India's travel and tourism sector contributes significantly to the country's GDP and employment. It is forecasted to grow at a 6.7% CAGR over the next decade. While foreign tourist arrivals support industry growth, domestic tourism is poised for strong growth as incomes rise. The hospitality industry in India has undergone periods of growth and downturns but has been growing steadily in recent years. Key trends include a shift to asset-light models, growth of online travel agencies, and potential for growth in foreign tourist arrivals as the government promotes tourism. Online hotel aggregators are also disrupting the industry through standardized services across their inventory.

1. EXPLORING HOSPITALITY TRENDS - PINC
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)
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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.
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.

3. 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%; 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

4. Demand Drivers:
The demand segmentation of the Industry can be broadly classified as:
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-

5. 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.
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%.
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

6. 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.

7. 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 by higher disposable
incomes and thus higher discretionary spending, ease in booking and travelling and a surge
in MICE and domestic travelers.

8. 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.

9. 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 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

10. 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.

11. 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.
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.