Current Issuess In Hotel Industry In Kerala Tourism Essay

Hotel industry and tourisms are fast growing world wide. There are number of studies on the problems and prospects of tourism industry in India and in Kerala. However research on hotel industry has grown only in the recent years . No systematic, detailed and comprehensive study on the hotel industry in Kerala has been made so far . Very poor data base on the availability of Hotel Accommodation ,even at the important tourist centres is a serious problem

Only descriptive literature exist at broad level An attempt is made in this chapter to Review some of the relevant existing literatures.

Anand' in his study examines the reason for

the poor tourist traffic in India. He says that hotels and other supplementary

accommodations are the core of tourism industry and suggests that, the required

number should be made available for the proper development of tourism. Negi2

deals with all kinds of demands and problems faced by hotel industry. He predicts

that hotel industry has a big scope for expansion in future. The Indian Institute

of Public Opinion in a study considered accommodation sector as one of the

central elements because foreign tourist expenditure accounts with food and

beverages for 55 per cent and dominates foreign exchange earnings'. Seth Pran

Nath' is of the opinion that there should be close connection between growth

of accommodation facilities and developments in the modes of transport.

Selvam5 in his study also deals with the adequacy and future needs of

accommodation Leela Shellyo has made an attempt to present a broad profile of

the hospitality industry. She has brought a fresh insight into the hotel industry and

has made a critical appraisal of the contemporary scene in the hospitality industry.

Pragathi Mohanty7 in her study has analysed the growth pattern of the hotel

industry in Orissa and has examined the growth trend with respect to different

regions and different types of hotels.

2.1 Trends in the Hotel Industry

In a study8 conducted by the Ministry of Tourism, the Government of India,

it is pointed out that star hotels of four star and above are generally considered to

be of international standards and cater to foreign tourists as well as the most

affluent of domestic tourists. According to Robert Collier9 a new hotel customer

is going to be looking for good value three star accommodation. So focus should

be on the development of three star hotels. He asserts that in order to survive in

today's global village, hotels will have to be heavily branded or linked to a brand'°

or positioned in a niche market. He foresees that there will continue to be room

for major chains" to grow with a variety of brands - as well as individual and small

regional chain in niche markets.

2.2 Dependence of Tourism on Hotel Industry.

Lack of accommodation was a serious problem for tourism development

even in the past The Sargent Committee12 set up in 1945, was the first to point

out the lack of suitable accommodation for international visitors and suggested

that a chain of first class hotels should be built in India. In 1956, the Estimate

Committee'3 on tourism said that the paucity of accommodation in India

continued The appraisal of hotel accommodation situation made by the Tourism

Department resulted in the recommendation of setting up of 5000 rooms or 8500

beds within the next three years'. In 1958, the Hotel Standard and Rates Structure

Committee's recommended the rapid expansion of the hotel industry on a rational

and scientific basis.

In 1962, Hemphili, commented on the Indian hotel accommodation situation

that one has to book accommodation a year in advance to be sure of getting what

he wants. He also pointed out that about 7000 visitors cancelled trips to India

simply due to the non-availability of hotel accommodation'6. The Ad-hoc

Committee" on Tourism 1962, focussed its attention on the failure of the hotel

industry to keep pace with the increasing tourist demand. It pointed out that

during the period 1955-'62 the number of hotel-beds had increased by 11 percent

only against 300 percent increase in the number of visitors to India. The leading

hotelier J.R.D. Tata in 1965 had admitted that acute shortage of accommodation

had curtailed the flow of tourists to India". Ina survey conducted by M.M.Anand

in 1966, twenty-two per cent of the foreign tourists answered accommodation

shortage as the most important deterrent to travel in India19. The Hotel Review

and Survey Committee 20 1968, set up to survey the requirements of additional bed

capacity at important tourist centres, once again highlighted the accommodation

shortage in India.

The National Council of Applied Economic Research21 (NCAER) had

opined that hotels are undoubtedly the most essential destination facility that a

country must provide, if it plans to build up tourism2'. The Estimate Committee of

Lok Sabha's report22 for the year 1975-'76 felt that the various measures taken

and efforts made for tourism promotion will not produce the desired results if the

hotel accommodation in the country lags behind. J.R.D. Tata21 was of the opinion

that unless a major sustained programme of construction of new hotel facilities is

undertaken during the next five years, upto a million foreign visitors a year will be

diverted to other countries involving a loss of foreign exchange earnings to the

tune of Rs.500 crore.

Lattin24 stated that the hospitality industry is the only field where supply

must precede demand . The growth of the hotel industry is a pre-requisite for the

growth of tourist traffic . Naik S.D. and Davies

N. V21.

in an article expressed that

the growth of hotel accommodation has not kept pace with the growing demand

for it .

J.R.D. Tata felt that shortage of accommodation makes travel unsafe and

discourages the tourists to visit a particular area26. According to him it is essential

to have up-

to-date hotels for the advancement of a country in general or a city in

particular to provide facilities and comforts to visitors from all parts of the world.

Anand pointed out that lack of adequate hotels of acceptable international

standards is a critical factor in limiting traffic throughout the pacific, especially

India27 .

Haksar suggested that accommodation must be available in sufficient

quantity in the required type and quality to match the demand28 of travellers who

arrive at the destination . Accommodation probably precedes any other type of

development.

Naik S.D. and Davis N.V. observed that the future growth of tourism will

largely depend on the growth of suitable hotel accommodation in the country,

coupled with transport and other infrastructure29. The Sector Working Paper or

Tourism'0 of the World Bank has recorded that usually 60 to 75 percent of the

total expenditure of tourists accounts for food and accommodation and a

remarkable expansion of tourism is possible by increased supplies of moderately

priced accommodation in many countries. Negi asserted that "No Hotels no

Tourism"

The Economic Times` reported that acute shortage of accommodation and

travel difficulties can affect the image that a country presents to the world. The

Southern Economist33 opined that the main problem the foreigners face on landing

in India is the dearth of good hotel accommodation in the place of tourist interest.

The bulk is concentrated in metropolitan cities.

According to Lattin34, out of the various components of tourism industry,

accommodation component, more specially hotels, constitutes the major share,

ranging from 45 to 60 percent . Mukul Guha35 pointed out that hotels bag over 47

percent of the total sales by tourism and hold control over another 15 percent of

the incidentals complementary to the entire trade . For this he suggested that hotels

should be in a position to absorb the varied kinds of visitors ' influx. He added that

hotels are responsible to back up the spirit of a transit passenger for the next visit

or to dampen the same36 . He concluded that the growth of tourism industry in a

country depends on many respects on the hotel management of that country37.

Medlik38 is of the opinion that hotels are essential to the economies and

societies as are adequate transport , communication and retail distribution systems

for various goods and services . He said that hotels are important attractions for

visitors39 . The direct and indirect contribution of the hotel industry through the

subsequent diffusion of visitor expenditure to other recipients in the community is

brought out by him40 . He added that hotels may be one of the few sources of

foreign exchange earnings through the medium of tourism'". Moreover hotels are

important outlets for the products of other industries42 according to him. He also

revealed that many hotels became social centres of their communities43.

In the opinion of Howard L.Hughes44 the amenities of accommodation and

catering must exist if tourism is to happen at all. The hotel and catering industry

will be responsible for whatever benefits and costs the phenomenon of tourism

itself brings and the amount of accommodation will in part, set the capacity of a

tourist destination4S . He also states that an expansion of tourism may require an

increase in the accommodation stock46 . The tourists especially the international

tourists may be influenced in their choice of destination by the availability of

suitable hotels and restaurant S47

According to Medlik48 the proportion of foreign and domestic tourists to

total tourists to a country has relation to the number of hotels in that country. The

larger the proportion of foreign tourists the higher would be the predominance of

hotels and vice versa . According to Sharma K.K, accommodation is the matrix of

tourism49 . Vivek Sharma states that without an adequate development of hotel

resources, all the national scenery , all climatic virtues and all the sporting and

recreational facilities will hardly suffice to sustain a good volume of tourists trade.

Seventy-five per cent of the problems of tourists on land are connected with

unsatisfactory hotel accommodation and services.

Hotels form an integral and vital segment of the tourism infrastructure in

the country and hence the Government of India had initiated steps to double the

hotel room capacity". Government policies towards industry in general and the

hotel and catering industry in particular, will be a reflection of how far the

industry is able to contribute towards the achievements of government economic

policies

Subramanian points out that for accelerating the growth of tourism

industry, it may be propounded that supply" should be available before demand

can be generated. The centres with demand potential need be converted into

centres with actual tourist traffic4. Maneet Kumar points out that a country's

tourism traffic is assessed not only by the number of tourists visiting the country

but also by the duration of their stay55. Robert Collier1G asserts that the obvious

reasons for people to stay in hotels are for business, meetings and seminars on the

one hand and for leisure, recreation and holidays or vacation on the other.

According to him the two most important factors relating to successful hotel stay

are comfort and luxury and efficiency.

2.3 Studies in the Context of Kerala

Tourism was declared an industry57 in Kerala in 1986, with a view to

developing tourism in the state, thus enabling those engaged in tourism

promotional activities in the state, to become automatically eligible for concessions

and incentives as applicable to the industrial sector from time to time. The

existence of well known and acclaimed hotels will go a long way in promoting a

tourist destination and unfortunately Kerala state has only a very marginal

representation in any major hotel chains".

Skipper. G is of the opinion that various groups and individuals are

carrying out excellent work within tourism industry in Kerala but some times it

would seem in a vacuum ; it is unco-ordinated and sometimes adhoc and

piecemeal59 He admits that there are some superb quality hotels across the state

and quality guest houses and attractions, but all too often, it appears that

expectations of overseas customers are not met to the fu1160. According to Najeeb

E.M only very few hotels61 and resorts are available in the state . This results in a

rush with limited inflow to the destinations and subsequent inability to carry more

people

At the world Tourism Meet 1994, major tour operators were reported to

have expressed reservations about tourism infrastructure of Kerala over the lack of

enough luxury hotels62 at Kovalam, Kochi and other tourist centres. Sudheer S. V63

observed that private hotels were rendering better services in providing facilities to

tourists There were complaints, according to him, about poor hygiene and service

rendered by the state hotels. He was of the opinion that more hotels and

restaurants which are clean, moderately expensive and assuring best service", may

be provided in the close vicinity of the centres. The Asian Institute of

Development and Entrepreneurship, made it clear that in order to increase the

percentage arrivals of foreign and domestic tourists to Kerala it is necessary to

create the necessary additional infrastructural facilities and amenities. Assistance

to hotel industry65 was an important recommendation in the project.

2.4 Back Water Tourism in Kerala

According to a study report66 by Mathews Varghese, Kerala is unparalleled

in the world. He says that Kerala has the added advantage of the sun, sand and surf

the three universal tourist attractions. He suggests that high standard hotels should

come up near back water tourism centres. Jose Dominic is of the opinion that

Kerala's tourism industry and tourism product are in a stage of infancy67. He

points out that the resource truly unique and peculiar to Kerala is undoubtedly the

back-waters" He brings out that the backwaters can be to Kerala what the Taj

Mahal is to India or the pyramids to Egypt69.. According to him, recently there

have been some welcome development in the creation of backwater based hotel

infrastructure7" centred around Kumarakam. He opines that there is an urgent need

to review existing regulations which are constraints" on the development of hotel

facilities in the backwater tourism centres. According to Skipper G, the

backwaters are Kerala's Unique Selling Proposition72 (USP).

2.5 Foreign Exchange Earnings

Foreign exchange resource crunch was heavily felt in India in 1991. In

March 1991, the official foreign exchange reserve of the Reserve Bank of India

excluding gold and SDR was $ 2,236 million. Three months later in June 1991, it

came down to just $1,124 million. At this stage it was worth just about two

week's import, against a critical minimum of three months recommended by the

I.M.F. So the Government of India immediately negotiated a structural adjustment

loan from the IMF. As a part of the agreement, rupee was depreciated by about 20

per cent against US dollar and other major international currencies, in June 1991

followed by the partial convertibility of the rupee 71

Peters observed14 that many countries have embraced tourism as a way to

increase foreign exchange earnings. He added that net foreign exchange earnings

is high in tourism as the leakages75 are the minimum. The import content76 of

tourism industry's foreign exchange earnings is a mere 5 per cent. The present

estimates77 show that foreign exchange earnings from tourism can be increased to

about Rs. 5000 core per annum (at 1986-87 prices) by the year 2000 A.D in India.

According to Madhav Rao Scindia78, tourism had emerged as the largest foreign

exchange earner for the country. Tourism brings in stupendously large amount of

foreign exchange. Even individual hotels79 brought in hefty chunks of foreign

currency. Tourism can become India's key foreign exchange earner within the next

five years"

Vasant Sanzgiri81 estimated that with a foreign exchange outflow of Rs. 6-7

crores the hotel and restaurant industry directly earns about 49.7 per cent of the

estimated foreign exchange earnings by the tourism industry. Tourism is the largest

single foreign exchange earner for the country and the earnings mostly account for

by the expenditure on food and accommodation in this country82. Chatterjee83

documented that foreign exchange earnings from tourism are so high that tourism

industry now tops the list amongst other export oriented industries including

engineering goods and jewellery. Hotels and restaurants share fifty percent of the

foreign exchange earnings from tourism84. Syamali Talukdar and Alka Dahar85

opine that tourism is a major foreign exchange earner and hence the industry has

very strong case that it should be treated on par with export oriented industries

and same benefit be extended to it. It is reported that 70-80 percent of the

turnover of hotels is foreign exchange86. On the basis of net foreign exchange

earnings, tourism earnings were actually higher than that from exports of

handicrafts. The net foreign exchange earnings87 from tourism have been as high as

93 per cent. Tourism and hotel industry is already the third largest earner of the

foreign exchange. Still the foreign exchange earnings in India from tourism and

hotel industry are very small compared to many other industries88.

2.6 Employment Generation

The capital-labour ratio of hotel industry vis-a-vis other industries have to

be related in depth for evaluating the employment generations in hotels. The

employment potential for skilled and semi skilled labour in the hotel sector is quite

large. Negi estimates that as regards the direct employment, the room to staff

ratio89 for hotel varies between 1:1.5 to 1: 3. It is estimated that 54 per cent of the

tourist expenditure goes towards the payment of wages and salaries90. On an

average one hotel room should expect to provide employment for 2.5 persons

while connected industries and services would offer employment to nine times the

number of persons who are employed directly by the hotels91. The cycle of

increased income and employment continues until it is exhausted, which

phenomenon is due to employment multiplier in hotel and tourism industries. An

extra-ordinary contribution of two million jobs93 in hotels and restaurant sector

was found in the economic census of 1980. The labour content of $1000 worth

value added or net-output in various industries (1971) suggested that hotels and

catering create more employment94 for any rise in output than many other

industries. It is estimated that on an average, a single hotel room generates

employment to eight people directly or indirectly95. Increase in the hotel room

requirements in the approved sector would generate substantial number of jobs as

one hotel room provides direct employment to 2-4 persons and indirect

employment to ten times that number96. The National Tourism Board reported97

that about 45,000 trained personnel will be required by the hotel industry by 1995.

2.7 Income Multiplier Effect of Tourism

The National Committee on Tourism in its report of May 1988 has stated

that the money spent by the tourist percolates through many levels and generates

additional income at each round of spending and this has a multiplier effect98.

There is high multiplier for hotel industry; 3.8 for every Re. 1/- on hotel

expenditure" It is usually observed that the income multiplier effect of tourism

may be taken as 3.2 and the employment multiplier as 2.82 for foreign tourism and

4.00 for domestic tourism'00. Tourism is an effective instrument of income

redistribution in an economy'o' According to a report by Chechi & Company 102

the income multiplier of foreign tourist expenditure varies between 0.58 to 4.3.

The multiplier effect of tourism in India has been estimated at 3.2 by the Indian

and 104

Council of Applied Economic Research"'

It is estimated, for several items of tourist expenditure as many as 13-14

subsequent chain transactions take place105. In 1982, the Tata Economic

Consultancy Services Report had shown that for every job created by tourism

sector, 2.57 jobs are created else-where 106 . According to Peter107 most island

economies have an income multiplier range between 0. 6 and 1 . 2 while developed

economies have range between 1 .7 and 2.0.

2.8 Hotel Finance

In order to overcome the infrastructural short-comings a substantial

injection of funds is required which may be obtained through local borrowings and

borrowings at concessional rates of interests from. financial and aid institution

abroad'". Statler emphasises the role of "location109i in the success of any hotel.

Hotels frequently compete for sites in town centres and other stations where land

values are high10 The ratio of capital to turnover is high in hotels, since the bulk

of capital, sometimes over 90 per cent, is permanently sunk in fixed assets.

Variable assets form only a small part of the total and stocks are usually low and

there is little or no work-in-progress"'. Total fixed assets are static irrespective of

the occupancy and total variable costs are more or less proportionate with

occupancy' 12

A survey of Horwarth and Horwarth International published in 1971

indicates that the average annual room occupancy of first class hotels"; ranges

between 72.6 per cent and 80 per cent in Asia and Far East, parts of Europe

including U.K , Australia and Mexico and to 60 per cent in U.S.A. It was 71.4 per

cent in Swiss city hotels' 4, according to the report of the Swiss Society for Hotel

Credit 1970. It is found that the rate of return on investment1' in the four star

and five star category hotels is better than in other categories.

Intosh16 observed that expensive hotel accommodations are demanded by

those who want the best and who are willing and able to pay accordingly.

Expensive hotels have the highest occupancy. We have to concentrate on our

guests and try to create a special niche for the hotel' 17. If tourists are brought in

chartered flights in large scale, the position in regard to hotel accommodation

would be chaotic. Unless a massive programme of hotel construction is taken up

immediately, India will have to miss out all the jumbos and the passengers they

carry1'. John Lea19 states that big hotel companies through their international

operations in origin and destination countries intervene between the would-be-

tourist and a chosen destination.

2.9 Public Sector vs. Private Sector in Hotel Industry

Skipper G120 opines that I.T.D.C and Government hotels are not up to the

standard and it is time for the various governments to get out of running hotels.

According to him there are some things which the public sector does the best and

only they can do and some things which the private sector does the best and only

they can do; put them together121 to have the best of both the world. The Adhoc

Committee on Tourism 1963 made it clear that the public sector will have to play a

major role if adequate accommodation of the right type for the kind of growth of

tourism is to be provided 122. Tourism industry is not a one man show. Private

entrepreneurs12', big and small, have to come forward to provide services of such

quality that these services themselves should become an attraction. According to

Mahajan, tourism is a people's industry and it is not possible for the government

alone to develop it, the government would provide necessary basic infrastructure

and give all possible incentives to the private sector to see that this industry is

properly exploited 124. The Estimates Committee of the Lok Sabha in its report on

tourism125, October, 1966 had opined that the hotel industry was predominantly

suitable for the private sector and that the public sector should not encroach upon

this sphere The government should invite the private sector to take up the task of

investing massive amount for creating additional accommodation in all ranges of

hotels'`"

The recommendations121 made in the final draft of the approach paper of

seventh five-year plan 1985-'90 stated that private sector investment will have to

be encouraged in developing tourism and public sector investments should be

focussed on the development of support infrastructure. The objectives of tourism

can be achieved successfully only with the joint effort of both public and private

sectors with government acting as a catalyst 128. Ganapathy is of the opinion that

tourism depends on a great deal on the private sector129 for which adequate

incentives and concessions are necessary . The role of the private sector in tourism

promotion will have to be increased significantly during the eighth five year plan

period, according to the National Development Corporation10. The nation invited

the private sector in a big way in the tourism sector in the seventh plan period

because of the resource constraint at the government level 131. The hotel industry in

India was finding it difficult to attract investors because they found investment in

other industries much safer and more attractive 1312 .

According to Chechi & Co., in most countries an investor can easily get two

to three times more return on his money when put elsewhere than in a hotel 113. It

was pointed out at a conference on tourism in London that it was better to build

shops, offices and other business premises and to make a profit rather than build

hotels and sell them at a ions' 4.

Delegates from the Third World Countries attending a U.N conference on

industrial development were urged to encourage private foreign investment and

remove government constraints in order to ensure economic recovery 131 . The

government liberalisation had attracted private initiative and investment from

existing hotel companies, the Indian Corporate Industry, Non-resident Indians and

the foreign sector

it is seen that for the accelerated growth of tourism, adequate hotel

accommodation of the required type is a prerequisite. The economic significance of

hotels strongly recommends the setting up of additional hotels of different types,

especially the "class hotels" for which the private sector should involve in a big

way