The Indian hotel industry has always defined and measured itself in the luxury segment. With an increase in affluent travelers to India, the sector is poised for new growth.
REPORT FROM INDIA—Luxury hotels have been a stalwart in India, and hoteliers have relied on the segment to gauge the pulse of the industry, especially due to the evidence over the decades that luxury is the one segment that is the most resilient to recession and offers greater financial returns.
Luxury hotel properties were once considered the only benchmark for investment in India.
In the last decade, the focus shifted to the budget segment, for which demand increased rather quickly due to a lack of supply and no organized players, while an emerging middle class with growing affluence flocked to the midscale and leisure segments.
Now luxury is back in the reckoning in India with performance, growth and development from major brands.
On 17 May, The Indian Hotels Company Limited, owners of the Taj Hotels Resorts Palaces Safaris brand, agreed to a deal with Singapore sovereign wealth fund GIC to invest $600 million “to acquire fully operational hotels in the luxury, upper-upscale and upscale segments in India.”
On 28 May, Taj Hotels opened the 239-room Taj Hotel & Convention Center, Agra—the city home to the Taj Mahal, which parts of the hotel overlook—in a management contract with owner Sincere Developers. It marks Taj’s debut in Agra.
Accor also has plans for development in India. Its luxury Raffles Hotels & Resorts brand will debut in India with a 101-room property in Udaipur in mid-2020.
Jean-Michel Cassé, Accor
Jean-Michel Cassé, Accor’s COO of India and South Asia, said the French hotel firm is focused on increasing its luxury and premium footprint.
“The Indian market is flourishing, and the luxury segment has a lot more to explore. … All the major industry players are looking to grow their luxury portfolio,” he said. “Part of our approach is to build quality developments rather than go for quantity.”
Cassé said finding the right partner and location are critical, adding that a second Indian Raffles, in Jaipur, is due to open in 2022.
“Within three years of the acquisition (of the Fairmont, Swissôtel and Raffles brands) we have been able to bring the most iconic luxury brand to India,” Cassé said, who added that the success of hotels such as the Fairmont Jaipur and the growth of the Indian market gave Accor executives the confidence to add another luxury brand to the country.
Room to grow
Akash Datta, SVP of consulting and valuations in the New Delhi office of HVS, agreed that there is untapped opportunity for expansion in the luxury sector, although he understands why midscale hotels have dominated Indian hoteliers’ thoughts of late.
Akash Datta, HVS
“The Indian hotel industry for most part of this decade, similar to it counterparts in the West, had focused on standardizing hotels across all segments to cater to the burgeoning demand of travelers,” he said. “While standardization in hotels across segments will continue to grow, in the luxury space the Indian diaspora is pushing for more experiential stays. We anticipate more such players to enter the (luxury) market as price points in the segment can be very attractive.”
There are plenty of regions in India with room for luxury development, Datta said.
“The penetration of the luxury segment in leisure locations of the country is still very low and mostly limited to established destinations of Goa, Kerala and Rajasthan. … The changing cycle has had very little impact on the growth of the luxury segment,” Datta added.
Deeksha Suri, executive director of The Lalit Suri Hospitality Group, which has 13 luxury hotels, 12 of which are in Indian, said the desire for new experiences is behind the renewed rise of luxury in the world’s largest democracy.
While urban markets lean on the corporate traveler, the game-changer in other markets is the experience luxury chains offer, she added.
“India’s luxury market is growing at a (common annual growth rate) of 13%. … With the improvement in infrastructure and air connectivity, inbound travel has improved and so has the demand for luxury hotels,” Suri said. “More international chains are expanding their footprints in the country and home-grown brands are strengthening their roots with inclusive offerings. It has definitely become more competitive, but there is a significant slice for everyone.”
Accor’s Cassé said the established brands have a good runway throughout India.
“The branded space is (ruled) by the luxury segment. Consumers are ready to spend, and hence the developers are providing inventory in this space. … We have a lot of scope to develop further,” Cassé said, who added hotel companies need to differentiate themselves to provide space for further growth.
Accor is also developing the 646-key Fairmont Mumbai in the city’s Sahar district, and plans are afoot for another Fairmont in Goa. Cassé said Accor is eyeing some of its other brands to make their Indian debut, such as Banyan Tree, Mama Shelter, Delano, Mondrian and Tribe.
Not just opulence
HVS’ Datta said while the luxury sector is ramping up to meet demand, there are still opportunities for boutique and lifestyle hotels.
“Established tourist locations in the country are steadily witnessing aggregation of existing boutique supply that is capable of forming a product that offers experiential services. … This sub-segment within the luxury space has the most potential to offer (experiences) in the near future,” Datta said.
One factor that perhaps might limit the inexorable rise of luxury is its seasonal demand.
Lalit Suri’s Suri said “leisure travel is often restricted to certain months, whereas corporates travel (year-round).”
But she still sees more space for luxury product in India, as well as growing demand.
“India has a lot to offer from local cuisine to architecture, from cultural insights to adventure, and with the rise of millennials and (dual-income no kids travelers), higher earning and spending power has created the increase in demand across the country for luxury travel,” Suri said. “Travel aspirations are undergoing a change, and the definition of luxury is no longer limited to opulence alone. Guests today are looking for experiences within the hotel and also want value for money for their experiences.”