We Must Invest in People to Sustain Growth

FIFTEEN years ago, India had 25,000 rooms. That number stands at 100,000 rooms today. In the next five or six years, we will have a minimum of 150,000 rooms, an increase of 50 per cent. We need to have the talent to be able to service this growth. More importantly, we must understand that it's not just a quantity game, but along the quality dimension, India has progressed wonderfully well. The Oberoi has been named the best hotel brand in the world. The Leela hotels and a couple of Taj properties regularly make it to the Top 25 lists of the world. India is definitely going to be a destination of note for the discerning luxury clientele. That is why we need to have impeccably trained staff. The war for talent is only going to get more and more intense. There is only so much that we can take from each other. It is not a question of how you're going cut the cake, you have to grow the size of the cake. That is really what it's all about. We have to invest in a bigger way than ever before into the development of people. In the last few years prices and rates have suffered. Because of that, price has exaggerated its importance compared to product differentiation, which I am sure will stage a comeback to the forefront. Product differentiation means the quality of the guest experience, which in turn is a reflection of how much you have invested in training your human resources, is going to be the ultimate differentiator. The element of service is so deeply engrained in our hospitality culture. We have grown up with it. What works in the West has to be modified for India. You can't serve cold breakfast to a guest in India. You can't make him carry his own bag. You can't make newspapers a luxury offering. Even though the mid-priced hotel category will see the biggest growth in the coming years, The Leela will continue to stick with the luxury segment. We have an opportunity to grow in the luxury sphere and then we will go to the premier and mid-market segments, but as of right now, we don't even have a pan-India presence. We know that at least another six or seven destinations that can easily support a luxury hotel from The Leela, so we want to be there first. Once we have completed that part of our journey, we can start with a second brand. The hospitality industry has been through a very difficult five to seven years, so clearly there is a rate correction that is going to take place. As of today, no new hotel is economically viable because of the high land cost, high interest cost and low rates. Ninety-eight per cent of all new hotel projects are stressed assets. Which is simply because there is a problem with our cost structure. The interest rate here hovers around 13.5 per cent, and the principal amount with interest has to be paid within ten years. Out of these 10 years, five are taken up in construction and another year for ramping up, so a new hotel is left with just four years to fulfil this obligation, which is very hard to do. For our rates being low, the blame perhaps rest at our doorsteps. Nothing stops us from increasing our rates tomorrow, but we don't because there is a threat from fresh supplies. We have to scratch the surface and dig deeper. Until 10 years ago, hotels were being built by hoteliers, which is no longer the case. Hotels today are being built by developers. They are being built as a part of their bigger real estate strategy. The brands don't put in a paisa. And because there is this macro number that says India needs more hotel rooms, there has been irresponsible building. You need more rooms, but in the right locations because hotel rooms are built for a market, so you have to understand the location and the need of the market, not that you build just because you need more rooms. Nonetheless, I get the sense that good days are round the corner. Whether it'll take six months for the turnaround to take place, or 18 months, it's a matter of conjecture. What is certain is that we are clearly on the growth path.

Rajiv Kaul is the President, The Leela Palaces, Hotels & Resorts

The article first appeared in the inaugural edition of BW Hotelier, JAN-FEB 2015.