The hotel industry - an overview

Lotus Strategic Management Consultants
01 November 2001

The hotel industry has reported impressive earnings and revenue growth for the year ended March 2001. This was after a slack period in the financial year 2000, when net profits dipped on a negative sales growth. The industry is again headed for a hit, with the attacks on the world's largest financial centre in the US.

 Highlights: 

• The Indian hotel industry is metro dependent, as 75 to 80 per cent of the revenues of top hotel chains come from the five metros. Mumbai and Delhi are the most profitable hotel markets currently.
  

• The hotel industry is heavily taxed. Expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30 per cent. The effective tax in Southeast Asian countries works out to only 4 to 5 per cent. As these taxes are the domain of the state government, the rates vary accordingly. Among the metro cities, the luxury tax rate in Chennai is the highest.
  

• The average room rate (ARR) and occupancy are the two most critical factors that determine the profitability. ARR, in turn, depends on location, brand image, star rating, quality of facilities and services offered and the seasonal factor.