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  Q3 2007, Volume 3

Destination India: the booming travel industry

Everyone in India seems to be on the move. Almost overnight the propensity of Indians to travel within and outside the country has exploded.

The growing numbers of wealthy Indians, an expanding middle class, and the boom in low cost carriers have combined to push domestic and international trips of Indians to an all time high.

International outbound trips by resident nationals peaked at around 8.3 million in 2006, according to a recent report by the Pacific Asia Travel Association (PATA) and Visa International.

Besides Taj Mahal, drawing a multitude of foreign tourists is India's rich cultural and geographic diversity which offers a wide range of tourist attractions and experiences such as leisure, culture, adventure, spirituality, eco-tourism, wellness and health.

International tourist arrivals to India are peaking. Over 4.43 million in 2006, up 13% from 2005 (3.92 million) and expected to touch 6 million in 2007.

If one were to include NRIs visiting India, the total number of international tourist arrivals in 2007 is estimated to cross 9 million.

Conde Nast Traveller, a leading travel and tourism journal has ranked India amongst the top 4 preferred holiday destinations of the world. India is ranked 5 in the Lonely Planet survey of favorite tourist destinations in 167 countries.

Tourism in India is the third largest foreign exchange earner, accounting for 2.5% of GDP. It also makes a direct contribution to the economy with significant linkages to agriculture, horticulture, handicrafts and construction.

The Indian aviation sector has grown significantly since its privatization. With competition lowering fares, the volume of air travelers have gone up dramatically.

Aviation officials expect the number of air travelers to grow from the present 20 million a year, to over 50 million in 2010. By 2020, the number of airline passengers in India is likely to exceed that of USA.

With local and international tourist's population going up, the demand for hotel rooms, across segments, has surpassed supply by leaps and bounds.

Hotels across the country, in the luxury and business traveler segments, are already recording close to 100% occupancy during weekdays, with average room rates shooting up 30-35% and revenue per available room (RevPAR) by 20-25%.

According to a FICCI (Federation of Indian Chamber of Commerce and Industries) report, "Investment Opportunities in Hotel Infrastructure in India", the National Capital Region of Hyderabad, Bangalore and Mumbai - the major hubs of the IT & BPO industry, have seen the highest increase in hotel growth and occupancy rates. With more such hubs and SEZs in the pipeline, the growth in the demand for hotel rooms is expected to spread to all major Tier 2 cities.

The Planning Commission estimates that India will need an additional 1.6 lakh rooms to accommodate the projected 58 lakh tourists by 2010, and 3 lakh rooms by 2020 to meet the projected tourist arrivals of 89 lakh.

The inflow of foreigners to India is also expected to grow as the nascent medical tourism industry booms. The medical tourism industry in India from its present size of $333 million, is expected to expand to over $2 billion, estimates a study by CII-McKinsey. The Indian medical tourism industry caters primarily to patients from US, Europe and Africa.

Catering to a flourishing travel industry calls for a strong supporting eco system. Business opportunities will therefore abound for car rentals, taxis, cargo logistics, aircraft maintenance, travel agents, airport security equipment, catering services, pilot training institutes, staffing companies, airport infrastructure and related areas like on-line travel portals etc.

The online travel industry grew at 126 per cent from a base of $295 million in 2005 to $796 in 2006. In 2007, it is expected to record a 66 per cent growth to be a $1,325 million industry and by 2008, will grow at 51 per cent to be a $2,004 million (around $2 billion) industry.

As travelers become more discerning they will begin to demand the best and expect quality convenience and service. This change in attitude presents a significant business opportunity for those wanting to capitalize on the exploding Indian travel industry.

Take for instance, tourist information portals. Today, although the online travel sector is a mere 2.2 per cent of the domestic travel market, it is set to grow from $796 million in 2006 to around $2 billion by 2008.

In parallel, the Indian consumers are getting comfortable using the web and mobile to do their travel related research and planning and thereby becoming more informed buyers of travel products and services.

This trend paves the way for creating new technology solutions that can capture customer interest. However, unlike in the West, most Indian consumers are not yet ready to complete their entire transactions on-line. Smart entrepreneurial companies will therefore have to find ways to contextualize Indian travel services to capture the new smart buyer who is still Indian at heart.

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