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Rupee slump spells pain and gain for tourism

After witnessing encouraging results and marginal growth in the first quarter of 2013, the Indian tourism and hospitality industry has experienced a slower first half of 2013. Indian tourist outflow has registered a significant decline of 15-20 per cent in the last two months due to falling rupees, says industry body, Associated Chamber of Commerce and Industry’s (ASSOCHAM) findings.

Latest statistics reveal that around 15 million Indians travelled abroad on business and leisure in 2012, recording an increase of 10 per cent over 2011. However, travel costs and accommodation for vacationing abroad has gone up by around 20 to 25 per cent over the last three months due to the depreciating value of the Rupee. Indian tourists are not just shortening their vacation, but opting for holidays within the country rather than going abroad. Tour operators and travel agents are also reworking their itineraries and packages by reducing the number of days, activities and offering budget accommodation to make it more cost effective for Indians determined to travel abroad in the second half of the year.

While outbound has taken a hit, industry experts believe that India has become an attractive destination for inbound travellers due to weakening currency. This has compelled travellers to shift focus towards India viewing the country as an emerging and practical travel option. In addition, travel professionals opine that, even though Indians may refrain from outbound travel, they are likely to opt for holidays within India. ASSOCHAM states that the tourism industry is already experiencing an impressive growth of 35 per cent in domestic tourists compared to the 20 per cent decrease in H1’CY 2013 during the same period in 2011.

However, keeping the overall developments in tourism sector in mind, players in the industry perceive the year to be challenging. Among the industry, the hospitality industry seems to be coping better than tour and travel agencies. Although the year is not notching tremendous profits when compared to the same period last year, the first half of 2013 seems to be treating the hotel industry better than other tourism segment. Hotels are benefiting from business and domestic footfall.

While some expect outbound travel to decline, others feel that Indians will not cancel their travel plans but reconsider the choice of destination. T3 speaks to industry experts to measure the impact of the weakening rupee and what is in store for the tourism industry for the rest of the calendar year.

Outbound travel experiences a slump

The devaluation of the rupee against the dollar, touching an all time low has not only affected the Indian economy but is likely to have a big impact on the outbound tourism segment, opine travel agents and tour operators. The industry expects a negative impact of the depreciating rupee on the second half of the calendar year.

Subhash Goyal, Founder & Chairman, STIC Travel, agrees that the decline in the value of the Rupee is consequential in the fall in tourists outflow from India. “The depreciation in the Indian currency has definitely impacted the tourism industry as we’re seeing a 15 – 20 per cent drop in outbound travel to dollar destinations, which are usually full during the holiday season. If the economy further sees a negative instability between rupee and the dollar, the rest of the year might see outbound travel hitting an all time low with about 30 – 35 per cent drop.”

Ajay Prakash, Chief Executive, Nomad Travels stated that the year started off well, but is now slowing down. “The adverse exchange rate will not make it any better. The second half looks like a difficult one fraught with challenges, especially in the light of challenges tour operators are facing such as the weekly settlement. The economy is slow, the funds are slow moving. However, the Indian is an eternal optimist and the industry hopes that the remainder of the year looks up,” he said, adding that the future outlook is grim.

“The first half of 2013 was average for us compared to the same period last year. Travel is going to face a slump in H2 as a result of the Rupee depreciation. This is especially considering the fact that it is the season during which Indians travel to UK and Europe. I see cancellations and postponement of travellers plans to these two countries,” revealed Pradip Lulla, Chairman & Managing Director, Cupid Travels and Tours. He further anticipates that the Rupee weakening will directly impact all segments of travel and tourism.

“I can already see a dip in incentive travel as industries are taking a hit with the currency. Business travel will also dip owing to rising air fares. Air fares are surprisingly lower this year than earlier when quoted in US$. Unfortunately, the weakening Rupee is keeping it expensive for Indian travellers,” he said stating that the Indian, South African and Brazilian travellers are most impacted as these currencies continue to depreciate.

Rupen Vikamsey, Managing Director, Orbitz Corporate and Leisure Travels, observed that outbound travel from India during the summer break decreased by 10 per cent. “The travel trade, especially medium and small enterprises, are facing the burden of it with slow business throughout the summer peak travel season. The Indian currency has fallen 10.8 per cent in 2013, and is currently the worst performing currency amongst major Asian countries. This has resulted in intensification of travel expenditure of overseas trips by seven- eight per cent and the outbound segment are likely to experience a major dip in the second half of 2013.”

Iqbal Mulla, President, Travel Agents Association of India, believes that Rupee depreciation has made air travel and hotel accommodation very expensive for Indians wanting to travel abroad. “Even though the middle class Indians are earning well, they are still very conscious about their budget and don’t often believe in over spending. The outbound market is an exceedingly competitive segment, and fluctuation in currency value has brought great financial loss to the industry. People are reducing duration of trips due to rise in expenditure. They are opting for fewer days, lesser activities and budget accommodation.”

Agreeing with him, Toral Vithalani, Executive Director, JTB Travels said that Indian travellers will continue to travel and will look into feasible holiday options within their budget. “Travellers are opting for breaks where price and expenditure can be controlled. The cost for outbound packages, after the depreciation, has increased by five to seven per cent. If the price does not correct by September, outbound tourism will be badly affected.” However, Shailesh Patil, Managing Director, Kesari Tours, is optimistic about the outlook and is positive that the Rupee value will see recovery. “As travel professionals, we need to learn to adapt to the various fluctuations in the economy as well as government regulations. We need to design cost effective packages and offer quality services which will attract vacationers in the current circumstances. Although, the value of Rupee has depreciated, those who have to travel will do so.”

Similar sentiments were echoed by Om Prakash, Director, InOrbit Tours. “The Indian outbound travel industry has been under the weight of mounting cost due to the unvarying depreciation of Rupee in the last few years. The current descend is another blow on outbound travel. The snowballing effect on the cost will range from eight to ten per cent. Outbound travel has witnessed a little decline due to advance planning and most travellers having paid advance amount to tour operators. However, this fall of the Rupee will show its brunt in the near future.”

Subhash Verma, Chairman, Travel Plus opined, “The depreciating rupee has come as a blow to the outbound leisure travel segment. A dollar, which was at Rs 45 a year ago, is now at Rs 60.31, reflecting a 20-25 per cent depreciation of the Rupee. Hotels, transportation, etc. becomes more expensive for Indians when they travel abroad. Some established agents have witnessed a loss in enquiries of 30 per cent compared to last year.”

Marzban Antia, Managing Director, Avesta Travels and Tours, stated that the industry experienced 30-35 per cent cancellations on bookings on an average between January-June 2012 due to the sinking Rupee. “To offset the soaring prices of holiday packages, travel operators and online travel portals are offering various deals and offer to add volume in the bookings.”

Rajat Sawhney, Managing Director, Rave Tours and Travels opined that everything bought abroad is now 18 per cent more expensive; hotels, food, transport, shopping. According to him, Indians are very price conscious and have started opting out of Dollar destinations. Clearly, this has hit the travel industry especially the outbound leisure travel.

Veena Patil, Founder & Managing Director, Veena World, believes that there is no stopping the Incredible Indian traveller. “With the rupee rate fluctuating, customers have begun weighing all options, but even the most price-sensitive travellers will continue to travel. Though, they may shift to short-haul destinations.”

Guldeep Singh Sahni, Managing Director, Weldon Tours and Travels, said, “The Rupee depreciation does infact have an impact on the outbound travel market. The cost difference in outbound travel is marginal – approximately between 7 and 10 percent. This will not stop Indians from travelling to overseas destinations.” He is also of the opinion that travellers will opt for short-haul destinations over long-haul.

Short-haul and domestic vacations gain

The depreciating Rupee has prompted travellers to look at cheaper options to cut down travel costs in the second half of the year. Travellers are comparing multiple suppliers to see which are offering the best fares and room rates. People are still travelling, but are switching destination and the hotel to downsize their travel costs. Travel to South East Asia and domestic destinations is at its peak as the weak rupee makes Indians choose them over dollar destinations for holidays. Experts say, luxury travellers are not tweaking their plans because of the recent currency fluctuation but the budget segment customer is rethinking the holiday plans.

“The weakening Rupee is likely to have some positive impact in the near term on the domestic tourism industry. If the currency continues to descend with no sign of improvements before the start of the next holiday season in September, chances are that many tourists will prefer travelling within the country instead of making a foreign trip,” said Veena Patil.

Verma observed that most travellers have a budget for their vacations and owing to the fluctuation of the Rupee, the cost of their vacation may increase, causing them to either postpone their travel plans or look at shorter international or domestic holidays. “With the sliding Rupee making overseas travel costlier, local hotspots have become favoured destinations for most Indian tourists this holiday season.” Sawhney opines that Indian travellers give importance to both - quality and value pricing.

Vikamsey informed that Asian countries such as Thailand, Singapore and Malaysia are evergreen. Vacations to Kerala, the Golden Triangle, the Buddhist sector, Tamilnadu and Ladakh are also gaining momentum as domestic travel is picking up. “For the past few days, we have been witnessing the impact of the rupee hitting an all-time low. Travellers are opting for South-East Asian destinations and even Europe, but destinations such as the USA and Canada have, all of a sudden, fallen out of favour with Indian travellers,” said Kapil Berera, Managing Director, Astral Travels.

Fred Divecha, COO and Director, T Plus Tours, also feels the same. “Travellers will prefer short-haul destinations instead of cancelling their trips. South East Asian destinations continue to be in high demand. Destinations like Bhutan and Sri Lanka have also made it to the itinerary of Indian travellers,” he said. Shagufta Mulla, Director – Business Development, Treasure India, states that outbound Indian travellers are left with no option but to make travel adjustments in these situations. “They are either shelving their foreign plans due to additional burden or preferring shorter trips to international destinations to make things fall under their budget. Travellers are also opting for destinations within India, which has given a boost to domestic tourism,” he said.

Prakash believes that the correction in the exchange rate may bring some relief for tourism industry. “Otherwise, holiday trends will see a change come H2 of 2013. Travellers will opt for shorter holidays to short haul destinations and lower quality accommodation which costs less and so on.” The depreciating rupee has given an unprecedented focus to domestic travel with India re-emerging as a viable option,” said Vithalani.

Inbound to India likely to pick up

With the depreciating rupee bringing down the overall package costs, India has become an attractive destination for inbound customer. Foreigners are cashing in on the low value of the rupee for their vacations. Since the buying power has increased due to the rupee depreciation, the same facilities - hotels, food, transport, shopping etc – have become more cost effective for foreigners. Industry experts state that enquires have been coming from neighboring countries in South-East Asia and England, suggestive of 2012/13 peak season witnessing foreign tourist arrivals go through the roof,

“June is normally the planning month for most tourists abroad and India could be a preferred destination now,” said one of the prominent inbound operators. This has definitely caused a surge in foreign tourist bookings for the winter season.

The inbound industry has already seen an approximately 20-25 per cent increase in the number of enquiries. “The declining might of the Indian Rupee is attracting an influx of tourists to India as an increasing number of holidaymakers look to stretch the value of their currency,” said Berera. According to Vithalani, India’s popularity as a holiday destination has reached an all time high since the rupee started to weaken which has made India the most widely searched for holiday destination online. Mulla revealed that tourist who had previously visited India in the cheaper off-season are now enquiring about the availability of more expensive rooms during the peak season, traditionally between October and February. The industry has witnessed a rise in enquiries, which includes religious tours and adventure tours, he added.

“The booking trends have been somewhat similar to the last year. The last year saw an increase of 4.5 per cent of annual tourist arrivals to India, a similar trend can be expected this year too. Though the booking numbers were higher in January-March period compared to corresponding period last year, the April-June period saw a slight fall,” said Arjun Sharma, MD, Le Passage to India.

The inbound arrivals during the period January to May 2013 were 28.63 lakhs with a growth of 2.1 per cent. It is clear that inbound arrivals will see only a marginal growth.

Outlook positive for Indian hotels

Citing the Federation of Hotels & Restaurant Associations of India’s (FHRAI) preliminary report, a financial daily reported that both occupancies and room rates softened during the first four months of this year. While in January occupancy was marginally up by three per cent, in February it dropped by 1.6 per cent and in March by as much as 6 per cent as compared to the same period last year, the report said.

According to Ajay Bakaya, Executive Director, Sarovar Hotels and Resorts, H1 of 2013 has been about 10 per cent below last year. “However, the Rupee depreciation has not affected Sarovar yet as we have kept our hotel rates in INR. What is going to happen now though is that hotels will go back to the old system of providing rates in US$. The exchange rate will then benefit them. We are, however, looking very strongly at business travel, a segment unaffected by exchange rate fluctuations. In terms of leisure, India is getting a bit cheaper, and that will have some impact, yes,” he added.

Partha Chatterjee, Advisor, Keys Hotels, however, feels that the sector that is most unaffected by the Rupee depreciation is the mid market hotel segment, which has its focus on domestic and corporate travellers. “The first half was not just better, it was fantastic. I think the industry is turning around, which is across the sector, not just Keys. If you look at RevPAR across the country, not just metro cities, you will see an increase,” he said and added that 90 per cent of our business is corporate, which is unaffected.

Param Kannampilly, Chairman & Managing Director, Concept Hospitality, also revealed that the first half of 2013 was good for his company. According to him, Concept Hospitality’s budget was increased by about 15-20 per cent, depending on the profit. The company has achieved up to 95 per cent. He stated that the rupee depreciation has not really affected Concept Hospitality that much yet.

Giving an opposing view to the positive side of the industry, Uttam Dave, President and CEO, Interglobe stated that the year is not going very well. “Rates are down. Occupancies are down. Market by market, it’s a selling situation because of too much supply. Demand is still growing at 11-12 per cent. But, there is too much supply. The competitive situation has got very intense,” he said.

The hoteliers were more hopeful, albeit not confident, of the second half of 2013. Bakaya believes that the second half is always better than the first. “But I do not see a dramatic improvement until the elections are over, we have a new government and something steady and economic policies that make more sense,” he added. On the contrary, Dave stated that the second half will be tough. “Usually, the second half of a calendar year is better for hotels. But I think it will continue to be tough. A lot of the business comes out of the IT sector, and that is a bit slow. There is no clarity at a policy level and that is slowing things down. The whole approval process in India is slow so anyone wanting to set up a new project has to wait. So the slowdown is not surprising, it is self inflicted.” Chatterjee hopes that the rest of the year continues to be good. The trends, he said, are positive as far as bookings are concerned.

Discounted offers from airlines

Continuing to struggle in their efforts to escape the woes of last year, airlines have now resorted to charging lower air fares during the off season in an effort to woo flyers. The airlines have witnessed a downward spiral in bookings owing to the increased air fares that were being charged in a bid to recover losses and meet operational costs following the rough patch the Indian aviation industry hit recently. Special offers, early bird specials and off season round trip fares, which were successful strategies in the past when the industry was at its peak, are now being re-introduced in an effort to win back the lost customers.

And these offers are not just limited to the low cost carriers, from whom these tactics are expected. Even our full service carriers have taken to these sales gimmicks, much to the delight and advantage of the Indian traveller. The opening of the skies through the FDI opportunity and the possible entrance of the famously economical Air Asia into India may be a further reason for this move.

However, this is not a long-lived cause for celebration. Alongside the much appreciated slashing of prices, airlines have also warned of steep hikes in air fares as a result of the depreciation of the Indian Rupee. The airlines argued that the growing might of the US$ exchange rate has added to their operational costs. “The Rupee depreciation will significantly impact airlines as their dollar revenue is less while most of their expenses are in dollars. Low-fare carriers that have less international exposure in terms of flights will be adversely affected. Full service airlines will also be affected as they can’t stay out of maintenance and repairs,” an airline executive was quoted saying. Reports in the industry state that the reduction in air fares will be less than would usually be expected in the lean season. In fact, Air India, for the first time in the last five years that it has battled losses, plans to hedge jet fuel to curb the losses that come with the fall of the Rupee. It looks like a tough year again for Indian skies.

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