Investment (FDI). During the period Apr’00-Jun’18, the hotel
and tourism sector attracted around $11.39 Bn of FDI (as per DIPP). Hotel transaction volumes
could cross $800 Mn in 2019, the highest for the industry.
• Service Apartment/ Student Hostels: These offer short-term or long-term stay and provide all the
luxuries of a premium hotel, and yet giving a home-like feeling at the same time. Global funds and

8. local developers such as Warburg Pincus, Sequoia Capital, Goldman Sachs, and Shearwater
Ventures are either invested or have firmed up plans to invest in this space. Student
accommodation across India is expected to reach 13 million beds over the next five years from 8
million at present.
• Foreign Tourist Arrivals: Historically, tourism footfall and spending in India has been driven by
domestic travellers. Over the past few years, the government has increased its focus on attracting
more foreign tourists through various campaigns, allowing 100% FDI in the sector and introducing
E-visa to 166 countries. The Indian government has also taken up key initiatives like increase the
number of airports (both domestic and international), improving the conditions and functionality
of railways and ports. As of 2017, India only accounted for 0.76% of the world tourist arrivals. The
government has set a target of increasing the share to 1% by 2020 and 2% by 2025.
• Standardisation can no longer be the norm: It is becoming critical to personalise and tailor services
to the needs and preferences of travellers. Technology will be at the core of the hotel experience
both in rooms, and before and after the trip. This will lead to the development of new concepts
and more innovation in the industry
Online Hotel Aggregators – Market Disruptors
The Indian hotel industry is witnessing a growth in technology driven start-ups. Each start up with its own
niche has had a complementing influence on the industry by increasing occupancy while providing a
gamut of choices; however, they have also caused disruption to the traditional businesses in certain ways.
With almost half of India’s working age demographic being tech-friendly millennials’ (71% use smart
phones for online bookings), who seek personalized experiences at the right price; the industry is expected
to grow at a CAGR of 14.8% to INR 2,625.7 Bn.
Online hotel aggregators follow an asset light model i.e. by either taking the property on lease or operating
it as a franchise using its brand name and standardizing all the unbranded hotels under its name. This
leads to uniformity in the services provided and assures quality to consumer. Most of their portfolio is
comprised of low to mid segment hotels. The asset light model allows the aggregators to rapidly increase
their inventory. For example, in the case of OYO rooms (lease & franchise model), which started off with
a single hotel in May 2013 now operates a portfolio of over 18,000 properties across 10 countries.

9. This is a growing threat to traditional businesses unless they invest in digital technologies and platforms,
while also strengthening their brick and mortar portfolio. Traditional business also will have to enhance
their pre-booking as well as post-booking capabilities to ensure customer satisfaction and retention. They
may also have to turn to inorganic growth to remain operational in this highly competitive market.
With Travel and Tourism being one of the fastest growing industries in India, we at PINC extend financial
advisory services to various travel and tourism businesses. We deliver our expertise in mid-market
Investment Banking advisory, Institutional securities trading, and private wealth management services.
We put in meticulous efforts and professional integrity in every financial service we provide.
For More Details :- https://pinc.co.in/