Outbound

With 390 million Indians on the move in 2005, it is little wonder that it is domestic travellers that sustain the travel and tourism business. Domestic business travel and visiting family/friends, as well as pilgrimages, contributed to the 13% growth in number of trips within the country that year.

The number of outbound travellers from India grew by 15% to 6.2 million in 2005. This was almost twice the number of arrivals witnessed by the country. A booming economy, with GDP growth of more than 7%, rising disposable incomes, higher aspirations, cheaper air travel to countries such as Malaysia, Thailand and Singapore and better products from the industry enticed Indian travellers. This has prompted a number of global tour operators to enter the Indian tourism market either directly or through strategic alliances.

Growth in arrivals and incoming tourism earnings slowed down substantially in 2005, to 14% and 19%, respectively. The slowdown followed a particularly good performance in 2004, with global travel recovering from various health and natural disaster scares in the previous two years. Returning Indians constitute a significant proportion of incoming arrivals and as both the country and long haul travel became more expensive, they chose other holiday destinations instead of returning to their home country.

The UK and the US lead arrivals into the country. Combined, they accounted for 33% of total arrivals in 2005. The Middle East, including Dubai, the UK and the US were the favourite destinations in terms of departures. Popular new destinations for Indians include Southeast Asian countries such as Singapore, Thailand, Malaysia and Hong Kong. Cheaper airfares and competitive holiday packages have made these favoured vacation spots.

The US Patriot Act has led to a number of changes, as the American government becomes more stringent about its visa rules. As a result, there were huge delays and backlogs for visa processing, with some instances of visa call dates for tourist visas being given four months after the travel date. Hence the country’s popularity as an outbound destination diminished in 2005, with European destinations, particularly the UK, favoured instead. However, the number of departures to the US still remained ahead of those to the UK.

At Rs1,103 billion in 2005, India’s transportation industry is the largest sector of the travel and tourism industry. The sector outperformed the review period CAGR performance in 2005, with 15% sales value growth. Investment in international quality roads, the launch of low cost carriers as well as the expansion of the railways were responsible for driving growth.

Six new low cost carriers were launched in India in 2005, and there seemed to be room for more. SpiceJet Ltd was the outstanding success during the year. As competition heated up, prices came down, making the Indian consumer the winner in all respects. Promotional fares as low as Rs1 were launched, but this was limited to short periods, as fuel price hikes and taxes made it difficult for companies to sustain these fares. Tier II city routes that were earlier sidelined or ignored were taken note of and serviced. The airline subsector outperformed the growth of the transportation sector as a whole in 2005.

Travel accommodation in India accounts for only 12% of the travel and tourism industry in value terms. The skewed nature of hotel accommodation in India is evident from the fact that it constituted 5% of the accommodation market in terms of number of outlets, but accounted for 28% of sales value. The hotel subsector achieved growth of 18% in current value terms in 2005, which was driven by increasing demand, notably in business travel.

The huge gap between demand and supply of hotel rooms drove up occupancy levels and average room rates (ARRs) to new highs during the review period. Hotels generally cater to foreign visitors, corporate business clients and high-end Indian travellers, as hotel accommodation is out of the reach of the average Indian. Indians are increasingly seeking world-class facilities, such as clean and comfortable accommodation, Internet connection, and perhaps even fitness facilities, at local prices. In response to changing consumer needs, leading luxury and business hotels player Indian Hotels Company Ltd shifted its focus to budget hotels and rolled out the first indiOne hotel, its budget brand, in Bangalore in South India. Interglobe Enterprises signed a joint venture with Accor, in March 2005, to develop budget hotels in India under the brand name Ibis.

The travel retail sector constituted 17% of the travel and tourism industry in 2005, and was the second largest sector, valued at Rs274 billion. With 25% growth in 2005, it was responsible for driving much of the value growth in the overall market. Sensing opportunities in this area, with Indian travellers becoming more Internet savvy, dropping costs of broadband and a general increase in access to information, on-line travel retail intermediary MakemyTrip.com shifted its focus from returning Indians primarily from the American market to Indians within the country.

E-ticketing and e-travel in India took off as a result of efforts by Indian Railways in late 2004, accompanied by good deals offered by new generation budget airlines, which sell most of their stock through the Internet. An estimated 7,000 tickets with an average price of Rs1,500 each are sold each day on the Indian Railways website. However, in terms of value sales, Internet rail transportation constitutes a lower proportion of the total than air transportation.

Consumers sought out Internet access through various means and made sure they did not get left out of the benefits – usually price discounts. On-line hotel reservations in India have also picked up, but constitute just 3% of the business. According to the Internet and Mobile Association of India, 16% of on-line shoppers spent in the Rs10,000 plus range, including spending on computers, hotel rooms, jewellery, airline tickets and home appliances.

Company-owned sites, as well as specialised travel portals, drew in travellers in thousands. Travel agents also recognised the importance of the Internet as a means to distribute and market various deals, drawing in 7% of business from this medium. Much of it is still, however, not real-time.

By 2020, the government of India expects travel and tourism to contribute Rs. 8,500 billion to GDP, almost four times the value in 2005. With successive governments committed to reform, a strong manufacturing sector and a private sector that already has a critical mass that is needed to drive growth, it is unlikely that the strong growth in GDP is likely to be reversed. The rising middle class is also becoming increasingly affluent, mobile, Internet savvy and more sophisticated in terms of what is demanded in terms of tourism products and services, and more importantly the price they are willing to pay for it.

A boom is expected in travel accommodation, as more serviced apartments, budget hotels (2-star category) and highway motels are established.

Significant changes are expected in travel retail, with the arrival of more international players, such as Le Passage and Cox & Kings, particularly in outbound travel. British company Cox & Kings plans to relocate its corporate headquarters from London to Mumbai as a result of its being bought out by its Indian arm in late 2005. Global interest also includes the American millionaire Alfred Ford with plans to set up a Himalayan ski resort. Internet intermediaries are expected to expand significantly and grow the market without significantly adding to volume growth. Rural tourism and medical tourism for inbound tourists will also give rise to new products and services in this sector.

Until recently, not much emphasis had been given to the maintenance and development of the historical and heritage sites in India, which resulted in a large number of tourists staying away from these. However, the Indian government’s increasing investment in the upgrading and modernisation of infrastructure will translate into better facilities, amenities and access to the leading tourist attractions and sites.

According to International Data Corporation (IDC), India is expected to record the highest compound annual growth rate (CAGR), of 84%, among Asia-Pacific countries in e-commerce revenues between 2003 and 2008, exceeding the CAGR of 81% expected in China. It is estimated that travel will account for one third of this. Much of the growth is expected to be driven by intermediaries.

By 2010, India is expected to have 100 million Internet users, with the majority of them aged 25-39. Transportation and accommodation transactions will grow as they seek out newer experiences and get more comfortable with the medium.

Across all the sectors, much higher growth is expected from the Internet in contrast to bricks-and-mortar business operations. 16% of travel retail business in 2010 is expected to be sourced through the Internet, as the nascent dynamic packaging subsector picks up due to the efforts of on-line retailers.

While there is no direct danger of bird flu at the moment, it is definitely a potential threat as India sees a significant number of migratory birds from China, Tibet, Mongolia and Russia. Having said that, India’s pharmaceutical industry is more than sufficiently equipped to provide supplies of medicine for the purpose. A significant proportion of India’s poultry industry is small scale and scattered, translating to a low level of threat.