‘No outsider can take significant stake in IHCL’

Restructuring is paying off for Indian Hotels Company Ltd (IHCL), with non-luxury brands such as The Gateway and Vivanta By Taj doing well and the international business looking up, feels Raymond N Bickson, managing director and chief executive officer of the Tata group company. In an interview to Ashish K Tiwari, Bickson talked about the company’s operations, the general hospitality industry scenario and the new threat in the form of big non-hospitality players such as Reliance Industries entering the fray. Excerpts:

You had said during the first-quarter results announcement that IHCL will largely focus on improving its international business operations. Could you throw some light on the efforts made in that direction?
I think we can see some light at the end of the tunnel and I say this because we see a turnaround with our New York hotel as the average rates there continue be strong. Our Boston hotel is doing pretty well despite the overall pressure on the economic scenario there. The Taj Campton Place in San Francisco is a very small property. While that market can certainly be better, it appears to be headed in the right direction. And with respect to our investment in Orient Express, I can confidently say that we are not planning to exit the stock and are certainly not doing anything with that portfolio.

So you are basically saying that the performance of IHCL’s international portfolio is pretty much in line with the top management’s expectations…
No, I guess the way to look at it is how well the business is faring vis-a-vis its competitive set. Every month, or for that matter on a daily/ weekly basis, we compare and analyse the business performance figures with our peers to ascertain the market position. If we have 100% of the fair market share, I can’t expect the team to do better than that. As far as specific figures are concerned, since we consolidate them in our books, it will be inappropriate to divulge it in public. All I can say is that the numbers are looking better than the year before and that is what we expected.

With The Gateway and Vivanta brands in full force, it appears IHCL is taking them international as well...
As far as our four-star portfolio under the Vivanta Hotels & Resorts is concerned, there is no Vivanta By Taj in the international market and there won’t be any in the future. The same goes for our The Gateway and Ginger hotel brands. The company’s focus in the international market will remain only in the luxury segment.
But you already have a few Vivanta hotels outside India, viz. in Sri Lanka and Maldives…

Those are existing hotels in the Indian Ocean that have been migrated into the Vivanta portfolio owing to their respective market positioning. They were there before I came, so there is nothing I can do about them.

Taj also exited some international markets. What prompted the move?
We walked out of those destinations where our partners were not maintaining the set standards. For example, the hotels in Seychelles and Mauritius —- the owners didn’t maintain the properties and hence we exited.

Are there any more exits in the pipeline with respect to the international portfolio?
Not in the international market anymore. This is because we have very recently re-branded the Bentota hotel Sri Lanka to Vivanta. Similarly, the Airport Garden Hotel will soon join The Gateway hotels portfolio. We are going to renovate Taj Samudra (Sri Lanka) because its location is fantastic. Next weekend, we are going for the hotel’s annual general meeting in Colombo and a formal announcement can be expected.

Will Taj Samudra continue to be in the luxury portfolio?
The hotel needs major surgery to make it to the luxury positioning, that’s for sure. In fact, the hotel used to be in the luxury segment about seven years ago, but was eventually moved to the premium segment. We will need to see where it stands now and take a call accordingly. So, it will probably fit into the Vivanta category post renovations.

Considering international chains are bringing in all their brands into India, wouldn’t it be prudent for Taj to spread its net overseas, thereby ensuring the brand connect for someone who is patronising the hotel in his home country?
Not at this point, I’d say. We have so many cities and destinations in India to protect. I would rather direct efforts and focus on the domestic market than look overseas. So the answer certainly is a strong no.

Didn’t you stress on gaining the maximum share of the traveller’s wallet in your earlier presentation?
The Indian market itself is so big and untapped. There is a need for 500,000 guest rooms in the country and we are stuck with an inventory of just a little over 100,000. There is a huge demand and supply gap that needs to be bridged and hence I’d want to focus on India instead of letting somebody new come into our market and steal our thunder. The strategy is basically to cover ourselves and enhance market share domestically.


But foreign chains continue to expand their presence in the Indian market through management contracts…
I think a lot of it is just talk. If you look at the HVS annual survey, the report very clearly states that close to 40% of the hotel projects under construction in the country are from the Taj stable. There is no other hotel chain, domestic or international, that is anywhere close to that number in India; neither does any company open one hotel every three weeks.

Industry experts caution against the after effects of room additions on the overall Indian hospitality business. What’s your take on it?
The addition in hotel room inventory across various markets in India will certainly lead to softening of room rates, thereby making it perhaps a buyer’s market. Having said that, the market is still quite robust and there are too many countries (source markets) around the world. This is evident from the fact that today hotels across India are experiencing anything between 67% and 70% occupancy, which means the country is sold out for almost five days a week. Average room rates have shown some improvement as well, though the figures aren’t anywhere close to the 2008 rates, which was an exceptional year for the Indian hospitality industry. Strong performance in terms of occupancy and room rates clearly indicates that India is showing much better growth as compared to other countries around the world.

During the AGM, you had talked about enhancing promoter stake in IHCL. What is the progress on it?
Given the current circumstances, with Reliance buying into the Oberois, that’s something the Tata group is very cognisant of. If you analyse the annual report, we have to take into account the various other promoter group companies that have stake in IHCL. When you aggregate all of it, it very clearly tells you what the real position is. I don’t think an outsider will be able to take significant shareholding in the company.

With respect to Ginger hotels, has the management completed the learning curve? It looks like the brand is moving from ‘no-frills’ hotels to ‘full-service’...
No, I think it still has to be more cutting edge than what it is and that’s my understanding of the brand of hotels. I don’t think we have yet found the perfect niche. Besides, there are different models coming up in the market, which we haven’t thought of. A big area now is to do a guesthouse, say for example in an IT place where it will only cater to SAP or Infosys. It’s a captive audience and only those people will stay in it and we will manage it for them akin to the management contract approach. We did experiment it at a few places and while some worked, there were others that didn’t. For instance, we were doing one Ginger in Surat with the Gold Souk mall that hasn’t worked.

Has the management begun evaluating the impact of brand architecture exercise on the company’s overall business?
In terms of what this brand architecture has so far done to IHCL’s profitability, all I can say is that we already have a test case with the launch of The Gateway brand. In one stroke, 26 existing hotels were deflagged and a new brand was created in the upscale segment. Two years down the line, we have various matrices to see how it has affected the topline and the bottomline. I must confess that the management and shareholders are very happy with the results of that portfolio of hotels.

As far as Vivanta is concerned, three hotels were already operational and we have statistics and financial performance to show that they are doing very well, and all this despite the fact that the brand has been formally launched just recently. We have added 16 hotels to the Vivanta portfolio now.

A Credit Suisse analyst report cites that our The Gateway hotel is among the most recalled brands. In fact, they are quite confident that our new brands will be among the great global brands of tomorrow.