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Kerala hospitality sector on the road to recovery

July 11
15:50 2017

Kerala has been one of the most prominent tourist destinations of India. A buoyant hospitality sector was hit badly post the decision announced by the previous government that came in August 2014, restricting liquor sale to 5 star hotels.

Mahadevan Pillai

 

Challenges:
The decision restricted liquor sale to only around 24 hotels with five-star accreditation in the state. The verdict of India’s Supreme Court, shutting down from April 1, the sale of liquor at establishments which fall within 500 metres range of state and national highways has further troubled hospitality players in the region.

The state liquor policy was a challenge but the recent revision in policy has been hailed by the travel trade. The state government of Kerala recently allowed sale of liquor in hotels beyond five star hotels.

According to a section of hoteliers in the state, the occupancy levels have declined and ARRs have nose-dived as well in recent times with the liquor ban being a major spoiler. Baiju Sisupalan, General Manager, Airlink Castle, Kochi said, “The present status of the hospitality industry in Kerala is going through a bad phase due to the recent liquor ban on sale of liquor near highways.  The percentage of average occupancy has come down by 10 to 12 per cent. So, the hoteliers are forced to reduce the room rent instead of periodical increase, which has further reduced the ARRs by 7.5 per cent.”

“We lost a lot of business be it banqueting, corporate training, conferences and other functions. It has hit our overall business. Moreover, the visit of domestic and international tourists have also recorded a decline”, shared Sisupalan.

“Kerala has been badly hit for the last one year due to the closure of bars. Only 5 star properties were allowed to serve liquor for the past two years. Unfortunately, this has been mistakenly perceived as a total liquor ban among our international source markets. This resulted in a lot of confusion and our competition destinations benefited from it. The leisure segment recorded a dip. Now with the Supreme Court’s order of banning highway outlets has affected some major brands in Kerala. One of entities being hit also included a convention center”, said Suresh Kumar, General Manager, Ramada Cochin Resort.

The upcoming International Convention Centre that has been constructed by the Lulu Group was slated to be opened in September 2017. There has been a huge investment that has been made on this facility but with the Supreme Court’s liquor ban its future has come under a clout.

“Last year we closed at 66 per cent occupancy and ARRs of Rs. 6100. This year as on date, the occupancy is just 1 per cent up but the ARRs have actually gone down. June has been particularly low forcing us to drop the ARRs including to bring average occupancy up,” said Kumar.
The roll out of Goods & Sales Tax (GST) has also been a matter of concern for a few hoteliers in the state with luxury hotels being added to the highest tax slab of 28 per cent. However, the GST Council led by Union Finance Minister Arun Jaitley in its 17th meeting, in a relief to the hotel industry, increased the threshold for the 28 per cent tax bracket to Rs. 7,500 from the earlier Rs. 5,000. This means that an 18 per cent GST will be levied on rooms with tariff between Rs. 2,500 and 7,500. According to the hotel industry, currently for this tariff range, a tax of 21.3 per cent is levied.

The Federation of Hotels Restaurants Association of India (FHRAI), the apex body for hotels and restaurants in the country, had earlier made a plea for a uniform GST rate at 12 per cent. The association had also appealed to the government to reconsider the luxury tax threshold of Rs 5,000 and enhance it suitably.

“For us now we have to charge 28 per cent GST for room guests. From 19 per cent to 28 per cent it’s a big jump and it is going to affect the premium hotels. This must be the one of the highest taxation for hotels in the world. In one side the tourism departments of the Central and State Governments are competing with the other international destinations to bring the guests here, and on the other side we are taxing the tourists so high they may actually decide to move away from India. One relief is the reducing of GST to 18 per cent in restaurants and banquets,” said Ramada’s Kumar.

However, a section of the industry in the region is also positive about the implementation of the GST which they say may create a little inconvenience initially like what happened during Government of India’s Demonetization drive but will be a positive move in a longer run.

“The industry is going through a lot of transition in terms of business and technology. The growth in the budget segment is going to be phenomenal. Smart hotels are going to be in a good demand. Technology will change the way travelling, booking and staying in a hotel is perceived as of now. In my view the luxury segment growth will be slow. Adventure tourism will be another niche segment which is coming up well. With the Government’s initiatives on getting smaller towns connected by low cost air, travelling is expected to increase”, Kumar further said.

 

Positives Galore:

In spite of challenges a number of hoteliers remain buoyant about the status of the hospitality sector in the state. Banking on segments like wellness and medical tourism, they echoed that the sector remain resilient.

Mahadevan Pillai, General Manager, Radisson Blu, Kochi said that the current trend seems to be exciting with the new tourism friendly policies adopted by the government agencies. He shared that the property is currently recording about 60 per cent occupancy and ARR of Rs. 4100.

Shuvendu Banerjee, General Manager, Crowne Plaza, Kochi said, “Hospitality sector in Kerala is soaring. In 2016 we saw an increase of 8 per cent in total tourist arrivals and the number of foreign tourist arrivals saw a jump of 5.67 per cent compared to the previous year. This year also we are experiencing an upward trend and despite a few hurdles we expect to close the year with better figures than the last year.”

Wellness and medical tourism is a growing segment and many foreign nationals prefer Kochi as a destination for a number of major medical treatments especially from the gulf and European markets. The NRIs as well who prefer treatment in their home country are playing a significant role in fuelling the demand of wellness and medical tourism.

“Several MNCs offer medical treatment options to employees and families at cost effective rates. With soaring health care costs and long waits for medical procedures in the West, it is becoming increasingly difficult to find quality, affordable treatment there. India and especially Kerala is emerging as a major medical tourism destination. The other two key two business segments that drive Kochi travel market are leisure and MICE tourists”, said Pillai.

However, as per Pillai the excise policy is the key deterrent standing in the way of the growth of the MICE business. “After having invested in infrastructure and marketing if the MICE business takes a beating because of the excise policy it would affect the overall tourism prospects of the state in the coming years,” he added.

According to Girish Kumar, Director, Food and Beverage, Le Meridien Kochi the overall sector is showing a positive growth. The property is recording an average occupancy of 62 to 65 per cent with an ADR of Rs. 4800.

“For Kerala as a destination the key challenge I would say is domestic connectivity that is limited in terms of the flights frequency and of course the rates are high. The other local challenges would be recurring strikes in the state which is a logistical nightmare for any group and MICE movements,” said Kumar.

“Kerala is definitely developing as a major MICE destination and a preferred destination for weddings. The addition of inventory in cities like Kochi will attract larger MICE groups in the city. IT and smart city projects will eventually make the city hotels self sustainable as it generates business within the city. With the addition of quality hospitals and wellness centers, Kerala is emerging as a destination for medical tourism and wellness. It is also helping to boost international and domestic tourist inflow,” he shared.

No room for ban:

A majority of hoteliers that Wonderlust approached expressed apprehensions on the recent Supreme Court of India’s judgment to ban alcohol consumption near highways – a decision that has attracted flak from hospitality quarters across the country.

“The Governments should support the hospitality industry by creating a tourism friendly environment.  Moreover, both domestic and international tourists come to Kerala for enjoying the natural beauty and climate of the State. Liquor is also a part of their enjoyment.  So, the present ban of liquor on establishments within 500 meters of state and national highways should be withdrawn for the development of the tourism in Kerala,” said Sisupalan.

“In most of the foreign countries discounting the Middle East region, liquor is a part of their basic dining culture and hence taking an anti-alcohol stance is not conducive if we wish to capitalize on the foreign tourist arrivals. In a scenario where the global traveller can book a trip to Kerala as well as to Thailand effortlessly it puts us at a serious disadvantage. But with the new policy where 3 and 4 star hotels can also serve liquor that hurdle no longer exists which I have no doubt the tourism industry would welcome”, said Banerjee.

Appreciating the State Government’s decision to revise its liquor policy and allow 3 & 4 star properties to serve liquor, Kumar said, “In my view the State Government has taken a bold move. This is definitely going to increase the business. Seventy per cent of the corporate and even leisure travellers stay either in the 3 or 4 star hotels. Not every organization or a traveller can afford 5 star hotel properties. I had many conferences and outstation that move out to Goa and other destinations last year,” concluded Ramada’s Kumar.

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Nitisha Dubey

Nitisha Dubey

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