On his recent visit to India, he took some time off to talk to Madhu Suthanan and Prashant Mahesh of the FE Thinktank about emerging trends in global hotel industry.

How have hotels done globally during the last one year?
The past one year has been good for four -star and five-star hoteliers, particularly in the US. As far as Europe is concerned it has witnessed another strong year. Within Europe south is stronger than north. Locationwise London is very strong.

Asia, of course, had a bad year, because of the Southeast Asian crisis which resulted in zero demand growth despite huge supply. However, as far as the Asian markets are concerned, the good news is that there is no fresh supply coming up in the near future. It will take another three years for the Asian hoteliers to see the boom times. Here too, the prospects are region based, while Indonesia will take a longer time to see a revival, Taiwan and Singapore are well on the course of a recovery.

How would you compare the hotels in Mumbai with those in New York or anywhere else?
As far as room rates are concerned, I would say that Mumbai is as competitive as any other market. That is the rates are costlier than other Asian markets and cheaper than western cities like New York.

Even the service standards in India are comparable with those in the rest of the world. In terms of improvement, Indian hotels would do well to add more space to their conference rooms.

What are the constraints on hotel business in India? How can they be overcome?
High taxes and lack of infrastructure facilities are the major constraints on the growth of Indian hospitality industry.

Moreover, hotels should have more exhibitions, conventions and trade shows, both international and domestic, to attract more traffic. This is missing in Indian hotels. Rectifying this problem will be the immediate solution. While a long term solution will be development of infrastructure. If cities within the country are linked with proper roads we can expect faster movement within cities, thereby more occupancy rates for hotels.

Another factor that I would say is hampering the industry growth is the slow approval process from various government departments in India.

What is the business mix as compared to tourist mix in the US?
Business mix may vary depending upon city to city. While a tourist destination may have more of tourist travellers, a big city like New York may have more of business travellers. Similarly in India, Goa may have more of tourists while Mumbai and Delhi may have more of business travellers.

Typically, a city like New York has 60-70 per cent business travellers as against 30-40 per cent coming from the tourist segment.

Why is it that income from food and beverages in India is higher than that in countries abroad?
Hoteliers in the US typically do not earn money from food and beverages. In fact, you would be surprised to know that some of them actually lose money. This is because numerous good and affordable restaurants are available abroad. Transportation is easy and even the food is clean and safe. Because of the commuting problems in India, a lot of clients prefer to eat in hotel restaurants.

Another reason for hoteliers earning a lot of revenue from this source is the fact that a lot of marriages in India take place in hotels. Compared to this, in the US there are clubs and community halls for such occasions.

What is your view on outsourcing various services as far as hoteliers are concerned?
As far as restaurants are concerned, there is no harm in leasing one out to a third party, provided one is able to maintain his quality.

However, the trend followed by restaurateurs abroad is that one of their restaurants is leased. However, my advice to hoteliers would be to never lease the banquet business or the convention business because in both the cases, quality has to be maintained.

In the case of house keeping, many US based hotels outsource their laundry. But my view is that in the US laundry is costlier, so it is all right to outsource there; but in India employee cost is low so hoteliers would do well to get it done in-house.

The concept of service apartments is gaining ground in India. How is this idea faring in the US?
The market for a service apartment in the US is very thin, with these apartments accounting for just five per cent of the total demand.

However, over the past few years a lot of service apartments have sprung up, which has resulted in large supply with no demand growth, leading to tighter margins.

What should be the ideal land cost for a hotel? What is the rate of return for hotel business in the US?
Cost of land for a hotel project should ideally be in the region of 10-20 per cent of the project cost with exceptions for places like New York and Mumbai.

Hoteliers in the US enjoy a rate of return of 12-14 per cent, which translates into a payback period of around seven to eight years.

What is the future of hotels in India ?
India with its huge population, rising disposable incomes, a good legal framework and a stable government offers tremendous investment opportunities. Most hotel companies would be looking at setting up their own properties or buying out the existing ones than entering into management contracts with local partners. The companies would be making investments with an eye to eventually securing management control.

In the immediate future, the hotel industry in India is likely to see the emergence of budget and mid-market hotels. It may witness more mergers, acquisitions and consolidations to reap the benefits of increasing tourist arrivals in the next two to three years.

The time share industry, is doing well in the United States. However the concept has failed in India. Do you see any future for this industry ?
The time share industry is very popular abroad. However, in India it has not done well due to some dishonest time share sellers and developers. Even the US time share industry passed through a similar phase in the eighties but eventually bounced back, thanks to the entry of leading brand names and imposition of regulations within the industry.

Similarly, the Indian time share industry may also grow once established brand names enter the sector.

Are foreign investors keen to invest in the Indian hotel industry ?
International hotel companies, including Starwood from the Sheraton-Westin stable, and foreign funds such as Goldman Sachs and Apollo are exploring investment opportunities in the Indian hospitality industry. Their decision to invest in the country and other emerging markets in the Asian region follows saturation in the US and other traditional markets.

Which are the best global locations for hotels?
Any location with high occupation rate and high average room rent is the best. It changes from time to time based on the demand-supply scenario. While demand change is slow and less risky, supply change involves a lot of risk because the market experiences sudden jumps in supply that may make plans go haywire.