HOTEL INDUSTRY AND HUMAN RESOURCE …shodhganga.inflibnet.ac.in/bitstream/10603/21380/12/12...Chapter 2 HOTEL INDUSTRY AND HUMAN RESOURCE MANAGMNET- A THEORETICAL OVERVIEW In this

Chapter 2

HOTEL INDUSTRY AND HUMAN RESOURCE MANAGMNET-

A THEORETICAL OVERVIEW

In this chapter a review of the hotel industry and the human resource

management practices in hospitality organizations has been made. Any analysis of the

hotel industry won’t a full-fledged one without examining the tourism industry, which

is generally considered as the mother of hotel industry. Thus, the presentation of this

chapter has been divided into two sections - Section A relates to the tourism and hotel

industry and Section B to human resource management practices.

Section A

TOURISM AND HOTEL INDUSTRY

The hospitality industry is a 3.5 trillion dollar service sector within the global

economy. It is an umbrella term for a broad variety of service industries including, but

not limited to, hotels, food service, casinos, and tourism. But tourism is regarded as

the principal component of hospitality industry as it generates huge foreign exchange

and provides with large employment.

There are different conceptual meanings attached to the term ‘hospitality’

which, generally refers to ‘the friendly and generous reception and entertainment of

guests or strangers’. The concept of hospitality has been in existence since long time

back. It was mentioned in the writings of ancient Rome, of ancient Greece and of

Biblical times. These writings give two possible explanations as to why in those days

people felt the need to be hospitable. In certain instances, they associated hospitality

to strangers with their religious generosity. In other instances they were hospitable

only because of their own superstitious fear. Both attitudes were derived possibly

from the belief that a stranger was either a God or a representative of Evil spirit,

perhaps the devil himself. Thus, in both the cases either religious or supernatural

factors acted as the principal motivating force in the concept of hospitality.

The National Committee on Tourism defines tourism as a comparatively

modern phenomenon of traveling in pursuit of leisure, culture and knowledge about

other lands. Tourism started on a massive scale in Europe as late as 19th century,

though it has emerged as a worldwide enterprise in a short time. Today tourism

Human Resource Management Practices in Hotel Industry in Kerala

29

development is sweeping the globe. It is one of the world’s fastest growing industries

and its role in accelerating the economic development of a nation is widely

recognized. It has also emerged as the most lucrative business of the world, having

tremendous potentiality for earning foreign exchange, yielding tax revenue,

promoting growth of ancillary industries and generating income and employment.

Tourism also contributes to the development of industrially backward regions.

2.1 Global Tourism – A Historical Perspective

Man is a social animal. Since the dawn of civilization man has been an ardent

traveler motivated by the desire to expand existing trade or to conquer new places or

for pilgrimage. Whatever the objective, man has been sauntering to other areas to

expand his outreach: intellectual, economic, territorial.

In the beginning, travel was confined to aristocratic families in Europe. The

Renaissance of Europe aroused a new spirit of enquiry for acquiring knowledge

through undertaking extensive travel. The aristocracy of Europe started the Grand

Tour in the 17th Century, which was subsequently followed in the 18th and 19th

Centuries by the emergence of an affluent mercantile class. Renaissance had also

created the spirit of adventure and discovery in the minds of Columbus, Vasco Da

Gama and Sir Francis Drake. Until the First World War, travel remained the privilege

of a small segment of society across the globe. The First World War had brought

about a significant change in the travel for pleasure and leisure.

Tourism began to be recognized as an engine for economic development only

after the Second World War that witnessed major damages and the revival of the

extinct Economies was the order of the day. United States had taken initiative to

introduce a master plan for the revival of the ravaged Economies of European

countries. The European governments invested huge amounts for the revival of

dilapidated hotels and other infrastructural facilities to attract more visitors.

Many countries had set up official tourist organizations at the national level to

assess the possibility of exploring new avenues for international tourism. The massive

development during the post world war years created a number of international

organizations like IUOTO (International Union of Official Travel Organization),

WTO (World Travel Organization), IATA (International Air Transport Organization),


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ICAO (International Civil Aviation Organization) and PATA (Pacific Asia Travel

Association). These organizations play tremendous role in promotion of international

tourism.

Technological inventions minimized bottlenecks in the travel trade by

introducing various modes of transportation like steam engine, steamship and jet

propulsion engine that fuelled the growth of travel on a larger scale in the successive

periods. As a result, international tourism concept has expanded and tourism has

become the second largest industry in many countries, next to oil industry.

2.2 Tourist Arrival and Receipts (Worldwide) During 1950-2010

International tourism has been progressing since 1950. Many countries are

deeply involved in reaping the benefits of tourism by taking various promotional

measures and providing infrastructure facilities. The growth of international tourism

activities has flourished substantially from the beginning of the 20th Century. Between

1950 and 2010, the international tourist arrivals have increased from 25.3 million to

940.0 marking a compound average growth rate of 6.21 whereas the receipts from

tourism have increased from US $ 2.1 billion to $ 980.0 billion which embarks a

compound average growth rate 10.79.

Table 2.1: Tourist Arrival and Receipts (Worldwide) During 1950-2010

Source: India Tourism Statistics (various issues), Department of Tourism, Govt. of India.

Table 2.1 indicates that the growth in tourism, both in terms of the number of

persons travelled and amount received through tourism, had a tremendous progress.

While analyzing the average annual growth rate, it is reduced to about 20 per cent

during the period from 1950 to 2010. The absolute number of arrivals has multiplied

more than two times during 1990 and 2010. Similarly, the amount received through

Year Arrival in Million

Average Annual

Growth Rate

Receipts (US $ billions)

Average Annual

Growth Rate 1950 25.3 - 2.1 - 1960 69.3 17.39 6.9 2.28 1970 165.8 13.92 17.9 1.59 1980 286.2 7.26 105.2 4.87 1990 459.2 6.04 264.7 1.51 2000 687.3 4.97 477.0 0.80 2010 940.0 3.67 980.0 1.05

CAGR 6.21 10.79


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tourism also multiplied more than four times from 1990 to 2010. The compound

annual growth rate of receipt through tourism is much higher than the number of

persons travelled during the period.

2.3 Tourist Arrival and Revenue Earning (Country wise) during 2009-2010

The distribution of tourist in the world is not in a uniform manner. Table 2.2

shows that upto one half of tourist arrivals and revenue receipts have been recorded in

15 major countries. France rank the number one country in receiving 76.8 million

tourists i.e., 8.2 per cent of the total tourist arrivals during 2009-2010 and ranks three

in sharing the revenue of international tourism. So far as the volume of tourists is

concerned, United States is the second largest destination to attract 59.745 million

tourists during the same period and the number one country to earn US$ 103.5 billion

accounting for 10.5 per cent of the total tourism revenue of the world. Spain, Italy,

China, and the Russian federation gained enormously both in international tourist

arrival and receipts.

Table 2.2: Tourist Arrival and Revenue Earning (Country wise) During 2009-2010

Source: World Travel and Tourism Council.

Countries Arrivals in 2009-2010 Revenue Earned 2009-2010

Arrivals (in Millions) % Rank Revenue (in

Billion US $) % Rank

France 76.800 8.2 1 46.3 4.7 3 United States 59.745 6.4 2 103.5 10.5 1 Spain 56.677 6.0 3 52.5 5.4 2 China 55.665 5.9 4 45.8 4.6 4 Italy 43.626 4.6 5 38.8 3.9 5 United Kingdom 28.133 3.0 6 30.4 3.1 7 Germany 26.875 2.7 7 34.7 3.5 6 Austria 22.004 2.3 8 18.6 1.9 9 Mexico 22.395 2.4 9 11.8 1.2 12 Russian Federation 20.271 2.2 10 8.9 0.9 14 Hong Kong 20.085 2.1 11 23.0 2.3 8 Canada 16.095 1.7 12 15.7 1.6 10 Greece 15.007 1.6 13 12.7 1.3 11 Poland 12.470 1.3 14 9.4 1.0 13 Hungary 9.510 1.0 15 5.3 0.5 15 Other countries 454.642 48.3 522.6 53.5

Total 940.000 100.0 980 100


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2.4 Employment Impact of Travel and Tourism

As per the report published by the World Travel and Tourism Council, 2011,

the total contribution of travel and tourism to employment, including jobs indirectly

supported by the industry, is forecast to rise by 2.3 per cent per annum from

258,592,000 jobs (8.8% of total employment) in 2011to 323,826,000 jobs (9.7%) by

2021. The expected employment generated through tourism development in the world

and in the major continental breakup figure illustrated in Table 2.3.

On analyzing the prospect of employment generation through tourism upto

2011, Africa tops first in the matter of growth in employment and the average annual

growth rate is also the highest. Europe and the Asia Pacific region record a smaller

growth rate in employment generation compared to the world at large. While

analyzing the growth and compound annual growth rate Middle East stands second in

increase in employments through tourism.

Table 2.3: Expected Employment Generation through Tourism Development(Direct Employment)

Source: World Travel and Tourism Council.

2.5 Role of Asia Pacific Region in Developing World Tourism

It is estimated that most of the tourism development in the 21st Century will

take place in the Asia Pacific Region. The growing affluence of the middle classes

asking for long vacation periods, and increase in the number of older groups with

attractive pensions or other income sources are the important reasons for the rise in

travel for holiday and recreation in the traditional and new outbound generating

markets in the Asia Pacific Region. The Region is expected to grow three times of the

world average within the next decade. Tourism activities in terms of tourism product

development, human resource development, and new marketing strategies are

expected to be undertaken here within a short span of time. The Asia Pacific

Region 2011(E) (in ‘000)

2021(F) (in ‘000) % Increase CAGR

World 99048 120427 21.5 1.97 Africa 7806 10203 30.7 2.71 America 15811 19239 21.7 1.98 Asia Pacific 63891 77502 21.3 1.95 Europe 9709 11153 14.8 1.40 Middle East 1831 2330 27.2 2.44


33

Economic Co-operation Summit meeting held in 2010 highlighted the importance of

the region as an economic power and declared its decision to make it a free trade area

by 2020. Nearly two third of the travel market is in the Asia Pacific and PATA

regions.

On analysing the tourist arrival in the Asia Pacific Region (Table 2.4) it is

evident that Singapore ranks top in the matter of arrival of tourists between 2009 and

2010. Next to Singapore, Hong Kong stands second showing percentage of 18.7.

South Korea is in the third position and Japan and Europe have an equal growth

pattern. While considering India’s position, it has only the ninth position in the matter

of growth trend. Next to India, Malaysia stands in the ninth position marking a growth

rate of 3.9 per cent. From the analysis, it can be drawn that most of the tourism

arrivals are distributed among Hong Kong, Singapore, Japan and Europe.

Table 2.4: Tourist Arrival in Asia Pacific Region during 2009-2010

SI No Countries Arrivals in the year

2009 (in ‘000) Arrivals in the year

2010 (in‘000) % change

1 China 50875 55665 9.4 2 Hong Kong 16926 20085 18.7 3 Japan 6790 8611 10.7 4 Europe 6324 7003 10.7 5 South Korea 7818 8798 12.5 6 Malaysia 23646 24577 3.9 7 Singapore 7488 9161 22.3 8 Thailand 14150 15842 11.9 9 India 5168 5584 8.4

Source: World Travel and Tourism Council, 2010.

2.6 Prospects of Employment in International Tourism in the Asia Pacific Region

Tourism industry has mushroomed phenomenally in the last few decades and

has become an important factor in the economy of many nations. It has emerged as

the world’s largest export industry and has become a unique instrument for economic

development as well as for promoting social integration and international

understanding. Over the years, its importance as a major source of contribution to the

improving of balance of payment and for creation of new business opportunities,

employment generation, ecological conservation and regeneration as well as for

percolation of economic benefits to the weaker sections of the society has been


34

increasing tremendously. Of these benefits, employment generation is the most

beneficial to developing nations like India.

Table 2.5: Employment (Direct and Indirect) in Tourism from 2005 to 2010 in Asia Pacific Region

Year Direct employment(in ‘000) % change Total employment

(in 000) % change

2005 59737.1 - 146743 - 2006 63432.8 6.2 151710 3.4 2007 62196.4 -1.9 156884 3.4 2008 62503.2 0.5 145870 -7.0 2009 61024.3 -2.3 142848 -2.1 2010 61695.7 1.1 140516 -1.6

CAGR 0.65 -0.86 Source: World Travel and Tourism Council, 2011.

On analyzing the growth pattern of employment in the Asia Pacific region, it

is clear that growth in tourism employment was on an upward trend upto 2006. From

that year onwards a negative growth pattern can be observed. Only in the year 2010

there was an increase of more than one percentage. The compound annual growth rate

is also less than one for the five year period. The total employment (both direct and

indirect) also increased upto 2007 and thereafter it exhibited a negative trend and it

was not reversed in 2010 also. It may be due to the global meltdown that the

employment growth potentiality lost its momentum. But as per the recent statistics

published by the World Travel and Tourism Council it is estimated that in the Asia

Pacific Region travel and tourism is expected to support directly 63891000 jobs (3.5%

of total employment) in 2011, rising by 1.9 per cent pa to 77502000 jobs (3.7% of

total employment) by 2021 and the total contribution of travel and tourism to

employment, including jobs indirectly supported by the industry, is forecast to rise by

2.4 per cent pa from 145802000 jobs (7.9% of total employment) in 2011 to

184709000 jobs (8.9% of total employment) by 2021.

2.7 Tourism in India- A Historical Perspective

Tourism is not a new prodigy for Indian. In Sanskrit literature we can find the

root source of tourism. It has been believed that the word tourism is derived from the

word ‘atna’ which means leaving home for something to other places. As per Sanskrit

literature there are three ‘atnas’, they are: (a) Prayatna - going out for pleasure and

knowledge, (b) Deshatna -going out for other countries, primarily for economic gain


35

and (c) Tirthana - going to places which have religious importance. These three terms

define the different aspects or the three prime motivations of tourism.

Long before tourism was considered an industry, India attracted travelers from

all parts of the world. Recording their impressions, they left behind a legacy of

scholarship and learning which a treasure is for social historians. The glimpses of

ancient Indian tourism are available from Kautilya’s Arthasasthra on the subject of

passport, the government department looking after the foreigners, and the type of

accommodation provided to the travelers midway. The Chinese appeared to be one of

the earliest travelers as many pilgrims from China visited India, between 400 and 700

A.D. Their experience imparted a rich character to the early history of India. The

Chinese pilgrim Fa-Hien visited India during 359-424 A.D and Huien-t-Sang during

625-645 A.D during the reign of Harsha Varhanan and these Chinese travelers left an

interesting account of the socio- political conditions of India in those days.

In the later period, i.e. during Muslim-Mughal rule, the travelers were

motivated by specific purpose like business, political and military. But people still had

the concept of tirtayathra in their hearts and the same continued during the British

rule in India.

2.8 Tourism in India – the Modern Standpoint

India is one of the oldest civilizations with a kaleidoscopic cultural variety and

rich heritage. We are the only country in the world with a physical, geographical,

ecological, cultural, and socio-linguistic diversity which offers a lot to the tourist. An

area of 32 87285 sq.km and about 1.1 billion inhabitants make us a country of

substance, bound by the Himalayas in the North and the Indian Ocean in the South. It

has a variety of climate, soil types, and geographical landforms, consequently a

variety of habitats and wildlife.

In the early days, tourism was a neglected area in the Indian economy. Indian

tourism is younger compared to its counterparts in other countries and it was limited

to a small branch in the Ministry of Transport in 1948. In 1955, the Estimates

Committee recommended the setting up of a separate department of tourism which

was established in March, 1957. After the five decades, Indian tourism has developed

and has made many rapid strides bringing good chunk of profits and has emerged a

prime component in the Indian economy. This sector has now become an important


36

contributor to the exchequer and provides large number of employment opportunities

which will be a boon to a country which faces crucial unemployment and under-

employment problems.

2.9 Indian Tourism since Independence

The process of tourism development was initiated in the year 1945 under the

leadership of Sir John Sargent, the then Educational Advisor to the Government of

India to assess the vast potentiality of tourism resources across the country. Following

the recommendations of the Committee, an ad-hoc Tourist Traffic Committee was

appointed in the year 1948 to give suggestions for promoting tourist traffic to India. A

separate Tourist Traffic branch was set up in the Ministry of Transport in the year

1949 with a view to promoting tourist traffic to India. In 1955-56 four branches,

namely, Tourist Traffic, Administration Section, Publicity and Distribution Section

were constituted to promote tourism in India. During this period, another important

step was taken to open tourist offices inside and outside India along with regional

tourist offices at Kolkata, Mumbai, Delhi and Chennai. In 1952, two overseas offices

were set up at New York and London to arouse interest among people from Europe

and America to visit India. In 1958, a separate Tourism Department under the full

time charge of a Director General assisted by Deputy Director Generals and four

Directors was created in the Ministry of Transport to deal with all matters concerning

tourism development. By the Presidential order dated 14th March, 1967 a full-fledged

independent Ministry was created named Ministry of Tourism and Civil Aviation. In

1966 India Tourism Development Corporation was set upto create infrastructure at the

important tourist important places by establishing co-ordination with State

governments, Central government and other development agencies. Today this

organization plays an important role in coordinating the tourism development

activities in the country.

2.10 Growth of Foreign Tourist Arrivals in India during 1951-2010

The growth of foreign tourist arrivals to India has not made much remarkable

progress since 1951. Despite the several important measures taken by the government

of India from time to time, the growth of international tourist arrivals was not

uniform. There has been a downward trend of foreign tourist arrivals during the last

few years due to communal violence, terrorism, parliament attack, 26/11 issue etc.


37

Table 2.6: Number of Foreign Tourist Arrivals during 1951-2010

Source: India Tourism Statistics (various issues), Government of India.

On analyzing the flow of international tourist from 1951 onwards (Table 2.6),

it can be seen that the inflow is widely fluctuating. While analyzing the growth trend

on decadal base there was a negative growth pattern in the initial stage. Such a trend

has never occurred since 1960 even though there are wide upswings in the flow

patterns. The 1970-80 period has recorded a growth of 346.4 percentage but such a

growth trend hasn’t been be maintained as there have been internal calamities and the

coming up of new destinations in the world. However, in 2010 India was able make

an inflow of 5580000 foreign tourists which shows an increase of 110.6 per cent over

the previous period.

2.11 Economic Benefits of Tourism in India

Tourism has a variety of economic impacts. Tourism contributes to sales,

profits, jobs, tax revenues, and income in areas. The most direct effects occur within

the primary tourism sectors - lodging, restaurants transportation, amusements, and

retail trade. Through secondary effects, tourism boosts most sectors of the economy.

An economic impact analysis of tourism activity normally focuses on changes in

sales, income, and employment in a region resulting from tourism activity. An

economic impact assessment (EIA) traces changes in economic activity consequent on

a change of policy or the adoption of a new one. An EIA will identify which

economic sectors benefit from tourism and estimate resulting changes in income and

employment in the region. Economic impact assessment procedures do not assess

economic efficiency and also do not generally produce estimates of the fiscal costs of

an action. In dealing with many problems, economic impact analysis will be part of a

broader analysis. Table 2.7 serves the purpose of enlightening in this direction.

Year Number of foreign tourist arrival

% change over previous period

1951 16829 - 1960 12305 -26.9 1970 280821 2182 1980 1253694 346.4 1990 1707158 36.1 2000 2649378 44.6 2010 5580000 110.6


38

On analyzing the economic significance of tourism to GDP and employment

generation, it can be seen that the contribution of tourism industry in India, though got

increased from 5.83 per cent in 2002-03 to 5.94 per cent in 2009-10, is much below

the world average of 10.95 per cent in 2009-10. In addition, it is worthwhile to note

that there is no uniformity in the growth pattern of the contribution from the tourism

sector to the economy. Even though it crossed 6.1 per cent in 2004-05, the same

pattern could not be maintained in the later years. But on the employment side, the

national average is above world average and throughout the period except in the year

2007-08, we were able to maintain the position.

Table 2.7: Economic Benefits of Tourism in India

Indicators Year India (%) World (%)

Contribution of Tourism to GDP

2002-2003 5.83 10.00 2003-2004 5.90 10.20 2004-2005 6.11 10.60 2005-2006 5.30 10.65 2006-2007 5.94 10.74 2007-2008 5.90 10.87 2008-2009 5.92 10.90 2009-2010 5.94 10.95

Employment in Tourism Sector

(Figures in parenthesis show

percentage)

2002-2003 38.6 million (8.27) 198.098 million (7.8) 2003-2004 41.8 million (8.78) 194.568Million (7.6) 2004-2005 48.0 million (8.27) 214.697 million (8.1) 2005-2006 42.02 million (8.37) 221.568 million (8.3) 2006-2007 47.75 million (8.52) 228.768 million (8.5) 2007-2008 36.71 million (8.60) 235.865 million (8.76) 2008-2009 36.74 million (8.75) 242.654 million (8.67) 2009-2010 36.78 million (8.90) 256.980 million (8.78)

Source: World travel and tourism council, 2011.

2.12 Share of India in World Tourist Arrivals

Tourism accounts for more than 8 per cent of the world’s export making. It is

the largest internationally traded product or service sector in the world. In the year

2010, global tourism grew by 10.3 per cent, global tourism receipts by 15.6 per cent.

The growth in Indian share in world tourism remained at a decimal of 0.56 per cent.

Table 2.8 shows India’s position in terms of tourist arrivals along with top 10

countries in the world during the period 2007, 2008 and 2009. France is the number

one country in terms of number of tourist arrivals throughout the period followed by

Spain in 2007. But in the year 2008 onwards the USA took the position and it still


39

ranks number two. The fourth, fifth and sixth positions are occupied by China, Italy

and UK and their ranks remain unchanged throughout the period. The most interesting

thing is that Turkey which ranked in 9th in 2007 occupied 7th position in 2009.

Ukraine could not find any position within top ten ranks in 2009. While comparing

India’s rank in terms of foreign tourist arrivals with other countries from 2007 to

2009, it is observed that India ranked 41st and it was not able to improve its position in

the three years. The most disturbing fact is that the tourist arrival in 2009 decreased

by 0.2 million (3.8%).

2.13 Share of India in World Tourism Receipt

The tourism receipt of India went from US $. 2948 million in 2000 to US

$10700 .in 2010 showing an annual average growth rate of 4.7 per cent compared to

the world’s average growth rate of -5.6 per cent during the period. However, in 2010

India’s share is 5.7 per cent compared very poorly with many of the neighboring

countries such as China (18.4 %), Hong Kong (9.2 %) and Malaysia (7.2 %). The

tourism receipt of top 10 countries along with India during 2007, 2008 and 2009 is

shown in the Table 2.9.

The United Sates has remained in the top position in terms of receipts of

foreign exchange for consecutive years. The second, third and fourth places remained

unchanged during the period and are held respectively by Spain, France and Italy. UK

was the fifth largest country in terms of receiving revenue in 2007. China replaced

UK in 2008 and 2009 and occupied the fifth rank in terms of revenue earnings from

world tourism. The seventh position of Germany has changed into sixth in 2008 and

2009. The position of India has remained unchanged throughout the period but the

earnings have reduced by US $ 0.1 billion (0.94%).

On comparing the performance of countries it is also evident that only UK,

Australia, Austria and Turkey had made a positive change in receipt during the above

period. Among these performers Austria is the leading one which generate a change

of 1.47 per cent over the base period.

2.14 Share of India in World Tourism Receipts during 2001 to 2010

The share of India in the World tourism receipts was varying between 0.69 per

cent in 2001 and 1.54 per cent in 2010. The comparative figures given in Table 2.10


40

Table 2.8: Tourist Arrival in Top 10 Countries and India’s Position in 2007, 2008 and 2009

Source: India Tourism Statistics, Department of Tourism, Government of India.

2007 2008 2009

Rank Country Tourist arrival (in Millions) Rank Country Tourist arrival

(in Millions) Rank Country Tourist arrival (in Millions)

1 France 80.9 1 France 79.2 1 France 74.2

2 Spain 58.7 2 USA 57.9 2 USA 54.9

3 USA 56.0 3 Spain 57.2 3 Spain 52.2

4 China 54.7 4 China 53.0 4 China 50.9

5 Italy 43.7 5 Italy 42.7 5 Italy 43.2

6 UK 30.9 6 UK 30.1 6 UK 28.0

7 Germany 24.4 7 Ukraine 25.4 7 Turkey 25.5

8 Ukraine 23.1 8 Turkey 25.0 8 Germany 24.2

9 Turkey 22.2 9 Germany 24.9 9 Malaysia 23.6

10 Mexico 21.4 10 Mexico 22.6 10 Mexico 21.5

41 India 5.1 41 India 5.3 41 India 5.1


41

Table 2.9: Foreign Exchange Earnings in Top 10 Countries and India’s Position during 2007, 2008 and 2009


2007 2008 2009

Rank Country World tourism

receipt (in US $ billions )


receipt (in US $ billions)


receipt (in US $ billions)

1 USA 96.9 1 USA 110.0 1 USA 93.9

2 Spain 57.6 2 Spain 61.6 2 Spain 53.2

3 France 54.3 3 France 56.6 3 France 49.2

4 Italy 42.7 4 Italy 45.7 4 Italy 40.2

5 UK 38.6 5 China 40.8 5 China 39.7

6 China 37.2 6 Germany 40.0 6 Germany 34.7

7 Germany 36.0 7 UK 36.0 7 UK 30.1

8 Australia 22.3 8 Australia 24.8 8 Australia 25.6

9 Austria 18.7 9 Turkey 22.0 9 Turkey 21.3

10 Turkey 18.5 10 Austria 21.6 10 Austria 19.4

22 India 10.7 22 India 11.8 22 India 10.6


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illustrate that the share of India in world tourism revenue receipts and arrivals has

always been varying since 2001. Wide publicity campaign in overseas market and

strengthening infrastructure across the country, India has been able to register a high

percentage of shares in world tourism revenue receipts.

Table 2.10: Share of India in World Tourism Receipts during 2001 to 2010


On analyzing the receipt from tourism in the first decade of the twenty first

Century, it can be seen that the total receipt has more than doubled in the world’s and

India’s share has increased from 3198 $ million to 14160 $ million in 2010 recording

an increase of 3.42 times over the period. The percentage of share in receipt had not

reached even one upto 2005 but it marked 1.10 in that year and increased to 1.54 in

2010. On analyzing the growth trend of India’s share in world tourism, it doubled and

marked an ever highest level in the year 2010. India’s rank in tourism receipt also

marked a progressive trend throughout the period and marked the 16th position in the

year 2010. Thus, it can be found that India’s position is progressing and there is a

positive trend of increase in the receipt through tourism.

2.15 India’s Position in World Tourism in 2010

In 2010, world tourism recovered stronger than expected from the shock it

suffered in late 2008 and 2009 as a result of the global financial crisis and economic

recession. Worldwide, international tourist arrivals reached 940 million in 2010, up by

6.6 per cent over the previous year. The vast majority of destinations reported positive

and often double-digit increases, sufficient to offset losses or bring them close to the

Year World Travel

Receipts (Billion US $)

Travel Receipts in India

(Million US $)

Percentage Share Rank

2001 463.8 3198 0.69 36 2002 481.9 3103 0.64 36 2003 529.3 4463 0.84 37 2004 633.2 6170 0.97 37 2005 679.6 7493 1.10 26 2006 744.0 8634 1.16 22 2007 857.0 10729 1.25 22 2008 939.0 11832 1.26 22 2009 851.0 11394 1.34 22 2010 919.0 14160 1.54 16


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aspired target. Recovery came at varying speeds – much faster in most emerging

economies (+8%) and slower in most advanced ones (+5%). Asia and the Pacific

(+13%) was the first region to recover and among the strongest growing regions in

2010. Table 2.11 crystallizes the top ten countries of the world in terms of

international tourist arrivals and tourist receipts and India’s position in world tourism.

The Table 2.10 shows that France remained in the topmost position in 2010

also. China replaced Spain which occupied the third position in the previous year and

China’s share increased to 55.7 million from 54.7 million of the previous year. It is

worthwhile to mention that China was able to increase its share by one per cent

whereas India was not able to catch at least one per cent share of world arrivals. The

most significant growth was achieved by Turkey which promoted its position from the

9th place in 2008 to the 7th place in 2010. In 2010 India was able to better its position

and ranked 40th position in the arrival of international tourism.

Table 2.11: Top 10 Countries in the world in international tourism and India’s position in world tourism in 2010

International tourists arrivals in 2010 International tourist receipts in 2010

Rank Country Arrivals (Million)

Share (%) Rank Country Receipts(US $

Billion) Share (%)

1 France 76.8 8.1 1 USA 103.5 10.6 2 USA 59.7 6.3 2 Spain 52.5 5.4 3 China 55.7 5.9 3 china 45.8 4.7 4 Spain 52.7 5.6 4 France 46.3 4.6 5 Italy 43.6 4.6 5 Italy 38.8 3.9 6 UK 28.1 2.9 6 Germany 34.7 3.5 7 Turkey 27 2.8 7 UK 30.4 3.1 8 Germany 26.9 2.7 8 Australia 30.1 3.0 9 Malaysia 24.6 2.6 9 Hong Kong 23.0 2.3 10 Mexico 22.4 2.4 10 Turkey 20.8 2.1

Total of Top 10 417.5 44.1 Total of Top 10 425.9 43.2 40 India 5.1 0.5 16 India 14.1 1.5 Others 517.4 45.4 Others 540.0 55.3

Total 940 100.0 Total 980 100 Source: India Tourism Statistics, Department of Tourism, Government of India.

The USA retained its supremacy in international tourism receipt in 2010 also.

China’s rank in international tourism receipt rose from the 5th position to the 3rd.

Austria was replaced by Hong Kong to find a place in the top ten positions in 2010.

From the 22nd position in 2009 India moved to the 16th position in 2010 in world

tourism receipt.


44

2.16 Foreign Tourist Arrivals from Top 10 Countries to India During 2000 to

2010

India’s foreign exchange earnings (FEE) from tourism during 2010 were $

14.193 billion as compared to $ 11.394 billion in the previous year and $ 11.747

billion in 2008. The growth rate in 2010 was 24.6 per cent. The FEE from tourism in

rupee terms during 2010 were Rs.64,889 crore with a growth rate of 18.1 per cent, as

compared to FEE of Rs.54,960 crore in 2009. During 2010, a total number of 6549

Visas on Arrival (VoA) were issued under the Tourist VoA Scheme. The VoA

scheme was introduced from January 1, 2010 for citizens of five countries visiting

India for tourism purposes – Finland, Japan, Luxembourg, New Zealand and

Singapore. Table 2.12 exhibits arrivals to India from top ten countries during the

period 2000 to 2010.

2.17 Tourism Employment in India

India is a Tourist’s Paradise when we consider our 10,000 year old heritage,

history and cultures are concerned. India gets only around 3.0 million tourists per

year, the same as the city countries like Dubai, Singapore and some small cities of

Europe and North and South America. Even small countries like Malaysia and

Thailand get nearly 10 million tourists per year. China gets nearly 47 million tourists

per year. One tourist results in the employment generation of 2 to 4 jobs. As per the

report published by Associated Chambers of Commerce and Industry (Assocham) the

travel and tourism sector is expected to be the second largest employer globally by

2019. The study predicts that travel and tourism’s share in employment generation in

India is likely to be significant in the next couple of years. The tourism sector is the

largest service sector in India, which generates 8.78 per cent of the total employment.

Table 2.13 shows the employment in Indian tourism from 2005 to 2010.

While analyzing the contribution of tourism to employment it can be noted

that there are upswings on the pattern of change. The direct employment created by

tourism in the year 2006 was 243962000, the highest but such a trend cannot be

observed in the succeeding years. Even though it marked a growth rate of 8 per cent

in the year 2008, in the later years there is a negative growth trend. The contribution

of tourism in indirect employment creation also shows the same phenomenon. Again,

contribution of tourism to total employment also does not show a satisfactory progress


45

Table 2.12: Foreign Tourist Arrivals from Top 10 Countries to India During 2000 to 2010

Source: World Travel and Tourism Council, 2011.

SI. No Country

2000 2005 2009 2010 Foreign tourist

arrivals (Million)

Percentage share

Foreign tourist

arrivals (Million)

Percentage share

Foreign tourist

arrivals (Million)

Percentage share

Foreign tourist

arrivals (Million)

Percentage share

1 UK 0.354 16.5 0.651 16.6 0.755 13.52 0.759 13.15 2 USA 0.309 14.4 0.611 15.6 0.916 16.4 0.931 16.12 3 Canada 0.098 4.6 0.157 4.0 0.240 4.30 0.242 4.20 4 France 0.089 4.1 0.152 3.9 0.218 3.90 0.225 3.90 5 Germany 0.084 3.9 0.136 3.5 0.224 4.01 0.228 3.94 6 Sri Lanka 0.128 5.9 0.120 3.1 0.219 3.92 0.226 4.61 7 Japan 0.079 3.6 0.103 2.6 0.165 2.95 0.168 2.91 8 Australia 0.090 4.2 0.096 2.5 0.164 2.94 0.170 2.94 9 Malaysia 0.057 2.6 0.096 2.5 0.160 2.87 0.179 3.10

10 Bangladesh 0.032 1.5 0.077 2.0 0.381 6.82 0.432 7.48 Total of 10 Countries 1.32 61.3 2.199 56.3 3.442 61.64 3.56 62.35

Others 0.83 38.7 1.719 43.7 2.142 38.36 2.21 37.65 All Countries 2.15 100 3.918 100 5.584 100. 5.77 100


46

Table 2.13: Employment (Direct & Indirect) in Tourism in India from 2005 to 2010

Source: World Travel and Tourism Council (wttc.org, 2011).

Even though a growth of 14.2 per cent over the previous year was made in 2007, such

a growth pattern cannot be noticed in the coming years and in 2008 there was a steep

fall and 19.3 per cent decline in employment creation. In 2010 only a meager change

i.e. 0.1 per cent progress was made in employment creation by the tourism sector.

Almost all the States in India have placed tourism on a priority platform,

making efforts to exploit the tourism resources and potential offered by the States.

Kerala has been significantly successful in its tourism efforts, in creating a key

tourism platform for the State and positioning itself competitively in the international

tourist market. For the major part of the 20th Century, Kerala largely ignored its

tourism potential, taking for granted the breathtaking beauty of its natural resources,

while States like Goa and Rajasthan marched ahead dominating the tourism pie.

However, in the last decade of the century, the state awoke to the possibility of using

tourism as an economic lever. From 1990 onwards, there were tentative efforts to

bring Kerala’s traditional dance forms and traditional medicine to the forefront, but no

formal efforts to launch the tourism sector.

In 1995 the State announced, for the first time, its stand towards tourism

taking, as the WTTC put it, ‘the first major step for tourism development’. The same

year saw that the inflow of domestic tourists to Kerala increased by a phenomenal 204

per cent from 1.28 million to 3.9 million, and the inflow of foreign tourists by 36.7

per cent from 0.1 million to 0.14 million. Then in 2000, in the first Travel Mart held

in the State, Kerala cast its global spell through three short words – ‘God’s Own

Country’- the slogan that captured the international market. From the turn of the

millennium, Kerala has marched way forward, with various tourism indicators

Year Direct employment (in ‘000) % change Total employment

(in ‘000) % change

2005 22086.9 - 41803.5 - 2006 24396.2 10.4 42027.1 0.5 2007 23569.8 -3.4 47995.4 14.2 2008 25458.8 8.0 38713.8 -19.3 2009 24590.3 -3.4 36740.9 -5.1 2010 24335.1 -1.0 36783.2 0.1

CAGR 1.63 -2.11


47

demonstrating a steady rise over the years. In the following sections, an analysis of

the tourism growth in Kerala has been made.

2.18 Decadal Growth of Tourism in Kerala

Kerala emerged an important tourism destination only during the late 1980s,

but since then its market share is steadily increasing. The State is now considered one

of the most important tourist destinations in the world. The WTTC has accorded the

status of ‘Partner State’ to Kerala in recognition of its potential in the tourism sector.

Realizing the economic potential, the government of Kerala declared tourism

an industry in 1986. Within a span of two and half decades, Kerala succeeded in

establishing its tourism brand in the international market. The first tourism policy of

the state was announced in 1995 underlining the importance of public - private

partnership. Tourism has come a long way since capturing new markets with its

innovative products and marketing strategies. From hardly 50000 foreign tourist

arrivals and 0.13 billion rupees as foreign exchange in 1986, it has reached a status of

0.6 million foreign tourist arrivals and 37.97 billion rupees as foreign exchange in

2010. The total employment generated from tourism is estimated as 1.2 million.

Form Table 2.14 it is clear that the State accounts for more than 11per cent of

international tourist arrivals of India. From 8.23 per cent in 2001 it increases its share

to 11.81 per cent in 2010. The compound average growth rate of India in the said

period was only 8.21 per cent where as Kerala made a compound average growth rate

of 12.28 per cent. The demand of Kerala as a tourism destination is growing at the

highest recorded rate of 11.8% per cent per annum; higher than the fastest growing

country, Turkey – 10.2 per cent.

In 2000 the total earnings from tourism in the State was US $ 45.00 billion and

it rose to US $ 173.78 in 2010 showing a cumulative annual growth of 14.45 per cent.

The foreign exchange earnings during the period also exhibited a growth of 21.65 per

cent. While analyzing the percentage of domestic and foreign tourism contribution to

the earnings, it is noted that the share through foreign tourism showed an increase of

upto 10 per cent in the sited period whereas domestic tourism share was reduced by

10 per cent.


48

Table 2.14: Decadal Growth of Tourism in Kerala

Year Foreign

tourist arrival to Kerala

Foreign tourist arrival

to India

% of foreign tourist

arrivals to Kerala

Domestic tourist

arrivals to Kerala

Foreign exchange

earnings in tourism

(Rs. in billion)

Total earnings (Rs. in billion)

%of domestic

tourism on total

earnings

%of foreign tourism on

total earnings

2001 208830 2537282 8.23 5239692 5.35 45.00 11.99 88.11

2002 232564 2384364 9.75 5568256 7.06 49.31 14.42 85.68

2003 294621 2726214 10.81 5871228 9.83 59.38 16.66 83.44

2004 345546 3457477 9.99 5972182 12.67 68.29 18.66 81.44

2005 346499 3918610 8.84 5946423 15.22 77.38 19.67 80.33

2006 428534 4447167 9.64 6271724 19.88 91.26 21.79 78.21

2007 515808 5081504 10.15 6642941 26.41 114.33 20.10 79.90

2008 598929 5282603 11.34 7591250 30.67 131.30 23.33 76.67

2009 557258 5167699 10.78 7913537 28.53 132.31 21.57 78.43

2010 659265 5583746 11.81 8595075 37.97 173.48 21.89 78.11

CAGR 12.28 8.21 - 5.07 21.65 14.45 - - Source: India Tourism Statistics, Department of Tourism, Government of India.


49

The hotel sector forms one of the most important segments of the tourism

industry with high potential for employment generation and foreign exchange

earnings. Hence in the following part an attempt has been made to examine the origin

of hotel industry, the growth of hotel industry around the world and its current global

and Indian scenario.

2.19 Hotel Industry: Origin and Development

The term hotel is of ancient origin but its use to mean offering accommodation

and food services for travelers is very recent. The word ‘inn’ has been in use since

the fourteenth Century and it was not until the eighteenth Century that ‘hotel’ became

fashionable. The terms ‘accommodation’ and ‘hotel’ have been defined as follows:

A hotel is a business enterprise with a building for public accommodation that

furnishes lodging and usually provides meals, beverages, and personal services. It is

an institution or a building in which traveling people are provided with lodgings,

meals, and other services for the traveling public. It is an establishment providing

accommodation and meals for travelers and tourists for payment. It is a commercial

establishment providing lodging and usually meals and other services for the public,

especially for travelers. Hostel or lodging house means a building or part of building

where lodging (with or without boarding) or other services are provided for a

monetary consideration. Hotel is a boarding and lodging unit providing a minimum of

twenty fully furnished beds in ten double-rooms, each attached with sanitary fitted

toilets and bathrooms, in addition to a restaurant, reception, and public area, and

sufficient parking area. The hotel may also have a cluster of huts/cottages with a

minimum of twenty fully furnished beds with attached bathrooms along with other

facilities mentioned above. Residential hotel means premises used for the reception of

guests and travelers desirous of dwelling and sleeping therein. It often offers,

depending on its category, entertainment, and rooms for meetings, banquets, balls,

and parlors, shops of various kinds, lounges, lobbies, cafes, bars, and restaurant.

The term ‘accommodation’ is a comprehensive one which provides facilities

for the ‘sojourn’ of travelers such as hotels, motels, camping sites, paying guest

accommodation, private residential accommodation, hostels, college dormitories etc.

Hotel accommodation is the single most important form of accommodation. Other

forms of accommodation, often described as supplementary accommodation, are no


50

less important in terms of total capacity. Thus, a hotel could be called an institution or

building meant for providing lodging, meals, refreshments, and other amenities and

facilities for the traveling public.

2.20 History of Hotel

The concept of hotels has developed through different periods. The concept,

product, services are distinct in all these periods. A summary of the historical

evolution of the hotel industry is described below.

2.20.1 Development of Inn

The growth of travel trade increased the necessity of proper development of

the accommodation system. Inns were the first of these modes of accommodation that

catered to the needs of travelers in early times. Inns were established to provide food,

drinks, and entertainment to weary travelers. Inns were mainly used by religious

pilgrims and traders. However, with the decline of Roman Empire by about 500 AD,

the travelers’ inn lost its importance and for many years there was not much

development. Perhaps the oldest Inn still standing in the United States is a stone house

in Guilford, Connecticut, built in 1640.

2.20.2 Post Houses

Meanwhile the Persians developed “Post Houses” along the “caravan routes”.

Marco polo in his writings described post houses as “Yams”, apartments suitable for

kings. They were located about 25 miles apart, perhaps the equivalent of a day’s ride,

and supplied fresh horses for carrying messages throughout the land. According to

Marco Polo’s estimates, there were 10000 such post houses in existence at the time of

his journey to the Far East.

2.20.3 Accommodation in Ancient India

In India, the concept of shelter is not new but as old as ancient history. The

ancient epics has evidence regarding travelling of aristocratic families. Inns in western

countries were mentioned in different names in India such as Viharas, Dharma Salas,

Sarais, Musafirkhans and Yatrikas. The ancient Buddhist monks were the first to

establish the concept of shelter in India. The architectural contributions during the

Buddhist period include Chaityas and Viharas and these Viharas were located on the

ancient trade routes between important cities of the region. The traderstraveled with


51

their merchandise and money on these routes and the Viharas were their hotels. With

the expansion of commerce, lodging became a profitable business and it emerged as a

glorious business of providing comfortable shelter and good food to the growing

number of travelers. The sarai in India, like Inns in Europe, provided food and shelter

to the travelers. With the passage of time the age old institutions such as sarai or the

inns vanished and the concept of modern hotel evolved.

2.21 Types of Hotels

The concept and format of hotels have undergone tremendous changes over

the years. There are various types of hotels ranging from international hotels to

capsule hotels, catering to the increasing and diversified demands of the guests. The

following are the main types of hotels.

2.21.1 International Hotels

International hotels are the modern western style hotels, located in almost all

metropolitan and other large cities as well as principal tourist centers. These hotels are

luxurious and they are classified on the basis of an internationally accepted system of

classification. The various services provided in these hotels include international and

local cuisine food and beverage, facilities for holding meetings, conventions and

conferences.

2.21.2 Resort Hotels

Resort hotels are located near the sea, mountain and other areas abounding in

natural beauty. These hotels cater to the needs of holiday makers. Rest, relaxation and

entertainment are the key activities of resort hotels.

2.21.3 Commercial Hotels

Commercial hotels focused their attention on individual travelers. These

hotels are mainly located at important commercial and industrial centers.

2.21.4 Residential Hotels

These are often referred to as apartment hotels. These hotels which are located

mostly in big cities operate exclusively under the European plan, where no meals are

provided to guests. Services and amenity provided in these hotels are comparable to

those of an average well regulated home.


52

2.21.5 Floating Hotels

These hotels are located on the surface of water. It may be on sea, river, or

lake. All the facilities and services of a normal hotel are provided in these hotels. In

India floating hotels in the form of house boats are popular among the tourist.

2.21.6 Heritage Hotels

The concept of the heritage hotel was evolved in India in 1980’s. The heritage

category covers functions of hotel located in palaces, castles, forts and ancient

residential buildings. This scheme aims at ensuring that such traditional structures and

properties are not lost due to decay, disuse and neglect.

2.21.7 Tower Hotels

Tower hotels can be seen either as an independent entity or as a wing of

deluxe category hotels. These hotels are primarily meant for business travelers. The

ITC –Welcome Group was the pioneer in this category, with its Mourya Sheraton

Tower in New Delhi. The tower concept provides the facilities not only for the

comfort of the business class but also to enable the efficient execution of corporate

business from the hotel itself.

2.22 Hotel Industry and the Economy

Hospitality industry is the most important civil industry in the world, next only

to the global oil industry in terms of turnover. This industry has a significant role in

developing the economic system of any country. The contribution of any sector of

economic activity to the economic system is measured by the value of its output or

‘value added’. Value added gives a measure of the contribution made by the factors of

production employed in the sector which is a measure of value produced within the

sector, excluding the purchases of inputs from other sectors. It represents the

contribution to gross domestic product (GDP). In the context of the economy, two

features of the hotel industry are worth emphasizing:

1. Each unit of the demand for hotel’s product generates within the industry a high percentage of value added; and

2. Each unit of value added produced by this industry demands a higher input of labor and raw materials.

Clearly these two inter-related features reflect the linkage effect and nature of

hoteliering as a service industry which is relatively labor-intensive.


53

2.22.1 Linkages

In any economy no industry operates in isolation. It is true of hoteliering as it

is of any other economic activity. A demand for hotel services eventually generates

activity in a number of industries and ancillary concerns involved in supplying

products and raw products to hotels. Put differently, hotels have a backward linkage

to the rest of the economy. Its implication is that the economic effects of the demand

for hotel services are not confined to the hotel industry alone but is spread throughout

the economy. The effects of the demand for hotel products in the economy could be

of three types:

a) Direct Effect: relating to the activity created directly within the industry itself.

b) Indirect Effect: relating to the activity generated in other industries and

ancillary establishments, supplying to hotels.

c) Induced Effect: relating to the secondary wave of activities. At every stage

income is generated in the form of factor payments. Unless these are saved,

taxed away, or spent on importable, it is, in turn, spent on the domestic products

and, thereby, creates an induced effect.

The full effect of hotel operation on the regional and national economy

consists of the direct, indirect, and induced effects, the size being determined by the

magnitude of the demand for hotel products. The total effect is quantified by working

out the multiplier. The real significance of the hotel industry, however, is thought to

lay not so much in the overall size of its effect and contribution to the general

economic activity of a backward economy, but in the role it plays in three specific

aspects which are very crucial to the economy viz. (a) Employment, (b) Regional

economic activity and (c) Balance of payment.

Thus, hotel industry plays a very versatile role since it not only creates

employment opportunities, but also acts as an effective means of reducing regional

economic disparity of the region/state and correcting adverse balance of payment

situation. Its role is small yet significant and it certainly deserves to be treated

seriously as one vital component in the economic life of the country.


54

2.23 Global Trends in Hotel Industry

The hospitality industry has been expanding rapidly during the last four

decades. Since the Second World War the industry started to become truly

internationalized with the development of global hotel and catering chains. In 1995,

there were approximately 10.5 million rooms in hotels and other various

accommodation establishments throughout the world; 50 per cent of these were

located in Europe and North America (WTO, 1996). An increasingly large number of

hotels are owned by large chains.

Experts in the industry believe that soon the hospitality industry will be

dominated by a small number of global “mega chains”. In Europe, the most recent

data show that approximately 340,000 companies operated in the accommodation and

travel organization sectors, which provide jobs for nearly 2.8 million people in 2010.

This equates to 1.2 per cent of total employment in the European Union and a total

turnover of € 290 billion. With more than 90 per cent of the companies concerned

employing fewer than 10 people, “micro-enterprises” form the backbone of the

industry.

Table 2.15: Performance of Hotel Industry in the World in 2009 and 2010

Source: UNWTO Tourism Barometer –Statistical Annexure, 2011.

Table 2.15 makes it evident that the Asia Pacific Region made tremendous

progress in occupancy, ARR and RevPR during 2009 and 2010. The Middle East

region has negative growth rate in all the parameters and the European region’s

change in ARR also shows a negative trend. In spite all the economic meltdown, the

Asia pacific Region was able to make growth in occupancy at 5.9 per cent which

couldn’t be attained by any other region. It was also able to catch occupancy of 66.3

per cent in 2010, which was the highest in the global performance that year. In terms

Region Occupancy (in %) Average room rate

(in US$) RevPR

(in US$)

2010 2009 % change 2010 2009 %

change 2010 2009 % change

Europe 64.8 61.4 3.4 131 133 -1.8 85 82 3.6 Middle East 61.0 61.4 -0.4 199 210 -5.2 122 129 -5.9 Asia Pacific 66.3 60.4 5.9 132 118 11.1 87 72 21.8 North America 58.7 55.6 3.1 99 99 0.3 56 55 6.0 Central and South America 64.8 59.3 5.5 120 112 7.6 78 66 17.7


55

of ARR this region marked a growth rate of two digit number (11.1 per cent) even in a

situation in which most regions suffered a meager or negative growth trend. The

RevPR also experienced a phenomenal growth pattern and it marked a change of 21.8

per cent which couldn’t be claimed by any other region during the said period. In

short we can conclude that the Asia Pacific Region has had a good prosperity in hotel

industry and that this is the most promising destination for the hotel industry in future.

2.24 Performance of Hotel Industry in the Asia Pacific Region

Regardless of whether the bottom has been hit or not, the Asia Pacific is well

placed in the economic recovery phase of the recession. Some of the world’s fastest

growing economies are in the Asia Pacific and with a strong correlation between

hotels and economic performance, the hotel industry is bound to benefit. In addition,

intra-regional tourism should rebound quicker than international demand and, with

over half of the world’s population living in the Asia Pacific, travel demands should

return quicker here than in regions that rely more on international tourism.

Table 2.16: Performance of Hotel Industry in Asia Pacific Region in 2010

Source: UNWTO Tourism Barometer –Statistical Annexure, 2011.

As shown in Table 2.16, all the countries made a positive growth trend in the

matter of occupancy in 2009-10. Singapore and Vietnam are the leading countries

which achieved a double digit growth figure in occupancy in the period 2009-10. Next

to these countries Hong Kong and Thailand made a significant growth of 8.1 per cent

Country Occupancy (in %) % change 2010 2009 China 66.3 60.4 5.9 Hong Kong 80.7 72.5 8.1 Taiwan 74.9 69.1 5.7 Japan 78.9 73.0 5.9 Korea 82.8 80.4 2.4 Vietnam 67.4 53.2 10.3 Thailand 62.2 54.5 7.6 Malaysia 68.4 63.7 4.7 Singapore 83.0 72.6 10.4 Indonesia 74.6 69.5 5.3 Philippines 71.5 63.4 5.9 India 69.3 63.2 5.9 Australia 83.7 77.8 5.9 New Zealand 75.2 69.8 5.4 Overall average 66.3 60.4 5.9


56

and 7.6 per cent respectively. India made a growth of 5.9 per cent which is on a par

with the overall average of growth in the Asia Pacific Region. It is worthwhile to

mention that India was able to make a growth on a par with China, which is

considered the most prospecting sign of growth of the Indian hotel industry.

2.25 Development of the Hotel Industry in India

The British established the concepts of modern catering in India during the

seventeenth Century, and in fact the first hotel in Asia was established in Calcutta

under their patronage. Gradually western type of hotels was established in other cities

like Bombay, Delhi and Madras. A British hotel was established in Bombay in1840

and the Esplanade hotel was born in Bombay in 1871. The Great Eastern Hotel of

Calcutta was established in 1843. After the establishment of the railway network,

people traffic in the region increased. Thereafter many eating houses and primitive

hotels were established near railway stations.

The opening of summer capital in remote places helped in the development of

resorts hotels and catering in India. After independence the British style of operation

continued for many years until the American way of hotel functioning became

increasingly dominant. But hotel industry flourished only after the coming of gigantic

chain hotels like the Oberoi group, the Taj, the Welcome group and the Ashok group.

A number of major international hotel chains like Hyatt, Holiday Inn, Intercontinental

Quality Inn, Ramadda and Sheraton have already been well established in India.

In India hotel business was accepted as an industry only recently. Before 1937

there was hardly any establishment that could entertain more than 500 tourists at a

time. After World War II important cities in India witnessed the emergence of many

hotels and restaurants. In 1950, realizing the importance of tourism and acute shortage

of hotel accommodation, the government of India took a decision to build hotels in

the public sector. Thus, the Ashok hotel, New Delhi was established in 1956. In that

year itself the government Hotel Standard and Rates Structure Committee with the

objectives of (i) laying down criteria for the purpose of classification of hotels in

India, keeping in view the international standard then applied to similar

establishments, (ii) suggesting improvement in the existing arrangement, (iii)

considering whether legislation/ assistance was necessary for the hotel industry and if

so what type and (iv) suggest suitable rate structure of hotel industries.


57

The second Hotel Review and Survey Committee was set up in 1967 which

included regional representation of Travel Agents Association of India and the State

government. The report of this Committee dealt with classification of hotels,

projection of hotel capacity and standardization of hotel industry. The report of the

committee stressed the need for the establishment of a permanent committee for

overseeing the classification of hotels.

2.26 Classification of Hotels in India

With a view to maintaining and standards, enforcing control, the Department

of tourism, Ministry of tourism and Government of India have a system of

categorizing the available accommodation as per certain criteria. Accordingly a hotel

could be either approved or unapproved. When a hotel comes in the approved list, it

pre-supposes that it is of international standard. Normally a foreign tourist would

prefer only an approved hotel because of its official recognition. This is an important

aspect as for as a hotel is concerned because the approval itself is a sufficient

advertisement. The classification as per the above stipulation came into effect from

1963 and consequently data on hotels in India are available from that year only. The

right to control and govern the norms relating to three to five star deluxe hotels is

vested with the Ministry of Tourism, Government of India. On the other hand the

Ministry of Tourism of the respective State government holds the rights with regard to

one and two star hotels. In India there are six categories of hotel such as one star, two

star, three star, four star, five star, and five star deluxe. There is a well-defined norm

for the classification of hotels.

2.27. Major Players in the Indian Hotel Industry

2.27.1 Hotel Chains

They comprise the major players including Indian Hotels Company Limited

(the Taj Group) and associate companies, EIH Limited (the Oberoi Group), ITC

Hotels Limited (the ITC Welcome Group), Indian Tourism Development Corporation

(ITDC) and Hotel Corporation of India (HCI) (the latter two being under the Public

Sector). Most of these chains had an established presence in one or more metro cities

prior to the tourism boom of the 1980s. Subsequent to the tourism boom, these chains

aggressively expanded their presence in other locations. The private players among


58

the hotel chains are industry leaders and have well established brand identities across

the different industry segments.

2.27.2 Small Chains

They are companies that have come up after the tourism boom of the 1980s

and 1990s. Due to lack of prior experience in the hotel industry, these players have

preferred to opt for operation/management arrangements with international players of

repute. Some of the companies in this category are Hotel Leela Venture (with

Kempinski), Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly

with Holiday Inn and Hilton and now with Intercontinental). As late entrants, most of

these hotel companies have fewer properties, compared to the big chains. However,

most of these players have initiated expansion plans during the late 1990s.

2.27.3 Public Sector Chains

ITDC and HCI boast of some of the best locations in major cities but are

relative underperformers, as compared to their private sector counterparts.

2.27.4 International Hotel Chains

They are also looking at India as a major growth destination. These chains are

establishing themselves in the Indian market by entering into joint ventures with

Indian partners or by entering into management contracts or franchisee arrangements.

Some of the players who have already entered or plan to enter the Indian market

include Marriott, Starwood, Berggruen Hotels, Emaar MGF. Most of these chains

have ambitious expansion plans especially with a strong focus on the budget segment

and tier II cities.

2.27.5 Localized Hotel Companies

They are the early entrants who have an established localized presence and

who preferred not to expand during the tourism boom but focus on building and

catering to a loyal customer base.

2.28 Public Sector Hotels in India

There were a few rest houses and tourist bungalows before 1663, which were

either run by Department of Tourism, Government of India or by the respective state

governments. In 1956 when the UNESCO Conference was held at New Delhi, there

was acute shortage of rooms for accommodating the delegates. To manage the


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situation The Ashok Hotel in New Delhi was established in 1956 under the ownership

of Government of India. From inception this organization gains much reputation and

prestige among the noble people around the world. Its commitment to quality in

service and environment are remarkable.

2.28.1 India Tourism Development Corporation Ltd.

In 1962 the world’s tourist traffic increased by 5 per cent and tourist traffic in

the Asia Pacific region increased by 14 per cent, even then the tourist traffic in India

showed a decrease of 3.8 per cent (139804 to 136360). It prompted the Government

of India to appoint an ad hoc committee on tourism in 1963 under the chairmanship of

Mr. Jha. The Committee, popularly referred to as the Jha Committee, made it clear

that ‘if adequate hotel accommodation of the right type for the kind of growth of

tourism is to be provided, the public sector will have to play a major role in this field’.

As per the recommendation of the Committee, The Indian Tourism Hotel Corporation

was established on January 21, 1965 for the construction and management of hotels in

the public sector. The ITDC started functioning from October 1, 1966 and was tasked

with promoting India as a tourist destination and developing requisite infrastructure

such as accommodation, catering, transport, duty free shops, travel agencies,

entertainment, publicity management consultancy for projects, etc. The ITDC’s

success in tourism has stimulated the private sector also. Whenever the ITDC found

new spheres of development, the private sector also rushed in to establish themselves

in such areas. Now the ITDC has opened a large number of hotels and lodges, it now

faces much worthwhile competition from private sector hotels. ITDC’s present policy

is no longer to go for five star hotels. It has now returned to its original objective of

developing the tourism infrastructure of the country.

2.28.2 Hotel Corporation of India

The Hotel Corporation of India Limited (HCI) is a public limited company

wholly owned by Air India Limited and was incorporated on July 8, 1971 under the

Companies Act, 1956 when Air India decided to enter the hotel industry in keeping

with the then prevalent trend among world airlines. The objective was to offer the

passengers a better product, both at the International Airports and at other places of

tourist interest, thereby also promoting the tourism of India.


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2.29 Hotel Chains in the Private Sector

2.29.1 The India Hotel Company-The Taj Group

The Taj Mahal Hotel at Bombay is considered the ‘Grand Lady’ of hotels in

India and continues to remain one of the world’s largest hotels. The Indian Hotel

Company is the parent company of the Taj Group of Hotels. It has a chain of 51 hotels

in 32 destinations in India and 14 International hotels in London, New York,

Washington, Dubai, Colombo and other places. The company also renders

management and professional consultancy services to several hotels in Europe, USA,

Middle East, Africa, Srilanka and Nepal. The Taj Group of hotels is internationally

acknowledged for the quality and excellence in hotel facilities, cuisine, décor, and

services.

2.29.2 East India Hotels-The Oberoi Group (EIH)

The Oberoi Hotel in New Delhi was established in 1965 and it is marked as

the first success of the joint hoteliering venture in India. The hotel continues to be an

important land mark in the capital’s sky line, catering to a very exclusive and

sophisticated clientele. In 1968, the company built a luxury hotel in Bombay in

collaboration with Sheraton Hotel International, Boston, USA. It was the first among

the world famous chain of Sheraton Hotels to be located in India and the first Oberoi

Hotel in Bombay. This group has also formed a joint venture with Trident Group of

hotels to establish Trident Hotels in India.

2.29.3 Indian Tobacco Company-Welcome Group

Indian Tobacco Company (ITC) is the fastest growing group of hotels in India.

The ITC entered the hotel field in 1974 and opened its first hotel Chola, in Madras in

1975. The ITC with its subsidiary ITC hotel (ITCH) has sixteen hotels in fifteen

cities in India functioning under the Welcome group banner and six under Sheraton

banner. Its association with Sheraton for over 20 years has assisted in providing

sophisticated modern hoteliering facilities to the customers. The ITC group of hotels

has emerged as one of the largest hotel companies following the transfer of Welcome

Group properties from it’s the parent ITC Ltd.

2.29.4 Hotel Leela Venture

The Leela Venture (private) Ltd, promoted by Capt. Nair, was incorporated on 20

March 1981 at Bombay and was converted into a public Ltd company on 10 March


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1982. Capt. Nair entered hotel industry with the establishment of hotel Leela. In 1990

Leela beach in Goa was established with one hundred sixty-eight rooms. The Leela

venture then initiated a sales and marketing tie-up with the Penta Company. The Penta

group has no financial take in the Indian venture, but provides Leela with technical

and managerial assistance. The Penta group already had 16 hotels in various countries

and Leela Penta was the 17th in the chain.

2.29.5 Holiday Inn

In India the first Holiday Inn Hotel was started at Juhu Beach, Bombay. It was

a venture of Eastern International Hotel Ltd. in collaboration with Holiday Inn

incorporated USA. Again in 1975, they started a 5 star luxury hotel at Agra. The

Holiday Inn hotels have their own holiday system and the world’s largest

computerized global reservation network that enables its customers to make

reservations from anywhere in the world almost instantly.

2.29.6 Jaypee Hotels Ltd.

Jaypee Hotels Limited primarily engages in the ownership and operation of

hotels in India. The company owns three Five Star Deluxe Hotels, namely Jaypee

Palace Hotel at Agra, and Jaypee Vasant Continental and Jaypee Siddharth Hotel at

New Delhi. The company is headquartered in New Delhi, India. Jaypee Hotels

Limited is a subsidiary of Jaiprakash Associates Limited.

2.29.7 The Bharat Hotels Group

The Bharat Hotels Group is a major player in India’s tourism and hotel sector.

It operates its hotels under ‘THE GRAND’ banner and its present portfolio of hotels

incorporates fourteen luxury hotels in the five-star deluxe segment. These include

Inter Continental ‘The Grand’ hotels in New Delhi, Mumbai, Goa and Srinagar and

The Grand Ashok, Bangalore.

The hotel industry in India is making phenomenal progress in both chain and

independent sectors. It is interesting to note that according to a study conducted by

the Standard Research Institute of California, 35 per cent of the American tourists

considered hotels in India as excellent, 36 per cent as average and 19 per cent as

poor. Now a lot of quality improvement programmes are implemented in Indian hotel

industry.


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2.30 Present Status of Hotel Industry in India

The Indian hospitality sector is expected to grow in a fast pace. Strong

economic growth, increased FDI, greater emphasis on tourism development,

favourable government policies and other international events, will be the major

impetus for growth. The rising middle class is also becoming increasingly affluent,

mobile, internet savvy and more sophisticated in terms of what is demanded in terms

of tourism products and services, and more importantly the price they are willing to

pay for it. The entry of international brands through joint ventures and tie-ups is likely

to enhance the service levels and will narrow down the demand-supply gap regard to

rooms. But ICRA expects the shortage in rooms to remain for next five years leading

to higher occupancy levels and increase in Average Room Rates (ARR).

Currently, according to industry estimates, there are only 1,10,000 hotel rooms

in India while in China the figure is much higher at 7, 65,000. The annual growth rate

of hotel rooms in India is only 6 per cent, compared to 22 per cent in China, 18 per

cent in Thailand and 15 per cent in Malaysia. Economic growth in tier II and tier III

cities has put these on the hospitality industry map. ARR are likely to harden in these

cities in the next 2-3 years due to shortage of rooms. Niche areas like health tourism

and spiritual tourism are emerging as lucrative business opportunity for the industry.

The overall buoyancy in the market is attracting increased interest from investors and

a higher inflow of capital to the industry is expected. The growth of hotels is also

likely to come from the proliferation of Special Economic Zones. Major impediments

to the growth are sensitivity to business cycles and adverse political and social events

(including terrorist attacks), high tax rates, high land price, bureaucracy, and poor

infrastructure. For instance, the effective rate of taxation on tourism in India is 21 per

cent as compared to 7 per cent in Thailand, 4 per cent in Malaysia and 1 per cent in

Hong Kong. Moreover, owing to high land prices, there are more five star hotels than

budget hotels, making India a high cost deluxe destination. Additionally, India still

does not have the facility of modernized e-visa. The existing visa process is

cumbersome and comparatively more expensive than other destinations. Yields are

expected to be low in coming years on account of continuing price-cutting and

discounts.


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2.31 Hotel Industry in India in the New Millennium

Hotel industry in India has witnessed tremendous boom in recent years. Hotel

industry is inextricably linked to the tourism industry and the growth in the Indian

tourism industry has fuelled the growth of Indian hotel industry. The thriving

economy and increased business opportunities in India have acted as a boon for

Indian hotel industry. The arrival of low cost airlines and the associated price wars

have given domestic tourists a host of options. The 'Incredible India' destination

campaign and the recently launched 'Atithi Devo Bhavah' (ADB) campaign have also

helped in the growth of domestic and international tourism and consequently the hotel

industry.

According to a report, Hotel Industry in India today has a supply of 110,000

rooms and there is a shortage of 150,000 rooms, fuelling hotel room rates across

India. According to estimates, demand is going to exceed supply by at least 100 per

cent over the next 2 years. Five-star hotels in metro cities allot the same room, more

than once a day to different guests, receiving almost 24-hour rates from both guests

against 6-8 hours of usage. With demand-supply disparity, hotel rates in India are

likely to rise by 25 per cent annually and occupancy by 80 per cent, over the next two

years. This will affect the competitiveness of India as a cost-effective tourist

destination. To overcome this shortage, Indian hotel industry is targeting to add about

60,000 quality rooms by 2012, currently in different stages of planning and

development. The future scenario of Indian hotel industry looks extremely rosy. It is

expected that the budget and the mid-market hotel segment will witness huge growth

and expansion while the luxury segment will continue to perform extremely well over

the next few years.

The progress made by hotel industry in the first decade of the new millennium

is represented in Tables 2.17 and 2.18.

From the Tables it is well understood that both the number of hotels and

number of hotel rooms were spurted an increasing trend throughout the ten year

period. It is also clear that during this time span, 5 star Deluxe type hotels made a

growth rate of 8.94 per whereas the number of rooms in this sector record a growth

rate of 8.69%. Next to it the 3 star hotels captured a growth rate of 7.04% and marked

a growth in number of rooms at 5.69%. Thus it can be inferred from the analysis


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Table 2.17: Growth in Number of Hotels in India from 2001 to 2010

Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % variation over 2009 in 2010 CAGR

5 Star Deluxe 65 71 74 78 80 85 93 105 109 153 40.37 8.94

5 Star 81 81 85 89 117 71 81 94 98 149 52.04 6.28

4 Star 111 120 122 126 80 111 116 121 125 157 25.60 3.53

Heritage 90 77 77 79 58 67 83 64 88 146 65.91 4.96

3 Star 440 472 551 634 447 477 587 683 511 869 70.06 7.04

2 Star 479 476 533 560 209 217 231 287 220 307 39.55 -4.35

1 Star 191 192 201 207 54 46 53 118 55 67 21.82 -9.95

Classification

Awaited 84 81 79 119 145 133 175 115 257 156 39.30 6.00

Total 1541 1570 1722 1892 1190 1183 1419 1587 1463 2004 2.66 Source: Department of Tourism, Government of India.


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Table 2.18: Growth in Number of Rooms in India from 2001 to 2010

Source: Department of Tourism, Government of India.

Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % Variation Over 2009 in

2010 CAGR

5 Star Deluxe 14860 16240 16885 17885 15739 20943 20110 22254 23113 34187 47.91 8.69

5 Star 10107 10107 10416 10982 7367 8470 9792 11387 11822 17144 45.02 5.43

4 Star 7910 8551 8655 8831 5483 7384 7584 9299 8652 12059 39.38 4.31

Heritage 2483 2124 2124 2173 1970 2211 2450 1921 2545 3879 52.42 4.56

3 Star 21238 22783 26075 28783 19985 20432 24496 30577 23164 36585 57.93 5.59

2 Star 6037 5999 17629 18449 5673 5823 6637 8494 6539 8446 29.91 3.41

1 Star 6303 6343 6606 6765 1629 1435 1774 2834 2755 2537 (7.97) -8.7

Classification

Awaited 3457 3334 3334 3902 9767 8924 10415 7807 12411 580 95.53 -16.35

Total 72395 85481 91720 97770 67613 75622 83258 94573 91001 115417 4.78


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that the supply factor in hotels industry has been increasing and as it is the most

prospering sector more and more investment will definitely flow into the sector.

2.32 Nationwide Performance of Hotel Industry in India from 2000 to 2010

Table 2.19 exhibits the nationwide occupancy, average rate, and RevPAR

performance of the Hotel Industry since 2000-01. As shown in the Table, the

nationwide occupancy equated to 57.2 per cent in 2000-01, even though there was

stagnation in growth upto 2002-03, it exhibited an upward trend in the next few years

to 65.0 per cent in 2009-10 the sharp decrease and/or stagnation of growth

experienced by Indian hospitality industry are mainly due to the adverse changes that

had taken place in the external environment. The Indian hospitality sector benefited

from the economic boom in the United States in 2000, attaining increase in both

occupancy and average rate that year. The US recession in 2001 soon spread to other

parts of the world, including India, and had a significant impact on hotels in the

country, resulting in a decline in occupancy to its lowest level in 15 years. The decline

in occupancy was accompanied by a decline in average rate as hotels reduced rates in

an attempt to remain competitive in a price-sensitive market and chose to focus on

maximizing occupancies. These simultaneous declines in both occupancy and rate

resulted in a steep decline in Rev PR that year.

The Indian hospitality sector, however, proved to be very resilient with

occupancy rebounding by roundly 11.0 per cent in 2002/03, and by over 13.0 per

cent the next year. Such a recovery was even more significant given the fact that

international travel was affected by the global recession, the SARS outbreak, and the

Iraq war. This downturn saw the domestic traveler step in to save Indian travel and

hospitality and serve as the more stable, albeit lower rated, alternative to the

international traveler. It is worthwhile to mention that though the nationwide

occupancy increased in 2002-03, nationwide average rate continued to decline as

hotels continued to focus on improving occupancy levels at the cost of rates,

especially as they modified strategies to target the rate-sensitive domestic market.

Demand continued to recover over the next few years, resulting in peak occupancy of

over 71.0 per cent in 2005-06 and 2006-07.

As the occupancy levels improved, the nationwide average rate more than

recovered from the previous decline and showed in the increases from 2003-04 to


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2007-08 period. Such increases in occupancy and average rate were fuelled by the

demand-supply gap that existed in India during those years, especially in the major

metros, as a result of which hotels were able to charge rates that were often

significantly higher than that charged by comparable hotels in other parts of the

world. The outsized returns that hotels were able to attain during those heady years

attracted the attention of investors and hotel companies from all around the world

and India quickly became one of the most attractive destinations for hotel

investment. However, these strong year-on-year rate increases led the corporate

sector to look for alternate cost-effective lodging options in various cities. Cities like

Bengaluru, Mumbai, and Hyderabad saw the emergence of hundreds of guest houses

to meet the demand for cost-effective accommodation. Other companies chose to

lease out multiple apartments use to their employees and stopped using expensive

hotels. This trend is clearly illustrated in Table 2.19 where nationwide average rate

increased by a strong 13 per cent in 2007-08 while occupancy dropped by 3.6 per

cent.

The Indian hospitality sector entered its next cycle in 2008-09 when the global

financial meltdown finally caught up with us in October 2008. The year 2009-10 is

rooted for the emergence of the domestic traveler as it happened earlier and rescued

the sector during the previous downtown. While rates dropped significantly in 2009-

10, the strong increase in domestic demand actually led to an 8.0 per cent increase in

nationwide occupancy.

2.33 Hotel Industry in Kerala

Hotel industry in Kerala is considered an important segment of the modern

territory sector. It is largely an indigenous and a relatively labour intensive industry.

It plays a vital role in the economic life of the society with considerable growth

potential. Thanks to its immense tourist potentiality, Kerala has attracted travelers

from far and wide from time immemorial. The pervasive influence of tourism has

made the state more conducive to the growth of hotels. All the public sector hotels in

Kerala are run by Kerala Tourism Development Corporation and a large number of

private sector hotels are run by important hotel chains, companies, partnerships and

individuals.


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Table: 2.19: Nationwide Performance of Hotel Industry in India from 2001 to 2010

Source: HVS Report on Indian Hotel Industry, 2010.

Year Occupancy Percentage of change

Average room rate

Percentage of change

Revenue per room

Percentage of change

2001 57.2 6.1 3731 6.4 2134 13.0

2002 51.6 -9.8 3467 -7.1 1789 -16.2

2003 57.2 10.9 3269 -5.7 1870 4.5

2004 64.8 13.3 3569 9.2 2313 23.7

2005 69.0 6.5 4299 20,5 2966 28.3

2006 71.5 3.6 5444 26.6 3892 31.2

2007 71.4 -0.1 7071 29.9 5049 29.7

20078 68.8 -3.6 7989 13.0 5496 8.9

2009 60.3 -12.4 7837 -1.9 4726 -14.0

2010 65.0 7.8 6426 -18.0 4177 -11.6

CAGR -0.2 5.5 5.4


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2.34 Public Sector Hotels in Kerala

Kerala Tourism Development Corporation (KTDC), which started as an

accommodation - providing agency, was formed in 1970-71 by the assistance given

by the State government in the form of share capital. In addition to providing quality

accommodation, KTDC targets to attract tourists, domestic as well as foreign, by

providing transport facilities, innovative tourism products, and offering well

established tour packages like ayurvedic rejuvenation programme, backwater house

boat cruises and chartered tour programmes at concessional rates.

In 1989, the Tourist Resorts (Kerala) Ltd was set up as a subsidiary company

of KTDC aiming at the mobilization of private sector investments and institutional

finance. The authorized capital of the company was Rs. 120 crores and the paid up

capital was Rs.16.40 cores as on 31-12-1999. The company has invested in a joint

venture with the Taj and Oberoi groups and in the Veli-Akkulam Project.

In 1995 Bekal Resorts Development Corporation (BRDC) was set upto

develop an integrated project at Bekal. The total cost of the project was envisaged to

be Rs. 130 cores. The Sate government’s contribution was Rs.35 crores. The aim of

BRDC is to identify, acquire and develop potential resort sites, develop and

strengthen infrastructure, invite promoters and investors, market Bekal as an

integrated tourist destination and co-ordinate development at every level. At present

KTDC has under its control 12 hotel units, nine other units such as motels, Yatrinivas

and sujala restaurants. These units have a total bed capacity of 1003.

2.35 Private Sector Hotels in Kerala

Individuals, firms, companies, and hotel chains run most of the private sector

hotels in this state. Famous chain like the Taj Group has already commissioned its six

hotels consisting of three 5 star hotels and three four star hotels. The only five star

deluxe hotel in Kerala is Taj Malabar at Kochi. These prestigious private owned

institutions has been playing a leading role in the tourism promotion of the State

through providing world class services at affordable cost.

2.36 Special Aspects of Accommodation in Kerala

Certain aspects of accommodation in Kerala are distinct, and emerge from the

policy consciously followed by the State. These have been highlighted below:


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2.36.1 Accommodation as an ‘Experience’

In most destinations in Kerala, accommodation is synonymous with the

‘experience’ and not just with the provision of convenient rooms with star facilities.

Accommodation being - afloat on houseboats moving across the backwaters—can be

conjoined with treatment for complete rejuvenation under an ayurvedic package, or

staying in cottages in the Coconut Lagoon. In all cases, the accommodation is related

to the ‘experience’ provided and goes beyond the room and the facilities provided.

Often, lack of conventional facilities and conveniences (TV in the room, morning

newspaper, AC) are projected as the greatest assets of the accommodation provided,

adding to the ‘holistic’ experience of the stay.

2.36.2 Bold Pricing for Quality Experience

Kerala has consciously followed a policy of boldly pricing its accommodation

high and duly matching the price with quality. The reason behind this has been to

relate pricing to the ‘experience’ rather than to the conventional facilities provided.

Across Kerala, most of the hotels and resorts are priced in dollars, with the pricing

related to accommodation in Europe and Asia, rather than to the rest of India. Many

of the home stay accommodations in Kumarakom are priced at around US $ 150 per

day, which corresponds to around Rs.7, 000.

2.36.3 Innovation in Accommodation

Across Kerala we find different types of accommodation that offer a unique

stay experience, allowing the visitor to relate closely with nature. Moving away from

the brick and mortar concept of large modern hotels, Kerala offers tree houses,

houseboats, traditional Kerala cottages, floating cottages, rooms with attached

swimming pools, cottages opening into lakes. Each attempt is to provide a unique

exposure to the surrounding beauty and variety offered by nature.

2.37 Growth of Hotel Industry in Kerala

The growth of the hotel industry in any region or a state depends largely on

the flow of tourists, both domestic and foreign, which in turn depends upon the

supply of tourism products. Supply of tourism products is greatly influenced by the

level of development of other constituent activities in the region, such as the

development of tourist spot, travel, transport, communication facilities,

entertainment, travel agencies etc. The growth of the hotel industry also involves the


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achievement of co-ordinate result in the uncoordinated sectors. As far as hotel

industry is concerned, there have been considerable degrees of variation in the

growth of different classes of hotels in different regions of the country. Most of the

States in India pave much attention to hotel industry only after realizing the relevance

of the industry in tune with tourism. Only after the 1970’s the States in India devote

their attention to this sector.

The hotel industry in Kerala has gained importance only recently, as late as the

1980’s. Most of the hotels were established after 1985. The data relating to the

number of hotels, number of rooms, and beds available prior to this period are not

available even with the Department of Tourism, government of Kerala. The

government of Kerala, now give top priority to this sector realizing that the

development of hotel industry will prompt the progress of allied industries too.

Number of incentives and concessions are now available to hospitality sector as it is

the prime source of foreign exchange revenue of the State.

There are all kinds of star hotels in Kerala came into being only recently. But

there is some degree of disparity in the growth rate of star hotels. The growth of hotel

industry in Kerala in the first decade of 21st Century is depicted in Table 2.20 and

Table 2.21.

While going through the Tables it is well establish that the region wide

performance of hotel industry in Kerala is far better than the nationwide growth. The

average annual growth rate in Kerala in terms of number of hotels and number of

rooms were 13.89 and 10.34 respectively whereas the national figure stood 2.66 and

4.78. But the pattern of change is more or less same i.e. five star and three star sectors

had made tremendous progress both in nationwide and region wide.

From the Tables it can be inferred that Kerala has good avenues for hotel

industry and the number of rooms will further be boosted as the number of tourist

increases. But it worth mention that Kerala is always criticized as location with less

quality accommodation. But now the State has initiated so many steps to boost up

accommodation sector.


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Table 2.20: Growth of Hotel Industry in Kerala from 2001 to 2010

Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % variation over

2009 in 2010 CAGR

Five Star Deluxe 1 1 1 2 2 1 1 4 4 4 Nil 14.87

Five Star 4 6 7 7 8 5 8 9 11 14 27.27 13.35

Four Star 11 11 14 15 14 12 12 17 18 31 72.22 10.92

Heritage 8 9 10 10 8 20 154 20 20 22 10.0 10.65

Three Star 23 27 40 61 98 154 67 219 202 305 50.99 29.50

Two Star 59 6 62 78 91 60 4 78 78 98 25.64 5.21

One Star 28 28 28 31 26 6 20 6 4 8 100.0 -13.35

Classification awaited 18 86 57 65 145 133 72 60 72 76 5.56 15.49

Total 152 174 219 269 392 391 338 413 409 558 36.43 13.89 Source: Tourism Statistics, Department of Tourism, Government of India, Various issues.


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Table 2.21: Growth in Number of Rooms in Star Hotels in Kerala from 2001 to 2010

Source: Department of Tourism, Government of India.

Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % variation over

2009 in 2010 CAGR

Five Star Deluxe 100 100 252 252 242 100 100 509 509 512 5.85 17.74

Five Star 469 469 469 469 557 2888 903 951 951 1184 24.50 9.70

Four Star 627 788 862 862 832 826 416 1020 1020 1793 75.78 11.08

Heritage 268 276 276 282 250 673 214 227 227 673 196.4 8.93

Three Star 1001 1511 2059 2633 3033 4252 4252 5331 6230 7480 20.06 22.28

Two Star 1910 1930 2241 2518 2600 1154 1195 1293 1220 1888 54.75 -1.02

One Star 783 812 712 868 652 170 115 139 115 273 137.3 -10.00

Total 5158 5886 6871 7884 8166 10063 7195 9470 10272 13803 34.37 10.34


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Section B

HUMAN RESOURCE MANAGEMENT PRACTICES

Although the concept of HRM is of recent origin, the concept of Personnel

Management (PM) which is the pioneer term of HRM dates back to 1800 B.C. In

India, Kautilya observed that there existed a sound base for systematic management

of human resources as early as the fourth Century B.C. The concept of PM had

evolved a lot over the years. By the end of the 20th Century, the managerial

philosophy that defined personnel function had undergone radical changes. However,

the foundations of the modern concepts of PM date back to the era of Industrial

Revolution when large scale production resulted following the invention of the steam

engine and several other machines and the management of the huge number of

workers called for a systematic method.

2.38 HRM- Phases of Growth

The chronological growth of the concept of HRM can be explained as follows.

2.38.1 Industrial Revolution

Industrial Revolution during the later part of the 18th Century and the earlier

part of the 19th Century had a vital influence on the development of industry and

commerce. Prior to it, there were several distinct types of relationship involving

employers and employees, which were variously termed as “slavery,” “serfdom” and

the “guild system.” The Industrial Revolution consisted essentially in the

development of machinery, the use of mechanical energy and the consequent

establishment of factories employing large number of people-all resulting in a

tremendous increase in the productive power of man. The factory system gradually

replaced the “putting out” or “cottage” system

The important changes brought about by the Industrial Revolution are:

1. Development of engineering: Engineers were required to design machinery

for textiles, coal mining etc for making and repairing steam engines and

making tools and locomotives.

2. Revolution in iron-making: The engineers, who took charge of important

task connected with the industrial change, could succeed in their work only

if iron was cast in large quantities and was of fairly good quality.


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3. Use of power driven machines: Power driven machines were used in

industry. It began with cotton spinning and weaving and, later on, spread to

spinning of wool, silk etc.

4. Rise of chemical industry: The application of power driven machines in

textile mills made it necessary to develop bleaching, dyeing, finishing and

printing processes to keep pace with the output of the textile mills.

5. Development of coal mining: Coal was needed to refine pig iron and cast it

into the form in which it was needed by the engineers. It was also needed for

the generation of steam power.

The major changes which necessitated the emergence of PM principles and

practices were: (i) Large scale production; (ii) Employment of large number of

workers in factories; (iii) Introduction of division of labour; (iv) Growth of a new

class of technical and professional employees; (v) Migration of labour from rural

areas to urban areas; (vi) Rise of materialism; and (vii) Monotony and boredom in

jobs.

2.38.2 Trade Unionism

With the rise of factory system, the workers faced several problems in the

factories. Initially, these problems arose out of child labour, long hour of work and

poor working conditions. Later, economic problems, including the question of

employee benefits and services, became the major concerns. Workers united on the

basis of their common interests to improve their job conditions. Trade unionism

influenced the personnel management in such fields of activity as the adoption of

employee grievance handling systems, the acceptance of arbitration as a means of

resolving conflicts about rights, disciplinary practices, the expansion of employee

benefit programmes, the liberalization of holiday and vacation time, clear definition

of rational and defensible wage structures etc. In several companies, personnel

departments were set up around 1910 to look after functions like recruitment, training,

motion study, record-keeping, welfare etc.

2.38.3 Scientific Management

Modern personnel management is described as a child of “Scientific

Management”. The scientific management movement started in the U.S.A. around

1900 as a result of the efforts of F.W.Taylor who is also called the father of scientific


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management. In the early 1900s, most business owners and managers believed that if

employees were to be effectively managed, they had to be constantly supervised and

forced to work. All employees were considered to be equal in terms of productivity;

when they failed to achieve the set targets they were disciplined or fired. The

scientific management approach challenged these beliefs and suggested that managers

adopt a scientific and objective approach to determine how work could be designed

and carried out most efficiently. Taylor’s scientific management brought about many

benefits to the industry. According to Gilbreths, the main benefits of scientific

management are “conservation and savings, making an adequate use of every one’s

energy of any type that is expended”.

2.38.4 Industrial Psychology

The development of Industrial Psychology owes a great deal to Hugo

Munsterberg, regarded the father of Industrial Psychology. His contributions to

industrial management were particularly notable in respect of his analysis of jobs in

terms of their mental and emotional requirements and in terms of the development of

testing devices. Advances were made in selection, placement, testing, and training

research practices. Industrial Psychology introduced “matching of employees to jobs,

for different jobs requiring different skills and abilities” It emphasized the use of

psychology in the field of personnel testing, interviewing, attitude measurement,

learning theory, training, monotony study, safety, job analysis and human

engineering. A number of psychologists such as Proffenberger, Burtt, Hapner and

Munsterberg made significant contributions to the field of industrial psychology.

They had great interest in seeking out ways in which psychology could be applied to

the problems of an industry. They introduced job analysis in terms of mental and

emotional requirements of the job. The major areas of specialization of the personnel

managers during this period were selection, training, methods development and

employee welfare.

2.38.5 Human Relation Approach

The famous Hawthorne experiments conducted by Elton Mayo and his

Harvard colleagues during 1930s and 1940s demonstrated that employee productivity

was affected not only by the way the job was designed and the manner in which

employees were rewarded economically, but by certain social and psychological


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factors as well. Mayo and his associates followed up their experiments and

investigated the myriad of informal groupings, informal relationships, social cliques,

patterns of communication and patterns of informal leadership. As a result, during the

1930s a trend began which can be phrased as ‘being nice to people’. This trend was

eventually termed ‘the human relations movement’.

2.38.6 Human Resources Approach

However, during the early 60s, the ‘pet milk theory’- advocating that happy

workers are productive workers or happy cows give more milk - of human

relationship was largely rejected, recognizing the fact the workers are unique in their

own way-having individual needs. It was recognized that each employee is unique

and highly complex individual with different wants, needs and values. What

motivates one employee may not motivate another and being happy or feeling good

may have little or no impact on the productivity of certain employees. Slowly but

steadily, the trend of treating employees as resources or assets emerged. “The Human

Resources Approach assumes that the job or the task itself is the primary source of

satisfaction and motivation to the employees. The emphasis in the human resource

approach is on individual involvement in the decisions made in the organization”.

2.39 Functions of HRM

Every manager must get things done through people, and individual goals and

aspirations have to be in alignment with organizational goals for the successful

handling of a business. An effective manager should be able to utilize human and

non-human resources to bring about this alignment and eventually achieve these

goals. A manager’s handling of the human assets reflects his managerial capabilities.

Managing people is one of the biggest challenges for a manager for the following

reasons:

i. Individuals differ from each other in terms of their values, attitudes, beliefs and culture. This leads to a very complex situation in an organizational context.

ii. The stimulation and motivational factors might not be the same for all the employees. It is important to understand the individual needs of these employees and cater to these needs.

iii. The expectations of employees of today are much greater compared to the employees of yesteryears. They know they are valuable assets and demand to be treated as such.


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A manager must understand and accept the fact that individuals, and not

organizations, create excellence. The famous American industrialist, John D

Rockefeller once said, “I will pay more for the ability to deal with people than for any

other ability under the sun”. This explains the importance of the human element in

organizations. Underlining the significance of the human element in the production

process, Peter F. Drucker says that “man, of all the resources available to man, can

grow and develop”. However, there are still many unanswered questions as to how to

establish the right climate for enhancing employee motivation and commitment. HRM

functions can be broadly classified into two categories.

2.39.1 Managerial Functions

The Human Resource Manager is a part of the organizational management. So

he must perform the basic managerial functions of planning, organizing, directing and

controlling in relation to his department.

1. Planning: For a human resource manager, planning means the determination

of personnel programs that will contribute to the goals of the enterprise. They

involve anticipating vacancies, planning job requirements, job descriptions

and determination of the sources of recruitment. The process of personnel

planning involves three essential steps. Firstly, a supply and demand forecast

for each job category is made. Secondly, net shortage and excess of personnel

by job category are projected for a specific time horizon. Finally, plans are

developed to eliminate the forecast shortages and excess of particular

categories of human resources.

2. Organizing: He must design and develop the organizational structure to carry

out its various operations. The organizational structure basically includes the

following:

i. Grouping of personnel activity logically into functions or positions;

ii. Assignment of different functions to different individuals;

iii. Delegation of authority according to the tasks assigned and responsibilities involved.

iv. Co-ordination of the activities of different individuals.


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3. Directing: The directing function of the personnel manager involves

encouraging people to work willingly and effectively for the goals of the

enterprise. The personnel manager can motivate the employees in an

organization through career planning, salary administration, ensuring

employee morale, developing cordial relationships and provision of safety

requirements and welfare of employees.

4. Controlling: Controlling is concerned with the regulation of activities in

accordance with the plans formulated on the basis of the objectives of the

organization. Controlling completes the cycle and leads back to planning.

2.39.2 Operative Functions

The operative functions are those tasks or duties which are specifically

entrusted to the human resource or personnel department. These are concerned with

employment, development, compensation, integration and maintenance of the

personnel of the organization.

1. Employment: The employment of the proper kind and number of persons

required to achieve the objectives of the organization. This involves

recruitment, selection, placement, etc. of the personnel. Before these processes

are performed, it is better to determine the manpower requirement both in

terms of number and quality of the personnel. Recruitment and selection cover

the sources of supply of labour and the devices designed to select the right

type of people for various jobs. Induction and placement of personnel for their

better performance also come under the employment or procurement function.

2. Development: Training and development of personnel is a follow up of the

employment function. It is the duty of the management to train each employee

properly to develop the technical skills for the job for which he has been

employed and also to prune him for the higher jobs in the organization. There

are several on-the-job and off-the-job methods available for training purposes.

A good training programme should include a mixture of both these methods. It

is important to point out that the personnel department arranges for training

not only the new employees but also the older ones in order to update their

knowledge in the use of latest techniques.


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3. Compensation: This operative function is concerned with the determination of

adequate and equitable remuneration of the employees in the organization for

the input of their labour and skill. The personnel can be compensated both in

terms of monetary and non-monetary rewards. The personnel department can

make use of certain techniques like job evaluation and performance appraisal.

4. Maintenance: Finding the right employees for the right jobs and enhancing

their work potential through systematic training are only the starting point in

molding a competent work force. A far-sighted management cannot stop there.

They must be provided with good working conditions so that they may like

their work and work-place and maintain their efficiency. Working conditions

certainly influence the motivation and morale of the employees. These include

measures taken for health, safety, and comfort of the work-force.

5. Motivation: Employees work in the organization for the satisfaction of their

needs. The human resource manager helps the various departmental managers

to design a system of financial and non-financial rewards to motivate the

employees.

6. Personnel records: The human resource in the personnel department

maintains the records of the employees working in the enterprise. It keeps full

records of their training, achievements, transfer, promotion etc. It also

preserves many other records relating to the behavioral pattern of the

personnel like absenteeism and labour turnover. The personnel programmes

and policies of the organization are also kept here.

7. Industrial relations: The responsibility of maintaining good industrial

relations is mainly discharged by the human resource manager. The human

resource manager can help in collective bargaining, joint consultation and

settlement of disputes, if the need arises. The human resource manger can do a

great deal in maintaining industrial peace in the organization as he is deeply

associated with various committees on discipline, labour welfare, safety,

grievance redress etc.

8. Separation: The organization is responsible for meeting certain requirements

in the process in separation, as well as assuring that the returned person is in as


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good a shape as possible. The personnel manager has to ensure the release of

retirement benefits to the retiring personnel in time.

2.39.3 Advisory Functions

Human resource manager has specialized education and training in managing

human resources. He advises top management and department heads.

1. Top management: The Personnel manager advises the top management in the

formulation and evaluation of personnel programmes, policies and procedures.

He also gives advice for achieving and maintaining good human relations and

high employee morale.

2. Department heads: The Personnel manager offers advice to the heads of

various departments on matters such as manpower planning, job analysis and

design, recruitment and selection, placement, training, performance appraisal

etc.

2.40 Importance of HRD Practices in Tourism Sector

HRD has to play a decisive role in running the tourism sector smoothly. This

industry has an inter linkage with many other sectors to provide qualitative services to

the tourists. Managers have the responsibility to regulate and monitor the flow of

services of various departments coming under the sector. The poor quality service in

housekeeping leaves have a bad effect both on the department and on the entire hotel.

The feedback of the guests on the service standard maintained by a hotel can make or

mar the reputation of a hotel. The long standing goodwill of a hotel, airlines, travel

agency or shopping centre can be jeopardized by the negligence of a travel agent. A

tourist has to depend on the different sources of provider services during his holiday

trip. Thus, it has become a serious challenge as to how the tourism industry can

succeed in overcoming a number of hindrances like lack of infrastructure, lack of

promotional campaign, inadequate trained manpower and above all limited

government patronization in the current scenario. Of all problems, shortage of skilled

manpower paralyses the process of development in the long run. Trained manpower is

not adequate to cater to the needs of the ever-growing tourism sectors in China,

Nepal, Indonesia, Maldives, Srilanka, and India. All tourist-receiving countries in

Europe and America are investing enormously to design the latest pedagogy and


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module for the training and development of the employees in the sector. Thus, human

resources are the backbone of the success of the tourism organizations and the

industry is highly dependent upon the quality of staff and their efficiency in terms of

service.

Today luxurious star hotels have introduced various measures to develop

multifaceted skill and efficiency of the employees to render high quality service to

both the foreign and domestic tourists. Many international airlines like British

Airways, Singapore Airlines, Swiss Airways, Srilankan Airlines, UAE Airlines and

US Airlines have tremendously modified their services.

By and large, the previous well-established personnel management practices

have proved obsolete in the present context of stiff competition. Moreover, the

tourism sector tends to implement scientific HRD practice to make more effective use

of the human resources. The world’s top five travel groups like Amex, Carlson,

Wagon-lists, Thomas cook and the Japan Travel Bureau have radically changed their

organizational structures to give utmost priority to the human resource development

and thereby managing other functional areas efficiently. The management of British

Airways (BA) has shifted from a bureaucratized and rule-driven organization to a

commercially successful one. Proper training to the supportive staff, putting the

eligible employees in responsible positions and introducing a reward system have

helped the BA rise to its present status.

To conclude, though the post-liberalized economy and changes in the life

pattern have thrown many opportunities and challenges to tourism, especially the

hotel industry there are serious drawbacks and hardships in the employee

management practices. The authorities have not yet given enough care and devotion

to the development of human resources in the industry. The opportunities lie in the

opening of the economy, liberalization of visa schemes, international understanding

and moreover increase in the disposable income of the people. The challenges include

facilitating quality - oriented products, service centered approach, and introduction of

new technologies. All these challenges require qualified and responsible employees.

Good HRM practices can effect the changes smoothly with less resistance.

Documents

HOTEL INDUSTRY AND HUMAN RESOURCE …shodhganga.inflibnet.ac.in/bitstream/10603/21380/12/12...Chapter 2 HOTEL INDUSTRY AND HUMAN RESOURCE MANAGMNET- A THEORETICAL OVERVIEW In this