IHG Hotels & Resorts shifts gears in India, to double presence after slow start

Hotel rates have gone through the roof around the world. Do you see a rationalisation happening anytime soon?

Two things happened: One, there was quite a bit of inflation so hotels had to respond to it. Hotels were not a source of inflation—labour costs went up, energy prices went up, construction costs went up a lot, interest rates went up, food and beverage costs went up. So, when all these inputs into building a hotel and maintaining it properly, and staffing it properly, go up, rates have to go up, too. On average, hotel rates have not increased more than inflation. We’ve had three to four years of 6-8% inflation, so the rate is nominally higher. On the other hand, we also had very strong demand, and when demand is high, and new hotel supply isn’t growing that much, then there’s an opportunity for higher pricing.

Indicators like GDP growth and burgeoning middle class—India is experiencing all of that. Does that help in growing business?
India is a perfect example, yes, for what you look for in the growth of travel—strong GDP growth, very strong middle class growth, infrastructure investment, local consumption, and a growing young population. When we put all that together, it’s inevitable that travel grows. Low-cost airline carriers are expanding, many airports are being built. It really covers all the elements of a market that looks very good for future travel growth and, therefore, hospitality.

But despite that, IHG’s number of hotels in India is small. Especially if you look at your competitors or a market like China.
We have 46 open hotels, another 50 or so under development. In fact, we are announcing today a brand new agreement with Brigade group to build an Intercontinental in Hyderabad for 300 rooms. We’re adding hotels to our development program every year. Yes, we think we’re just getting started in India and it can be much bigger for us than what it is today. But I would say none of the major international companies have a very large position.

In China, you have 700 hotels.
Yes, we have 700 open, going on to 800 this year and we have 500-plus under development. If we look at it, it’s a similar population, roughly similar geography, very different culture and structure of the economy and, clearly, a very different political structure. But India [has] a younger population, faster growing GDP today, a high propensity to travel. Indian families love to travel. So, there’s no reason why over time, hotels in India can’t be as big as the business in China. It will take time, GDP per capita in India is still quite a bit lower than where it is in China. But it’s going in the right direction. The government put a lot of effort into building infrastructure in China through their state-owned enterprises.

The world saw a phase of revenge travel after the pandemic. Do you think that has passed?
Yes. We’re in a different phase of travel now. During revenge travel, people were just expressing themselves after being stuck at home without interacting with people, going to restaurants, bars, and seeing places. There were stories of people ordering fake airline meals to bring home just because they missed the thing they complained about the most. But they loved the idea of travel. There were flights in Australia that took people from nowhere to nowhere, because they couldn’t go anywhere. They wanted to leave the airport. This showed us how much people missed traveling. Now while we’re still at a higher level of travel than before covid, it is not as much as it was when there was revenge travel, and is more sustained. It isn’t as if what went up is going down, but settled at a higher peak than before covid.

Is the current increase in travel caused by the leisure traveller? Or is it the business traveller?
Businesses are travelling again but accounting and consulting firms are travelling less now or doing more meetings virtually. But some other sectors like manufacturing, energy, technology, retail, construction, are travelling more. What matters to hotels is mobility, GDP growth and growth in the middle class. So, business travellers are back to where it was, plus or minus. Leisure travel is above where it used to be, and groups and meetings, which is another form of business travel, is well above what it was in 2019.

A lot of Indians still use non-branded hotels and guest houses in most places. How does that population convert to start using branded hotels?
As incomes grow, people become more particular about the things they want, their tastes vary, they want better standards and a rewards programme. There’s some strong domestic hotel brands in India that we have a lot of respect for. And so it’s inevitably happening in India, we already see it.

Two years ago your company announced four luxury brands would launch in India. Is there any progress on that?
We have now two Six Senses resorts open in India. We have a new Voco brand, which is one of our premium brands. We’ve announced that we’ve opened one hotel, we’ve announced three others and we will announce another Intercontinental. I’m confident we’ll have another brand, Regent Hotels & Resorts in India . We’ll have a Vignette Collection and a Kimpton Hotel + Restaurant, which is the largest and most successful boutique luxury brand in the world.

Will growth in hotels in India be largely in the budget category for most brands?
There are 1.4 billion people, a very large geography, and a young population. About 100 million households will join the middle class in the next 10 years. India is one country but it’s also 20 countries, maybe 200 countries with many different languages, cultures, geographies, etc. And so we have to actually think of the many different parts of India and, therefore, all brands have a place to grow.

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Published: 24 Apr 2024, 07:27 PM IST