Less than nine months after opening the first hotel in Mumbai under its brand, Hong Kong luxury chain operator Shangri-La Asia handed the keys back to the owner.
Now, U.S.-based Starwood Hotels & Resorts Worldwide Inc is in talks with the same owner to take over management of the property under its St. Regis brand, people familiar with the matter said, part of a shake-out at the luxury segment of India's ailing hotel industry.
Slowing economic growth and an oversupply of new hotels conceived during the boom years of 2006 and 2007 have led to falling room and occupancy rates in India, straining relationships between hotel owners and the global chains brought in to run them.
But while some global operators are leaving, others like InterContinental Hotels Group, Hyatt Hotels Corp and Starwood are jumping in, using the now unbranded hotels to accelerate their expansion in a country they believe has long-term potential.
"More than half the future deals we are looking at are conversions in the four- and five-star category," said Dilip Puri, India head and regional vice president for South Asia at Starwood, which currently runs 38 hotels in India and plans to have 100 in operation or under construction by 2015.
Puri declined to comment on Starwood's interest in the erstwhile Shangri-La. The hotel, now called the Palladium, is owned by mall developer Phoenix Mills Ltd and both the company and Shangri-La declined to comment on why the partnership ended.
Shangri-La, however, appears to be betting big on mainland China: about half of the 27 hotels it plans to open, or are under construction, over the next two years will be in China, according to the company's website.
Six years ago, a night at a luxury hotel in the Delhi region cost on average 10,429 rupees - about $259 at the time and on par with several five-star hotels in Singapore. Occupancy rates were an enviable 74 percent, according to hospitality consultants HVS, as business travellers flocked to India, an economy that was then growing at nearly 10 percent.
Since then, economic growth has halved, reducing the flow of corporate guests who make up about 70 percent of the business for five-star hotels in cities like Delhi and Mumbai.
Average room rates in the capital region have also almost halved to around 6,850 rupees, while occupancy rates were 55 percent, according to HVS. The declining economy, and revenues, have sparked a blame-game between hotel owners