The Ashok Country Resort in Delhi charges its guests, the bulk of whom are from overseas, in dollars. While the going was good before the rupee started to gain against the dollar, it now has an unhappy predicament—a fall in its revenue when it converts the dollars into rupees. Earnings have dipped “5-10% over the last month and a half” from the same period in 2006 says Varinder Sahni, the hotel’s director, operations
Slammed by a weaker dollar, hoteliers are seeing revenue growth arrested or slowed down. Moreover, a falling dollar is leading to a face-off between tour operators and hoteliers, both of whom want to offset their losses.
Even higher-end hotels are feeling the pinch. Dipak Haksar, the vice-president of ITC Ltd’s hotel division said his company’s flagship seven Luxury Collection hotels’ revenues grew about 19% in April and May compared with the same period last year, but would have grown by as much as 7 percentage points more if the dollar had not declined.
Haksar said that food and beverage sales, and revenues from domestic clientele, who made up about 35% of the guests and were charged in rupees, helped offset the stunted growth during April and May—when the dollar’s decline was sharp.
Hotels are losing potential revenue in the tourism sector because of the 9% drop in the dollar against the rupee, to ₹ 40.7 in the three months ending June 6. Travel agents, who also traditionally charge in dollars and generally make about a 10% commission on hotel room rents, are griping.
With little control over the rapidly appreciating rupee and consequently the dropping dollar, they are pushing hoteliers to help them compensate for the hit they are taking from the shifts in the exchange rate.
“All we’re saying (is) there are ways and means to share this loss which is happening. It could mean now, it could mean try to cover me up in future business,” saidHimmat Anand, chief operating officer for Kuoni Destination Management’s South Asia unit, an inbound travel agency. The Indian company is a subsidiary of the Switzerland-based Kuoni Reisen Holding AG.
“It’s just trying to cover your long term annual losses,” said Anand. He added that his company has also had a loss in revenue of about 10% over the past six weeks.
Both travel agents and hoteliers have benefited from high growth in India’s tourism sector over the past few years. Occupancy rates in India’s hotels were at a 10-year-high at 70.8% in fiscal 2006, according to HVS International, a global hospitality consulting firm. Further, the ministry of tourism reported a 13% increase in foreign visits to India over the prior year to a record 4.4 million in 2006.
However, according to statistics from the ministry of tourism, the dollar’s decline has slowed the growth of foreign exchange revenues for the tourism sector in April and May. Revenues in those two months were Rs4199.7 crore, reflecting a 10% growth rate over the same period in 2006. This is a sharp decline from the 22.5% growth when comparing April and May 2006 to the same months in 2005. In contrast, dollar figures show an actual increase of 1.7 points in the growth rate to 20% when looking at the same periods in 2007, 2006, and 2005. This demonstrates that the exchange rate has had an impact for Indian businesses in the tourism sector.
The growth in foreign tourist arrivals also dropped about 13 percentage points in April and May. About 600,000 foreign tourists came to India in those two months in 2007, an increase of 6.6% over the same period in 2006. In contrast, the growth rate in foreign tourist arrivals for the same months in 2005 to 2006 was 19.9%.
“If (Indian hotels) are quoting in dollars and…not changing it, then it will lead to a big loss,” said Vasudha Sondhi, director, sales and marketing in India for the UK’s Radisson Edwardian Hotels.
Anand says that hoteliers are pushing back requests for concessions by asking tour operators if they are willing to make their payments to hotels in rupees, even though the operators charge clients in dollars.
With an appreciating rupee, the tour operators are worried they would be disadvantaged if they pay hotels in rupees while their own revenue is dollar denominated. The prospect of the change worries travel industry professionals such as Anand, who have thus far done little more than negotiate on their own with hoteliers.
If this happens, he says travel agents will escalate the situation to industry level through organizations such as the Indian Association of Tour Operators to lobby the hotel industry to reduce risk and losses to the travel industry.
However, Gautam Chadha, CEO of Interzign Solutions Pvt. Ltd, owner of the online travel portal JourneyMart.com, said that ultimately there’s not much that travel agents can do, even through industry associations. It is “a great opportunity to let off hot air, but what’s the outcome? Nothing,” he said. “If the hotel decides it’s going to change its rules, what can the travel agency do besides hem and haw?”
For their part, hoteliers such as Sahni and Haksar say they are staying put with their rates and their use of the dollar for tariffs for now. However, if the situation worsens to Rs35 to the dollar, room rent policies would be up for review.