Monday, June 17, 2013

Selling India To The World, The Great Indian Travel Crisis

By M H AhssanKajol Singh

Home is not where the travel heartland is this summer. Footloose but pennywise, Indian travellers are packing their bags for overseas destinations, shunning domestic attractions. Flying abroad has always held more spell over travelling within India, but over the last decade, Indian tourism had been attracting visitors with well marketed heritage hotels, beaches and experience destinations like Kumarakom in Kerala and the more exotic North-East route. But an unhealthy combination of exploitative airfares and steep hotel tariffs is dissuading Indian tourists from travelling within the country. It is also stopping foreign tourists from flocking in. It’s less expensive for the Indian middle class traveller to fly to Dubai or even London than to fly to Kochi or the Andamans. England, Singapore, Dubai, Germany, Croatia, Spain, France and Thailand are the new hotspots where it is easier to bump into someone from India than in Leh.
The figures speak for themselves. This season newlyweds thinking of escaping the heat of the plains for the honeymooner’s paradise, Manali, will have to shell upward of Rs 35,000 for a weekend at any decent hotel inclusive of airfare. Four nights in shopping heaven Dubai would cost merely Rs 26,999. The Leh-Ladakh package is priced at Rs 25,999; if one is feeling adventurous and wants to travel by road to Ladakh, the wallet will take a hit of nearly Rs 50,000. A ‘Best of Kerala’ costs Rs 24,999, while flying to Sri Lanka—just an hour away—costs Rs 27,999 onwards.

Says Mohit Gupta, Chief Business Officer (Holidays), MakeMyTrip: “Our comprehensive product bouquets for popular destinations like Kashmir, Himachal, Goa, North-East, Rajasthan and Karnataka starts from Rs24,000, while Goa packages are available from Rs 12,000 onwards. Internationally, the discounts on European travel package averages 800 Euros per person, and packages to Thailand start at just Rs 20,000.”

Prohibitive domestic airfares and high hotel rentals are part of larger trend that has been shaping up for the past few years on the Indian travel scene. Air India hiked its fare by 20 per cent to cash in on the summer rush. Cheap airlines are but in name—Indigo was recently criticised for charging extra for the unwanted middle seat; it hastily withdrew, realising the absurdity of padding fares illogically.

At the beginning of 2013, SpiceJet, Jet Airways and Air India had announced bonanza fares with 40 lakh advance purchase fare (apex) scheme tickets available. But on May 15, a one-way Delhi-Chennai flight cost Rs 10,221 against Rs 7,889 on March 15—a 29 per cent hike. Delhi-Kochi saw a jump of 28.7 per cent and Delhi-Mumbai 27.7 per cent. Fares went up by 40 per cent on key metro routes on both economy and business class—advance fares increased by 30-40 per cent. Spot fares were hiked by up to 50 per cent and are likely to escalate further. Tickets booked seven days in advance have also gone up by almost 50 per cent.

As all long distance trains are booked to capacity for the next two months, tourists depend on airlines for faster travel.

“Airfares increased by around 50-60 per cent last year after the demise of Kingfisher and the pilots’ strike. This year, spot fares have increased marginally by 10-20 per cent across sectors. We are in the midst of the summer holidays when fares are traditionally high,” says Amber Dubey, Partner and Head (Aviation) at global consultancy KPMG.

Dubey explains, “The key reasons for fare increase include continuous slide of the rupee, high taxes on ATF and MRO (maintenance, repair and overhaul), high operating costs, high airport duties and reduction in capacity due to the demise of KFA. Opening of FDI by the ministry is a welcome step. This will enhance competition, expand air connectivity to new locations and ultimately help bring down airfares. The Ministry of Civil Aviation and state governments need to promote air connectivity to tier 2-3 cities by way of fiscal and monetary support. This is where the future growth will come from in terms of trade and tourism.”

The tourism industry is pinning its hope on new airlines like AirAsia India, Paramount Airways, and a new one planned by Capt. Gopinath to bring fares down.

Reacting to the high airfares, Civil Aviation Minister Ajit Singh told Parliament last month, “Airlines keep varying market strategies to further their business interest. Fares are not regulated by the fovernment. Airlines world over follow dynamic fare policy driven by market forces.”

If airfares are high, hotel tariffs are even worse as far as travellers are concerned. The price of a night’s hotel stay in India has gone up by 7 per cent over the last year, according to a recent report—`6,141 was the national average in 2012. In Goa, it was Rs 5,499, a 20 per cent jump compared to previous year.

The global Hotel Price Index notes that room rates in Mumbai and Delhi rose by five per cent and 10 per cent, respectively, to Rs 8,088 and Rs 6,871. Hotels in Mumbai on an average cost the most: `8,088 after a 5 per cent rise. Udaipur (Rs 7,683) is next while Delhi came third. In Kolkata, it is Rs 6,168.

In Hong Kong, where hotel prices went up by 39 per cent, the average rate is only Rs 11,456 a night. In China, a 30 per cent growth took the average rate to just Rs 5,306, and Rs 5,624 in Vietnam. Sri Lanka saw a 20 per cent growth which translates to only Rs 10,128. Malaysia at Rs 5,966 and Cambodia at Rs 4,910 after a 13 per cent hike are far more attractive options for the Indian traveller looking for the “foreign experience”. At Rs 3,430 a night, Nepal was the cheapest country for Indian travellers in 2012.

Room occupancy is naturally down in many cities. According to the recent global consultancy HVS report, “In 2011-12, most hotel markets witnessed a decline in occupancy with the exception of Ahmedabad, Pune, Kolkata, Mumbai and Goa.”

According to a prominent Delhi hotel that advertised room rents on its website, for an executive suite that costs Rs 20, 000, the customer will have to pay 10 per cent luxury tax and 7.42 service tax, which worked to Rs 23,632.40. Some hotels also charge service charge up to 10 per cent depending on services thus pushing rents even higher. So in the end, the room charges may go upto Rs 25995.64. A whopping `6,000 in taxes.

Globally, several European destinations saw a steep rise in average hotel rates, but proved to be still cheaper or only marginally more expensive than Indian hotels. In Germany, room rates grew by 25 per cent, taking average expense on a night’s hotel stay to Rs 9,166; in Austria, a 20 per cent jump took it only to Rs 7,869—still cheaper than Mumbai, Delhi or Udaipur.

Now, low tourist arrivals are affecting the performance of the luxury hotel sector in India; for the March quarter, occupancy rates were only 62 per cent. The Foreign Tourist Arrivals (FTA) was up by merely 2.3 per cent in the same quarter, compared with 9.4 per cent in the same quarter in 2012 and 10.8 per cent in 2011. On the stock markets, hotels have been underperforming.

No wonder then cheaper options are driving people out of the country. Suresh Kumar, CEO of a Chandigarh-based IT company, took a last minute four-day package to Thailand in May which cost him Rs 19,000. His package included airfare and hotel stay in Pattaya and Coral Island. A one-way air ticket to Leh or Goa costs Rs 12,000 upwards.

In New Delhi, the mushrooming ‘inns’ have not served the purpose. Many are nearly as expensive as a five-star hotels and most charge room rents equal to that of a four or three-star hotel. Studio apartments in Noida and Gurgaon charge exorbitantly too, thus mainly catering to the business traveller.

With Indians flocking to foreign shores, the hospitality industry is fighting a tough battle. The government seeks to double its foreign tourist arrivals to over 12 million by 2016. Currently there are only 128,770 rooms, while to accommodate more tourists, the number needs to be 310,500 rooms by 2016. However, constraints of high cost of land, non-availability of suitable location, stringent land policies of state governments and the highly capital intensive nature of the industry have been impeding the growth of hotel projects.

The Hotel Association of India in a recent memorandum to the finance ministry wanted the grant of infrastructure status to hotel industry under Section 80 1-A of the Income Tax Act prioritised to achieve the targets set. To meet additional requirement of rooms, the hotel industry would need mobilisation of huge financial resources of more than Rs 20,00,000 crore.

Tarun Thakral, chief operating officer, Le Meridian Hotel, Delhi, says, “Taxes are ridiculously high. Our constant fight with the government has been to bring down the taxes.”

About current demand, he says hotel rates have come down by at least 15 per cent due to increase in inventory in cities like Noida and Gurgaon. The occupancy is around 75 per cent.

It’s only in places like Goa and Himachal Pradesh that hotel rooms may be fully booked, elsewhere it is facing the heat.

“The room rents increase depending on demand. The rates are higher in destinations like Goa and hill stations where tourists are flocking,” Thakral adds.

 It’s little solace for the government that the number of foreign tourist arrivals in the country is rising, because the increase is painfully slow compared to other countries. Travel experts attribute the foreign exchange earnings growth of 20 per cent partly to a weakening Indian rupee rather than actual footfall spending.

Despite the diversity of sights and experiences ranging from thousands of years of heritage, 7500-km of beaches, mountains, desert, and accessibility, foreign tourist arrivals in India are an abysmal six million per annum as compared to other tourist-friendly countries in the neighbourhood. Singapore (10 million tourists per year), Thailand (19 million), Hong Kong (22 million), Malaysia (25 million) and China (58 million) make India look like inaccessible Shangri-la.

The taxation structure—which is highest among all tourist friendly countries—turned tourists from inbound to outbound.  To make matters worse, lack of hygiene and poor infrastructure around tourism sites put off people, multiple surveys established.

The Indian tourism industry has been asking for tax rebates to attract more tourists but the government has responded with even greater taxes.  Vijay Thakur, former president of Indian Association of Tour Operators (IATO), says tourists pay the highest tax in the country.  In China, Italy and Thailand, tax ranges between 7-10 per cent, but in India the tax rates are as high as 47 per cent. These include luxury taxes, service taxes, road taxes, all hospitality industry killers. Federation of Hotel & Restaurant Associations of India (FHRAI) says higher taxes are driving tourists away from the country. It wants hotels and restaurants to be included in the negative list for service tax.  There should also be a uniform rate of luxury tax across the country and this should be charged only on actual tariff and not published rates.

The K Chiranjeevi-led tourism ministry had assured tour operators that they will get a study conducted on higher taxes after repeated insistence. After leaving it to the market forces to decide rates, the Indian tourism industry is suffering in the process, and passing on the burden to the consumers.

The higher costs back home tell an interesting story. If last year merely six million foreign tourists came to India, over 12 million went from India to foreign countries. According to the recent Tourism Australia report, India has emerged as the world’s fastest growing outbound market second only to China. The number of Indians travelling out of the country is set to rise to 50 million by 2020 from 15 million now.

The middle class got wings after liberalisation of the economy; now with fatter pay packages, it is likely to increase in size from the current 5 per cent of the population to 50 per cent by 2030.  This also explains that Indians travelling to Asia-Pacific alone spent $13.3 billion in 2011. The figure will rise to $91 billion, according to recent Amadeus-Frost and Sullivan tourism industry report.

Says Thakur: “People think in terms of economics. When a one-way travel ticket to Leh costs `20,000, why not add a few more thousand and travel abroad? Moreover, travel abroad adds to passport profiles.”

The number of Indians flying out from the country in 1991 was 1.94 million, which rose to a massive 13.99 million in 2011, registering a compound annual growth rate of 10.95 per cent.

Tourism ministry figures reveal that the top five destination countries for Indian nationals in 2011 were Singapore, Kuwait, Thailand, Malaysia and the US.

So what could make the Indian traveller explore his own country rather than head abroad? According to the Chairman of Leela Hotels Vivek Nair-led FHRAI, “The Indian hospitality industry is subject to multiple Central and state levies, such as service tax, luxury tax, VAT, excise duty etc. These multiple taxes have an adverse impact which makes India extremely expensive as an international tourist destination. This has made it very difficult for the industry to compete with neighbouring countries, who charge much lower rates of tax in comparison.”

Similarly, in case of the airlines, the higher tax regime has forced the airlines to pass on the burden to the customers.

Dubey explains, “Airfares will reduce the moment states like Delhi, Maharashtra, Tamil Nadu, West Bengal, Karnataka and Andhra Pradesh look at aviation as an engine of growth rather than a milch-cow. Indian ATF is one of the costliest in the world—almost 55-60 per cent costlier than competing countries.  Every rupee of ATF tax forgone would result in more trade, tourism and employment as seen elsewhere.  To recognise this requires vision and political courage.”

Most global airlines are heavily supported by their government as an instrument of economic growth in most countries.  Strong national carriers support growth in trade, tourism and employment.  Taxes are either nil or negligible on various aviation related products and services. 

Indian tour operators have complained that they are being discriminated against as the export industry is exempted from service tax whereas the tourism industry is not. This is resulting in discrimination not only against the exporters but also against tour operators in neighbouring countries like Sri Lanka and Nepal who are not paying any taxes and the business for India is being routed through them.

Meanwhile, three dozen countries have opened their tourism board offices in India to woo Indians with great packages. They are aggressively marketing their products by engaging with tour operators.

As Gupta of MakeMyTrip says, “International tourism boards are definitely very focused on promoting their countries and destinations through attractive tie-ups with local travel agents such as ourselves and airline partners to provide great deals and promotions for customers. We work with a variety of tourism boards, in many cases exclusively in order to provide our customers unmatched advantage and offers. Recently we promoted Tuscany, New Zealand and Singapore in association with their respective tourism boards. These promotions range from an exciting Facebook photo-based contest (offering a trip to Tuscany), to flexible and exclusive itineraries for North & South Islands in New Zealand and mainsteam media advertisements.”

South Africa’s Western Cape provincial government is planning to increase marketing activities in India to attract outbound traffic. Turkey recently launched a pan-India advertising campaign called Million Reasons. Thailand and Australia is also running campaigns in India.

Thai Airways recently started direct flights between Delhi and Phuket, and Mumbai and Phuket. Introduction of direct flights between India and Istanbul led to a sharp rise in the number of tourists travelling to Istanbul.

Former Tourism Secretary Shilabhadra Banerjee says tourism tends to suffer because of poor infrastructure and lack of hygiene. “We are rich in heritage sites and tourists would go there. But if they are put off by poor maintenance they will not return and even tell their friends about it.  This is where our country fails. So it’s important to involve local bodies in maintenance of tourism sites. I had focused on states to give commitment to maintain sites properly,” Banerjee says.

The million-dollar Incredible India campaign that also has run its course is now set to be tweaked to attract more tourists.

Says Gupta, “Goa is an all-time favourite for Indian travellers all year round. Kashmir that opened up in a big way a couple of years ago has taken the top spot now for two years in a row. Other popular summer destinations include Shimla, Manali, Mussoorie and Darjeeling. This year, travellers are also looking at weekend destinations that offer more than just scenic beauty—places with experiences, adventure or culture such as Ooty, Corbett National Park, Udaipur and Pondicherry. Offbeat destinations are in high demand.”

Lesser known destinations like Bekal (Kerala), Coorg, Alibaug, Meghalaya and Pelling are gaining popularity. Even suburban resorts near Delhi, Mumbai and Bangalore are becoming popular options for short breaks.

Incidentally, Kerala has allocated Rs 189 crore to promote tourism in the 2013-14 fiscal. Jammu and Kashmir has set aside Rs 143 crore, Uttarakhand Rs 193 crore, Karnataka Rs 240 crore and MP Rs 232 crore for the same period.

“Indians are looking to travel and explore beyond their comfort zones, increasingly guided by a healthy sense of adventure and discovery, combined with a healthy spending power. This is attributed to the freely available and accessible information on different destinations, and details on cuisine, tourist spots,” says Dinesh Kapoor, ED, Nielsen India, adding, “This is also balanced with the fact that the Indian traveller is still value-conscious and careful when it comes to food habits. These attributes are incorporated in customising experiences for them.”

Chiranjeevi says the ministry has commissioned a study on high taxes burdening the tourism sector.“The ministry has decided to commission a study on taxes levied on tourism sector vis-a-vis the export sector. The objective of the proposed study includes comparative analysis of different taxation structures in tourism vis-a-vis physical export; determination of various incentives and subsidies available with physical exports.”

 Reacting to reports about Indians travelling abroad as the holiday packages in some of the foreign countries are cheaper and attractive, while domestic airfares and room rents are high, the minister says, “The number of Indians who travel within the country is 85.1 crore yearly. As against this, only 1.5 crore go abroad.  However, the tourism industry will certainly benefit if airfares and room rents are lowered.”

According to him, the ministry is working with state governments and stakeholders to develop more innovative tourism products and options.

Moreover, the Incredible India campaign has been very successful.  Proof of this is that in the last few months, the campaign has focused on Puducherry and Munnar and in both places there has been an appreciable increase in the number of domestic and foreign tourists.

Elaborating on the recent initiatives that have boosted the tourism sector, the minister said the Visa on Arrival (VOA) facility has greatly contributed to the increase in the number of tourists. 

Tall claims, but whether it will translate to real numbers only time will tell. Till then, the immigration officers at various airports will be busy stamping passports of Indian families off to that foreign holiday of a lifetime.

Selling India to the world
The Union Ministry of Tourism has been spending crores of rupees to sell India to the world. But it seems to have done little to lure domestic tourists
  • 2007-08: 170 crore
  • 2008-09: 220 crore
  • 2009-10: 240 crore                
  • 2010-11:  249 crore
  • 2011-12: 238 crore
  • 2012-13: 267 crore
The number of Indian nationals departing from India
  • 1.94 million - 1991
  • 13.99 million - 2011
  • A compound annual growth rate (CAGR) of 10.95 per cent
Maximum number of outbound Indian tourists was recorded at Mumbai, Delhi and Kochi. These three top airports accounted for almost 60 per cent of the total departures.
  • 21.4%  Mumbai airport
  • 19.6%  Delhi airport
  • 18.8%  Kochi airport
The crowd-pullers
The most popular destination among travellers in the world. Though expensive, France provides high level of security to tourists and regulates travel agents.

It welcomed 27 million visitors in 2010.  An intense advertising campaign has been promoting new destinations as well as the national carrier. Turkish culture is a big draw.

What works in its favour are proactive tourist policies along with great infrastructure and facilities. Methods of information dissemination, travel agents, visa rules and safety are its biggest advantages. Sanitation and hygiene standards are one of the best in the world.

In 2010, was at the sixth position in the world tourism ranking hosting nearly 28.13 million tourists. Remains ahead of India in technology, infrastructure, cleanliness, management and policies with major attractions drawing tourists in hordes.

India’s biggest competitor. Technology and Chinese culture are the main attractions. In the last decade, the country has invested heavily in infrastructure and facilities.

A favoured holiday and shopping destination, it ranks ninth in tourism arrivals. The country’s popularity can be credited to its aggressive advertising campaigns and relaxed visa policies.

Shopping and food are its most sought-after attractions. A strong marketing and promotion campaign has put the city-nation in 29th place in total tourist arrivals.

Success is attributed to its low hotel prices, scenic beauty, beaches, inspiring temples, cuisine and architectural ruins of fabulous ancient kingdoms. Thailand pursues an aggressive marketing campaign.

At the 34th position, it has welcomed seven million tourists. It has its share of problems like poverty, hygiene and policies, but has fared better than India which is at 40th place because of its advertising and management.

The buzz
The Government of India needs to work towards meeting the critical demands of the tourism industry that contributes an estimated Rs 94, 487 crore towards foreign exchange, around 6.4 per cent to the GDP and 7.8 per cent towards employment.

*The projected annual growth in the tourism sector is 12 per cent. 
*Requirement of additional hotel rooms under classified category in 2016 over 2010 is estimated to be 1,90,108
*Planning Commission Working Group report on 12th Plan.
*The number of Indians travelling overseas is set to rise from around 15 million today to 50 million by 2020

Indians travelling to Asia-Pacific alone spent $13.3 billion in 2011. This figure is set to zoom to $91 billion by 2030, making Indians the second-biggest spenders, after China, in the world on overseas travel.
  • Amadeus-Frost & Sullivan tourism industry report
  • India’s middle class will grow from the present 5 per cent to 50 per cent by 2030.
  • Amadeus-Frost & Sullivan tourism industry report
The average travel expenditure for the leisure traveller is $3894 and for a business traveller an average overseas trip costs $2175. United Kingdom is the most expensive travel destination for both category of travellers.

India lags behind other countries due to its low level of cleanliness, lack of management, infrastructural blocks in less available star category hotels, roads, lack of proper dissemination of  information, improvement in facilities such as visa, travel agencies, etc. Safety and security is one of the important concerns of travellers in India.

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