New Delhi: As concerns of euro-zone economic crisis and weak rupee cast shadow on India's hospitality sector, there were few reasons to raise a toast in 2011 for the industry despite increase in both inbound and domestic travel.

Though a there was a modest hike in hotel occupancy, revenues per room remained almost unchanged due to over-supply and on the whole analysts described 2011 as "a bit of a flat
year".

During the year gone by, the sector that contributes about 9 percent to India's GDP saw the international hotel chains, including Las Vegas-based MGM Hospitality and UK's Whitbread and Best Western, expanding rapidly in the country.

On the other hand, domestic hospitality firms such as Oberoi, ITC and Leelaventure were in the news more for board room actions, although they had their share of expansions, too.

There was bad news for both consumers and companies both in the very beginning of the year as the government decided to impose service tax on food served at air-conditioned
restaurants, and hotel rooms that charged above Rs 1,000.

"Hotel occupancies in 2011 improved by about 4-5 percent to touch an average of about 67 percent but the average room rates were almost flat with an increase of 1-2 percent, primarily due to over-supply of rooms," Elara Capital Analyst Himani Singh said.

This was happening in a year when India decided to accelerate efforts to projects itself as a tourist-friendly nation under the 'Incredible India' campaign and draw more visitors from across the world by expanding tourist visa on arrival scheme to more countries.

The government extended the scheme in January 2011 to tourists coming from an additional six countries -- Vietnam, Philippines, Indonesia, Myanmar, Laos and Cambodia. Earlier this facility was extended to only five countries -- Finland, Japan, New Zealand, Singapore and Luxembourg.

Hospitality consulting company HVS felt the government action was not enough to accelerate growth of the sector.

"2011 has been a bit of a flat year. Except for a few cities like Bangalore and Delhi, many other cities have seen a decline in the overall performance," HVS India Managing Director Manav Thadani said.

Part of this has been because of the pure business sentiments which plummeted in the past six months due to government inaction, he said.

Perhaps, the only silver-lining in the near future is that with rupee crashing by 20 percent India suddenly is a much more affordable destination for foreign travellers. "Also the big domestic market may choose to focus on India rather than overseas travel," he said.

Singh of Elara Capital, however, doubted if India could actually benefit from inbound tourists. "Given the current economic scenario in the Euro zone, we are not sure if inbound
tourist inflow will remain the same going ahead," she said.

As per official estimates, foreign tourist arrival (FTA) during January-November stood at 55.75 lakh, a growth of 9.4 percent compared to FTA of 50.96 lakh in 2010, which was a
growth of 11.9 percent over the corresponding year of 2009.

Foreign Exchange Earnings (FEE) in January-November period of 2011 increased by 17.7 percent to USD 14,876 million compared to USD 12,635 million during 11 months ended
November 2010, which was a growth of 27.8 percent as against the same period of 2009.

The depreciating rupee against dollar burnt a bigger hole in the pockets of Indians travelling abroad as travel firms hiking charges to offset the impact.

In 2011, there were also some changes at the corporate level for some of the India's leading hotel firms. Indicating a change in its top leadership position, ITC said its chief Y
C Deveshwar would move into a non-executive role sometime in the next five years to pave way for his successor.

Over a year after Reliance Industries Ltd (RIL) picked up a minority stake in Kolkata-based EIH Ltd, Nita Ambani and Mukesh Ambani's right hand man Manoj Modi checked in on the
board of the hospitality firm as Additional Directors.

DLF acquired the entire 26 percent stake of its partner Hilton International in the hospitality joint venture – DLF Hotels and Hospitality -- for an estimated Rs 120 crore.

On the other hand, homegrown luxury hotel brand Leelaventure announced its diversification plan to set up a chain of three star hotels at pilgrimage locations across
India under 'Leela Gardens' brand.

During the year, the company sold its luxury hotel property in Kovalam, Kerala to Travancore Enterprises Pvt Ltd (TEPL) for Rs 500 crore, in an effort to reduce its debt.

OP Munjal-promoted Hero Group announced its foray into the hospitality sector and is developing a 280-room luxury property in Gurgaon.

2011 was also a year when a host of international brands announced their India entry plans, while the existing global brands focused on expansion.

Las Vegas-based MGM Hospitality partnered with Silver Resort Hotel India to develop a luxury property in India. International hospitality chain Best Western announced plans to operate about 100 hotels in India by 2017, up from the 18 at present, Starwood stuck to its target to have 100 hotels here by 2015.

UK-based Whitbread also said it will invest 75 million pounds (over Rs 535 crore) in India by 2020 to operate over 80 properties in the country. Zinc InVision Hospitality is likely to invest up to USD 90 million (nearly Rs 400 crore) in the next 3-5 years to operate up to 15 hotels in the next three years in the country through a mix of ownership and management contracts.

Bangkok-based Lebua Hotels and Resorts tied-up with Tirupati Buildings and Offices Pvt Ltd to open its first luxury hotel in Delhi.

Swiss hospitality firm Movenpick Hotels and Resorts announced entry in partnership with MSR Hotel Pvt Ltd with plans to operate 10 hotels here in the next five years.

On the backdrop of these announcements, according to estimates of hospitality consulting firm HVS, India's hospitality industry is expected to touch a total room capacity of 1,02,438 by 2015-16, from the current capacity of around 71,530 rooms. In 2010-11, about 9,130 branded rooms were added in the country across segments.

Yet, industry observers sounded bearish on the outlook for 2012.

"We do not see the government getting out of the current slump anytime soon and with various State governments going into election mode we think this will have a further negative impact on business sentiments and travel," Thadani of HVS said.

There is still a fair bit of new supply which will enter many of the Indian cities and this will continue to offer rate pressure on the hotels.

"My outlook is that rates may actually decline by 5-10 percent across India next year and occupancy will be under pressure to hold on to 2011 levels in many of the markets," he
added.

(Agencies)