Impact of Global Financial Crisis on Hospitality Sector Based
ABSTRACT
The Global financial crisis from 2005 to the present is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It was triggered by a liquidity shortfall in the United States Banking system which resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world.
In India, the global financial crisis badly impacted the Indian tourism and hotel sector that resulted in decline in the number of foreign tourists, decline of Foreign Direct Investment Inflows and affected the gross domestic product of India. The study is related with the Impact of Global Financial Crisis on Hospitality Sector based in Mumbai region, Mumbai region will include, Mumbai, Thane and Navi-Mumbai based Hospitality industries. The primary data is collected through interview method. The questionnaire is chosen as resource to collect the information.
The secondary data is collected through various magazines, journals, scholarly articles, research papers and various authentic websites of various Hospitality industries. The paper attempts to analyse the impact of global recession on Hospitality sector in India especially Tourism and Hotel Industry in the country. Further the paper focuses on the challenges faced and opportunities that can be availed during and after global financial crisis. Keywords: Challenges, Opportunities, Foreign direct investment, Foreign tourist inflows, Gross domestic product.
INTRODUCTION
The Hotel industry is linked to the tourism industry which forms the most important support service that affects the Foreign Tourist Arrivals to any Country. In recent years many international hotel chains like Marriott International, Intercontinental Hotels Group are setting up hotels in India and many international tour operators are establishing operations VOLUME NO. 1, ISSUE NO. 2 ISSN 2277-1182 1 ABHINAV NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN ARTS & EDUCATION www. abhinavjournal. com rom India. A rapidly growing middle class, the advent of corporate incentive travel and the multinational companies into India has boosted prospects for tourism. The turmoil in global financial markets had generated new concerns for the hospitality industry. India had a biggest drop in corporate travel spending falling to 25% in year 2009 compared to year 2008. Growth rate of the aggregate sale of hotel companies fell down to 9. 1% during Dec. 2008 quarter from growth rate of 17. 4% during Dec. 2007 quarter.
There was decline in India’s average annual GDP Growth from historical high of 10. 10 percent in September of 2006 and a record low of 5. 50 percent in December of 2004. The financial year 2008-2009 was an unforgettable one for the Indian tourism and Hotel industry, with the Mumbai terror attacks and global economic down turn affecting the industries performance. The Hotel industry also, observed an overall decline in occupancy and Revenue per Available Room in most cities. The adverse impact of economic downturn on India? s tourism was far less than global tourism industry.
OBJECTIVES
The objective of the study is To know how the Hospitality Sector of India was affected during recession. To know the current overall industry position and how can it be developed in future. To know the steps taken by the Government of India to curb the effect of recession on Hospitality Industry through its policies.
REVIEW OF LITERATURE
“The financial downturn that is impacting developed economies are likely to get worse as the European countries, the US and others go into a deeper depression due to the increase in Job losses which often follows recession.
The slump in the market and increased job losses will have some important implications for the changing tasks of human resource professionals. As the unemployment continues to increase, HR professionals are likely to be dealing with more stressed employees who are the sole wage earners in their families”. [Mujtaba, 2008} “The global economic crisis has brought to the forefront of organizations the concepts of viability and survival which at these times can be desperate pursuit.
There are three main reactions in organizations, namely the corporate reactions in organizations, namely the corporate reaction to remain viable, the employee reaction to survive the turbulence, and the human resources reaction including recruiting and hiring talent, corporate organization, training and institutional learning”. [Kathleen Patterson & Gray Oster, 2008] In emerging economies, growth is projected to slow down appreciably but still may reach 5. 0 percent in the year 2009. The overall recruitments are lower for the industry this time as companies remain cautious amidst the global financial crisis. [Srivastav, 2009]
METHODOLOGY
The data is collected through various sources like secondary data from various magazines, journals, scholarly articles, research papers and various authentic websites of various Hospitality industries. The primary data is gathered by using Interview Method of various VOLUME NO. 1, ISSUE NO. 2 2 ISSN 2277-1182 ABHINAV NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN ARTS & EDUCATION www. abhinavjournal. com hospitality industries? authorities. The data will be analysed by using MS-EXCEL to find out various trends and to draw the graphs for the interpretation of data.
The selected respondents will be representatives of the total population. Here the higher authorities of hospitality industries become the population. The questionnaire is chosen as resource to collect the information. Research will be conducted on clear assumptions that the respondents would give frank and fair answers in a pragmatic way and without any bias. LIMITATIONS The study is limited to major Hospitality Industries of India and the data is limited to 7years. The major hospitality Industries includes Taj Hotel, Kamat Hotel and Leela Hotel.
UTILITY
The rationale of the study is that there are various factors that affect the Indian economy but the researcher through this study wants to find whether the impact of global recession has affected the Indian economy severely or gradually decreases with new initiative policies. The utility of the study is to know how are the Hospitality industries growing after global recession in terms foreign tourist arrivals, generation of foreign exchange reserves and how are they contributing to the Indian economy in terms of GDP, reduction in inflation, rising of stock markets.
FINDINGS AND DATA ANALYSIS ?
To know how the Hospitality industry of India was affected during recession. Table 1. Growth of the hospitality sector before the recession Name of the Hospitality industries Taj hotel Kamat Hotel Leela Hotel Growth of the hospitality sector before the recession Significantly negative Slightly negative No impact Slightly positive
Significantly positive
Interpretation:
Before the global recession began, we can see that Taj hotel had significantly positive growth, Kamat and Leela hotel had slightly positive growth. Table 2. Effect on the operations of your company during recession.
Most of the customers and shareholders became unemployed due to cost cutting and there was huge downfall in the financial market. ? To know the current overall industry position and how can it be developed in future. Table 3. Changes in the number of employees during the recession. Year 2004 2005 2006 2007 2008 2009 2010 Number of Employees of in thousands Taj Hotel Kamat Hotel Leela Hotel 7609 4200 4500 8005 5000 6000 7500 6500 7500 6405 6700 8400 6700 7600 8600 4300 5000 5300 6500 6800 6700 Interpretation: The average number of employees during the recession in Taj Hotel is 6568, for Kamat Hotel is 5971. 429 and Leela Hotel is 6714. 86. As per the table, in the year 2009 the number employees in Taj, Kamat and Leela hotels are less compare to other years.
The change in number of employees in the hospitality sector during the recession was due to sudden reduction in creation of employment; new appointees to the organisations were sent back home with advance 3months salary due to company policy of cutting costs and salary of many employees were reduced by 20% of their actual salary. Table 4. Taxes paid by the company during Global Recession Year 2004 2005 2006 2007 2008 2009 2010 Taxes paid by the hospitality sector in Crores Taj Hotel Kamat Hotel Leela Hotel 35. 2 4. 12 34. 33 88. 22 7. 40 33. 77 13. 35 8. 10 23. 04 12. 43 11. 03 34. 44 13. 45 67. 29 43. 35 15 31. 8 25. 89 25. 07 55. 55 30. 09 Interpretation: As per the data , the taxes paid by the hotels vary from 2004-2010 as the operations and sales slowed down due to global recession and terror attack on Taj and Oberio hotels in 2009 . In the year 2005 the taxes paid were very high as we had high tourists inflow from both inbound and outbound.
In the year 2008 the profit earned by most of the hotels was very high as we had high tourist? s inflow from both inbound and outbound. Table 6. Investments made by the company during the recession Year 2004 2005 2006 2007 2008 2009 2010 Taj Hotel 600. 83 607. 01 656. 57 962. 81 977. 58 1182 1169 Investments in Crores Kamat Hotel Leela Hotel 0. 17 117 0. 164 124 0. 163 135 3. 98 156 15. 08 147 25. 07 126 74. 70 112 Interpretation: As per the data, investments made by the hotels vary from 2004-2010 as the operations and sales slowed down due to global recession and terror attack on Taj and Oberio hotels in 2009 .
In the year 2007, 2009 and 2010 the hospitality sector had to investment more on assets in order to earn more customers and to generate employment Table 7: Number of tourist passengers in India during the recession.
Due to these reasons tourists could not afford to travel either for business or for holidaying with family. Table 8. Effect on the remittances/ foreign currencies during global recession Year 2004 2005 2006 2007 2008 2009 2010 Remittances of foreign currencies from hospitality sector in Crores Taj Hotel.
Interpretation: The remittances from foreign currencies during the recession vary year wise.
In the year 2009 the number of tourists in India from other countries is less compare to other years. This decrease was due to slow down of business in Indian and foreign Market, high attrition rate, unemployment, reduction in pay scale, no incentives and cost cutting. Due to these reasons tourists could not afford to travel either for business or for holidaying with family.
Interpretation: The total assets during 2005 are less compared to 2004. There was increase in investment of assets during 2006-2008 but there was decrease in investments of assets as the operations and sales slowed down due to global recession and terror attack on Taj and Oberio hotels in 2009. In the year 2009 and 2010 the hospitality sector had to investment more on assets in order to earn more customers and to generate employment.
To know the steps taken by the Government of India to curb the effect of recession on Hospitality Industry through its policies. ? The hotels Taj, Kamat and Leela strongly agree for the importance of branding of their products during recession. Importance of branding during recession Policies undertaken by Government during the recession period. Looking at the slowdown in tourism sector seriously, the ministry announced Policy measure to promote tourism in the country and it declared year 2009 as Visit India year?. ? Further the Government tried to provide Complimentary services to foreign tourist, involving leading hotels, tour operators in its tourism promotion programs and stressed on providing security facilities for tourist arrivals. 3. Measures or future developments made by your company post global recession.
TAJ HOTEL
New Properties Opened- The Company? efforts of restoring the once resplendent Falaknuma Palace, Hyderabad eventually fructified with the grand opening of the Taj Falaknuma Palace in November 2010, with an exclusive get together of global connoisseurs of luxury who came together in Hyderabad for this occasion. Expansion in Domestic and International Markets- The Company ventured into new geographies by entering into management contracts in Mexico and British Virgin Islands for development of high end Luxury Resorts.
The Company continued its thrust on flagging properties under the “Gateway” brand in prominent economic, commercial and industrial centres of India by signing management contracts for hotels in Chandigarh, Ludhiana and Kolhapur. It has signed management contracts in leisure destinations such as Shimla and Rishikesh for a Gateway and Vivanta by Taj resort respectively.
KAMAT HOTEL
Expansion of projects: B W Highway Star Private Limited which is the subsidiary of Kamat hotel has presently two operational hotels at Pune under the brand name „The Orchid? and „VITS? esides restaurants and banquet halls. Management Contracts- the Company is having management contracts for managing hotel properties at Aurangabad, Karwar, Udaipur, Delhi and Pune.
LEELA HOTEL
Expansion of projects – The opening of Gurgaon hotel and residences heralded the arrival of the Company in the Delhi National Capital Region. This property, with 322 guest rooms and suites and 90 serviced residences, is operated under the “The Leela Kempinski” brand. This contemporary designed hotel with large banquet halls and state of the art facilities has been well received by the business clientele.
Hotel Group, established in 1897, and is also a member of The Global Hotel Alliance based in Geneva, Switzerland, which is an alliance of high profile independent hotels worldwide. The Company has entered into an alliance with Preferred Hotel Group whereby all our hotels from June 2008 have become members of this luxurious collection nder their most premier segment Preferred Hotels and Resorts. This will enable our hotels to acquire greater recognition of this brand in the USA as premium and luxury hotels and would give opportunity to leverage further 29 global sales offices in the USA, Singapore, Hong Kong, Japan and Australia among others. This will also facilitate our relationship with four of the largest consortia – American Express, CWT, BCD and Hogg Robinson.
SUGGESTIONS
Need to rationalise the taxation on the hospitality industry.
The hospitality sector has to adopt a single luxury tax across the country. To reduce procedural delays a provision of single-window clearances at the local, State and Central Government levels has to be formed. Tax holiday would encourage Foreign Direct Investment in this sector, more players to set up hotels and to bridge the shortage of rooms. Need to provide Capital Investment to the country – The India? s hospitality sector is expected to grow at 8. 8% between 2010-19 and India to get capital investment worth US $ 94. billion by 2019. Measures have to be taken to achieve the expected growth of Capital investment in India. Need for Economic generation to the country-The hospitality industry provides extreme opportunity to India in terms of contribution to its GDP and employment generation. The Government policies should focus at increasing tourist arrivals in the country and facilitate investments in tourism infrastructure, which will lead to significantly higher multiplier effect on the key economic parameters of the Indian economy.
Need to generate Strong Sales and Marketing network- The hospitality industry lacks highly trained and motivated sales force in India excluding few hotels like Taj, Oberio and Leela. A Strong sales force always provides extensive reach and penetration in the market. Need to have Strong Food & Beverage Skills: There is a requirement of strong Food beverage skills in Hospitality sector as it becomes a forte of any hotel or restaurant. This strengthens the hospitality sector to open number of Food and Beverage outlets, in partnership with celebrity chefs.
Reduction of Geographical and economic risk. The hospitality sector has to reduce the Geographical and economic risk in order to increase its presence internationally in key gateway cities and resorts in South East Asia and other countries.
CONCLUSION
Service sector plays important role in Indian economy. Within the Service sector tourism and hospitality industry has more importance about generating employment, yielding foreign exchange.
National income growth and providing base to other industries regarding tourism directly or indirectly The demand for travel and tourism in India is expected to grow by 8. 2% between 2011 and 2019 placing India at the third position in the world. With its close ties to the tourism industry, the Indian hospitality sector is expected to see an estimated investment of USD 12. 17 billion during 2011, and in addition of over 20 new international hotel brands by 2011. Further capital investment in India’s travel and tourism sector is expected to grow at 8. % between 2011 and 2019 while India is expected to get capital investment worth US$ 94. 5 billion in the travel and tourism sector in 2019.
Foreign tourist arrivals are expected to grow to 10 million by 2012 and the domestic tourism is expected to increase by 15% to 20% by 2015 as per the Ministry of Tourism. Government of India is allowing 100% Foreign Direct Investment in Hotels and Tourism, through the automatic route. This forms as investment opportunity that helps the Indian hospitality sector to contribute Rs. 8,50,000 crores to the GDP by 2020 ( approx. 800 million USD). The Hospitality sector has to initiate a number of steps to further strengthen the sales and marketing network in the domestic as well as the international markets by conducting successful road shows in international fairs and. New Personal Relations agencies need to be appointed in international level to achieve step-up media visibility in foreign countries. Over the years the hospitality sector needs to build a large network of partners and associates to participate in its growth as they form an important part of the Hotel/restaurant strategy.
To successfully counter the risk from growing competition and the new properties, The hotels and restaurants have to renovate and reposition all their key properties. It should improve its service levels by providing uniform and best service across all their subsidiary hotels. The hospitality sector has to aim for control its operating and financial leverage by expanding through management contracts and leveraging the strengths of their Associates.
REFERENCES
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- Investment opportunities in Tourism Sector, Government of India portal Investment Commission. VOLUME NO. 1, ISSUE NO. 2 ISSN 2277-1182 9 ABHINAV NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN ARTS & EDUCATION www. abhinavjournal. com 3. Manpower recruitment in Hotel industry, A market plus report of Ministry of tourism, Government of India. .
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