assignment on hospitality sector

8/13/2019 Assignment on Hospitality Sector

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Compensation

Management in

Hospitality Sector

S u b m i t t e d t o

D r M o u s u m i S e n G u p t a

8 / 2 8 / 2 0 1 2

Group No 2

Arun Sreenivasan

Carl Patel

Kratika Saxena

Sahil Sinha

Harsh Vikram Singh

Priyanka Prasad

Naresh Malik

Kaustubh Sinha

Samrat Raha


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ContentsOverview ................................................................................................................................................. 3

Annual growth rate (in per cent) ........................................................................................................ 3

Number of Greenfield projects ........................................................................................................... 4

Sector Status ........................................................................................................................................... 4

Operating performance ...................................................................................................................... 5

Nationwide performance .................................................................................................................... 6

Financials ............................................................................................................................................. 7

Hotelsclassification .............................................................................................................................. 7

Star rated hotels (5 star and star deluxe) ........................................................................................... 7

Heritage hotels .................................................................................................................................... 8

Budget hotels ...................................................................................................................................... 8

Unclassified hotels .............................................................................................................................. 8

Resorts and Clubs ................................................................................................................................ 8

Restaurant ........................................................................................................................................... 8

Key players .............................................................................................................................................. 9

International Hotel Brands...................................................................................................................... 9

Some announcements ...................................................................................................................... 10

Latest trends ......................................................................................................................................... 10

Investment in smaller cities .............................................................................................................. 10

Diversification into new segments: ................................................................................................... 10

Primary Data ......................................................................................................................................... 11

Hotel Roopa ...................................................................................................................................... 11

Hierarchy (Organizational Structure) ............................................................................................ 11

Salary Structure ............................................................................................................................. 11

Increment, Incentives and Bonuses .............................................................................................. 11

Hotel Dynasty .................................................................................................................................... 12




Other Information ......................................................................................................................... 12

Hotel Pai Vista ................................................................................................................................... 13




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Hotel S K Regency ................................................................................................................................. 14


Salary Structure: ............................................................................................................................ 14


Compensation Strategies and policies .................................................................................................. 15

Hotel Roopa: ..................................................................................................................................... 15

Hotel Dynasty: ................................................................................................................................... 15

Hotel Pai Vista: .................................................................................................................................. 15

Hotel S K Elegance: ............................................................................................................................ 15

Similarities ............................................................................................................................................. 15

Differences ............................................................................................................................................ 16

Conclusion ............................................................................................................................................. 16

References ............................................................................................................................................ 16


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Overview

At the end of 2010 the Indian hotel industrys worth was estimated around US$ 17 billion. Ofthe total revenue, nearly 70 per cent is being contributed by the unorganized sector and theremaining 30 per cent (US$ 5 billion approx.) comes from the organized sector. The hotelindustry is estimated to grow at a CAGR (Compounded Annual Growth Rate) of around 15

per cent over the next five years.

The share of hotel and restaurant sector in the overall economy is still below 2 per cent. Forthe last five years the total contribution of the hospitality sector has remained stagnant.Although the overall share increased from 1.46 per cent in 2004-05 to 1.69 per cent in 2007-08, but then after the phase of economic meltdown in US the total share again decreased to1.45 per cent in 2009-10.

According to Economic Survey of 2010-11 the average annual growth rate of hotel andrestaurant sector has been 8.8 per cent for the period during 2005-06 and 200910. However,

last two years have not been quite pleasant for the sector as growth faltered badly. Till fiveyears ago, the sector was registering a growth of around 15 per cent but slowdown in theeconomy has affected the growth prospects of the sector badly and the growth rate hasdropped into single digit level. The sector registered negative growth (-3.41 per cent) in200809 over the year 200708, which was due to the adverse global economic conditions inthis year. But, the sector is back in the positive growth territory and clocked a growth of 2.2

per cent in 2009-10.

Annual growth rate (in per cent)

Year 2005-06 2006-07 2007-08 2008-09 2009-10Hotels & Restaurants 17.5 14.4 13.1 -3.1 2.2

Source: Economic Survey 2010-11

The hotel and tourism industrys contribution to the Indian economy by way of foreign directinvestments (FDI) inflows were pegged at US$ 2.35 billion from April 2000 to February2011, according to the Department of Industrial Policy and Promotion (DIPP). But, there has

been a rush of international hotel chains towards India since the latter half of 2010. A lot ofmajor hotels have announced their plans to expand their footprints in India. Thus domestichospitality sector is expected to see investments of over US$ 11 billion by 2012, with 40international brands making their presence in the country in the next few years.


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Number of Greenfield projects

Year Number

2007 297

2008 553

2009 370

Source: UNCTAD, World Investment Report 2010

Sector Status

Several studies have highlighted the demand-supply gap in hotel rooms in India. Most of

them have estimated a gap of 150,000 hotel rooms. A greater need is being felt in the mid-market and budget hotels segment in which a shortfall of around 100,000 rooms is estimated.Since the construction of hotels is capital intensive with a long gestation period, theGovernment is making efforts to stimulate investments in this sector and speed up theapproval process to attract private sector investments.

It is estimated that the room demand in the premium segment hotels in 10 major cities inIndia increased by around 5 per cent since the past one year. The room demand in India isexpected to grow by approximately 10 per cent over the next five years.

The World Travel and Tourism Council, India, data says, India ranks 18th in business travel

and will be among the top 5 in this decade. With such growth, sources estimate, demand isgoing to exceed supply by at least 100 per cent in coming years.


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Number of Hotels2010

Hotel categories No. of Hotels No. of Rooms

5 star deluxe/5 star 165 43,965

4 Star 770 134 20

3 Star 505 30,1002 Star 495 22,950

1 Star 260 10,900

Heritage 70 4,200

Uncategorized 7,078 -

Total 8,707 1,32,885

Source- FHRAI

Although, organized sector contributes only one-third of revenue of the overall revenue of theindustry but several well-known hotel chains have lined up aggressive expanding plans for

India. The foremost contribution of the organized hotel industry comes from 5-star hotels.Despite a dip in the year 2009, average growth rate of 8 per cent augurs well for the hotelindustry. Industry is adding about 60,000 quality rooms, currently in different stages of

planning and development and should be ready by 2012. An upward trend in growth of theoverall hotel sector is expected in the next few years, whereby the industry is expected togrow to US$ 36 billion by 2018.

Operating performance

The hotel industry in India is recovering from the blows it suffered in the year 2008, first due

to financial meltdown in America in September and later due to terrorists attack on the two 5-Star hotelsTaj and Oberoi in Mumbai. The onset of the global economic slowdown had agreater impact on the profitability of the sector determined by the occupancy rate. Theoccupancy rate came down from 69 per cent in 2007-08 to 60 per cent in 2008-09. It washovering above 71 per cent before the incidents. Average room rates (ARRs) saw a marginaldecline of about 2 per cent during that time. As the occupancy rates were badly hit, overallrevenue per room fell by 14 per cent, in 2008-09.

The swine flu outbreak in 2009 further eroded the profitability. ARRs fell 25 per cent andORs plunged to 53 per cent in the first half of 2009-10. By then, hotels were doling outgenerous discounts in a bid to fill up their rooms even as Revenue per room declined by 30-40 per cent.


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Nationwide performance

Year Occupancy

Rate

%

change

Average Room

Rate

%

change

Revenue Per

Room

%

change

2005-

06

71.5 3.6 Rs 5,444 26.6 Rs 3,892 31.2

2006-

07

71.4 -0.1 Rs 7,071 29.9 Rs 5,049 29.7

2007-

08

68.8 -3.6 Rs 7,989 13.0 Rs 5,496 8.9

2008-

09

60.3 -12.4 Rs 7,837 -1.9 Rs 4,726 -14.0

2009-

10

65.0 7.8 Rs 6,426 -18.0 Rs 4,177 -11.6

2010-

11

68.0 4.6 Rs 6,800 5.8 Rs 4,624 10.7

Source: HVS

After declining 3 per cent in 2009, foreign tourist arrivals (FTAs) to India saw a heartening9.3 per cent increase during 2010. The inflows of tourists continued in 2010-1. As a result,ARRs have increased by 10-15 per cent in the past one year. The Revenue per room thoughincreased to Rs 4,624 but still it is way short of the revenue clocked by hotels in the year

prior to crisis.

Of the 60,000 rooms that are due for opening by 2015, Pune, Chennai, Bangalore and Delhiare likely to see maximum increase in supply.

Cities/No. of rooms Current premium room

supply

Incremental room supply by

FY14

Chennai 2,150 2,500Kolkata 1,240 1,400

Bangalore 3,350 4,500

Hyderabad 2,250 3,000

Pune 1,600 3,000

NCR 8,750 5,000

Mumbai 8,000 3,500

Source: ICRA


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Financials

Demand revival and occupancy rates will result in higher profits for the hospitality sector in2011-12.

Revenues (Rs

crore)

Net Profit (Rs

crore)

EV/EBIDTA(X)

FY10 FY11E FY12E

FY10

FY11E

FY12E

FY10

FY11E

FY12E

Indian Hotels 2457 2985 3633 -137 86 274 23 18 12

EIH 845 1144 1363 66 69 161 27 20 15

Taj GVK

Hotels

228 266 315 26 45 59 13 8 6

Hotel Leela

venture

430 540 769 41 56 81 35 22 14

Source: Bloomberg

Hotels classification

Presently there are 1593 classified hotels with a capacity of 95,087 rooms in the country. Thehotels sector comprises various forms of accommodation, namely star category hotels,heritage category hotels, timeshare resorts, apartment hotels, guest houses, and bed and

breakfast establishments.

Based on that the hotels in India are classified into following segments:

Star rated hotels (5 star and star deluxe)

These are mainly situated in the business districts of metro cities and cater to businesstravellers and foreign tourists. These are considered to be very expensive. These account forabout 30% of the industry.

The star hotels are further classified into six categories: Five star deluxe, Five star, Four star,Three star, Two star, One star.

a) Five Star Deluxe & Five Star: These are restricted to the four metros and some major citieslike Bangalore and Hyderabad. The customers of these hotels are mostly foreign business andleisure travellers, senior business executives and top government officials.

b) Three Star & Four Star: These are located in all major cities as well as tourist destinations.Their customer group ranges from middle level business executives to leisure travelers.

c) One Star & Two Star: These are located in major cities as well as in small cities and othertourist destinations. Their customers include usually the domestic tourists.


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Major players in this segment are Taj, Welcome Group, EIH and Oberoi. Apart from Indianplayers some of the international hotels also have their presence in this segment. Thoseinclude, Best Western, Choice hotels, Bass Hotels, Park Plaza and Carlson Hospitality.

Room supply in the 5-star segment has grown at a compounded annual growth of 5 per centover the past decade. While, the 3 and 4-star categories have grown at 6 per cent and 8 percent CAGR respectively during the same period.

Heritage hotels

These are characterized by less capital expenditure and greater affordability and includerunning hotels in palaces, castles, forts, hunting lodges, etc.

They are further classified as: Heritage classic (hotels built between 1920 and 1935), HeritageGrand (hotels built prior to 1920) and Heritage (hotels built between 1935 and 1950)

Budget hotels

Budget hotels cater mainly to domestic travellers who favour reasonably pricedaccommodations with limited luxury. These are characterized by special seasonal offers andgood services.

Unclassified hotels

These are low-priced motels spread throughout the country. A low-pricing policy is their onlyselling point. This segment accounts for about 19% of the industry.

Resorts and Clubs

Located at the outskirts of city could be from premium to budget category

Restaurant

These are food chains and outlets set up in the India. They are usually by international chainslike Dominos, Espresso, Pizza Hut and McDonalds.


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Key players

Company Type of properties Brands

Indian Hotels

Luxury, mid-segment andbudget

Taj, Gateway, Vivanta and Ginger

ITC Welcome

group

Luxury, budget andheritage hotels

ITC HotelLuxury Collection, WelcomeHotelSheraton, Fortune and Welcome

Heritage

EIH

Business hotels, leisurehotels and cruises

Oberoi and Trident

Carlson

Luxury, business hotels,economy and cruises

Radisson Hotels and Resorts, Park Plaza,Country Inns & Suites, Park Inn

InterContinental

Luxury, mid-segment andbusiness hotels

InterContinental, Crown Plaza, Holiday Inn,Holiday Inn Express, Hotel

Source: IBEF

In the Indian hospitality industry the major players are Indian Hotels, EIH, ITC hotels, HotelLeela Ventures, Bharat Hotels and Asian Hotels, ITDC and Orient Hotels Ltd.

The booming industry has attracted many international players as well. A number of globalplayers are already well established in India. These include Hilton, Shangri-La, Radisson,Mariott, Meridian, Sheraton, Hyatt, Holiday Inn, InterContinental and Crown Plaza.

The country has been flooded by some of the world's leading hotel brands. New brands suchas Amanda, Satinwoods, Banana Tree, Hampton Inns, Scandium by Hilt and Mandarin

Oriental are planning to enter the Indian hospitality industry in joint ventures with domestichotel majors.

International Hotel Brands

Brand No. of

hotels

Target

date

Carlson 50 2012

Four Seasons 6 2012-13Starwood 15 2012

Hyatt 10 2012-13

Marriott 24 2012

Wyndham 50 2011

Hilton 75 2015

Intercontinental 41 2012

Fairmont Raffles 15 2012-13

Accor 44 2012

Source: Business Standard


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Some announcements

Carlson Group is bringing Regent to Gurgaon by 2013. To tie-up with Pioneer UrbanLand and Infrastructure that will invest US$ 49 million.

The Leela plans to open six more properties by 2013. ITC Ltd expects to add 8-10 hotelsin India in the next 3-5 years. The Thailand-based hospitality major, Amari, plans seven 4-star hotels near major

airports in the country.

International hospitality chains are expected to acquire local players to increase their presencein the country.

For instance, in early 2010, Carlson increased its stake in RHW Hotel Management Services

Ltd (RHW) from 13 per cent to 87 per cent. RHW has been managing hotels under Carls onsbrand since 1998. Both domestic and international players are expected to form strategicalliances and partnerships with regional players /developers to expand in the country, reducerisk and optimize resources.

Latest trends

Investment in smaller cities

Rising business and leisure travel to smaller cities such as Udaipur, Thiruvananthapuram,Bhubaneswar, Pune, Kochi and Chandigarh, have increased demand for quality hotel roomsin these cities. Hospitality chains are expected to increase their presence in smaller cities toleverage this opportunity. Further, they are likely to plan a suitable project mix (more

budget/business hotels compared to luxury hotels) for these cities. For instance, Carlson hasannounced its plans to set-up mid-segment hotels in tier II and tier III cities.

Diversification into new segments:

Many hospitality chains that were earlier focused only on the luxury segment are nowdiversifying into new product segments, such as budget hotels and serviced apartments, inorder to reduce risks.

IHCL has already launched budget hotels in India, while Accor has announced plans tointroduce its budget hotel brand, Formule1, in the country. Moreover, hotel chains are

diversifying into niche segments such as medi-cities, wildlife lodges and spas to establish


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additional revenue-generation streams. These segments also help hotel chains retaincustomers and provide them with value-added services.

For instance, IHCL operates wildlife lodges under the brand Taj Safari, a JV between IHCLand &Beyond, an Africa-based safari and ecotourism company. ITC-Welcome group and

IHCL operate spas at some of their luxury properties.

Primary Data

Hotel Roopa

The data collected for this hotel is as follows:

Hierarchy (Organizational Structure)

Salary Structure

Ranges from Rs3500pm to 20000pm fixed, no variable

Increment, Incentives and Bonuses

Once a year increment, Dussera bonus

Managing

Director 1

Operational

Mana er 1

Manager Admin

1

Food Manager (1)

Restaurant

Manager

(5)

Sales

executive

(10) Waiter and

room

attendees

100


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Hotel Dynasty


Salary Structure

Ranges from Rs3500pm to Rs40000pm fixed, no variable


Increment of 2,500 in a year for managers, Incentive depends on the Good Business. Bonus is

given on the yearly basis.

Other Information

Captains get Rs. 5 on convincing the customer for ordering a dish which is Rs.120 more than

the other dishes

General Manager

Food & Beverage Manager Front Office Manager Marketing Manager

Captains BarmenStewards Front Office Assistant

Room & Bell boys Room & Bell boys

Executives


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Hotel Pai Vista


Salary Structure

Rs5000pm to Rs50000 pm fixed, no variable


Bonus on Dussera and yearly increment

Managing

Director 1

General Manager

1

Marketing & Food

Mana er 8Receptionist

(4)

Sales

executive

(10)

Waiter and

room In

Charge

120


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Hotel S K Regency


Salary Structure:

Rs 3500Rs 12000 pm fixed, no variable


Yearly bonus, Dussera bonus

Once in 3 months, based on performance, the incentives are awarded

Room Boys

House keeping

Front Office Assistant

Front Office Manager

Managing Director


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Compensation Strategies and policies

Hotel Roopa: The business strategy followed is Customer Focused strategy. This is

strongly supported by the fact that they have their own holiday packages for their customers.

(This service is not present in the other two hotels under survey).

The compensation policy used is Management Policy. The management decides about the

pay package.

Hotel Dynasty:Thebusiness strategy followed is Cost Cutter strategy. This is supported

by the fact that the Captains are paid extra when they are able to generate more revenue from

a single customer.

The compensation policy used is Employee Contribution Policy. Moreemphasis is laid on

the performance of the employees.

Hotel Pai Vista:The business strategy followed is Innovator Strategy. This is supported

by the fact that their vision statement talks about commitment to pace-setting innovation

focused service, dedicated team support, dynamic sales and distribution system and strong

traveller loyalty.


pay package.

Hotel S K Elegance:The business strategy followed is Cost Cutter strategy. This can be very clearly seen from

their organization structure & also the salary structure (exact salary). Since it is a fairly new

start-up, the insurance policy and the likes are in the process of being formulated.


pay package.

Similarities

Some of the compensation factors were common in all four hotels while others were commonin two. Some of the similarities noticed are as follows:

All three hotels seem to pay a fixed salary & there is no variable component. All three hotels are seen to give yearly bonuses. However, it is seen that Roopa, Pai

Vista & S. K. Elegance give Dussera bonuses while Hotel Dynasty does not specify

any such occasion for bonuses.

Compensation policies in hotel Roopa, Pai Vista & S. K. Elegance were formulatedby the top management.


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Differences

There were major differences noticed in the compensation structure across the three hotels.

Some of these are highlighted below:

Hotel Dynasty followed an incentive based pay as compared to the other two hotels. Only hotel S.K Elegance was found to give performance based bonuses once in three

months.

Hotel Dynasty was found to follow employee contribution policy.

Conclusion

Our survey data collected by our team is mainly based on the feedback we got from the 3

different Restaurants situated in Mysore which reveals the organizational hierarchy of the

respective hotels as well as the various salary structure, compensation, leave as well as

increment policies. We can draw the conclusion from our report that most of the hotels followa basic structure which envelops the criteria of the command system in restaurants, its

basically a centralised system where the main control is kept with either the General Manager

or the F & B Manager, the lower level employees dont enjoy any performance basis pay

structure, its more of a fixed salary basis, the middle level managers get incentives

depending on their periodic target fulfilment, the number of employees change depending on

the degree of their position in the organizational hierarchy, the number of customers visiting

also change on different times of the year.

ReferencesSecondary data collection sources:

www.indiabiznews.com/?q=node/1570

http://www.economywatch.com/world-industries/hospitality/

Compensation Management George, Jerry and Venkata

Primary data collection by visiting the four hotels (Roopa, Pai Vista, Dynasty & S.K

elegance) & having a word from the managers, sales executives & receptionist.
http://www.indiabiznews.com/?q=node/1570http://www.indiabiznews.com/?q=node/1570http://www.indiabiznews.com/?q=node/1570http://www.indiabiznews.com/?q=node/1570http://www.indiabiznews.com/?q=node/1570http://www.economywatch.com/world-industries/hospitality/http://www.economywatch.com/world-industries/hospitality/http://www.economywatch.com/world-industries/hospitality/http://www.indiabiznews.com/?q=node/1570

assignment on hospitality sector

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