There was a time when Chennai that was Madras had just a couple of upmarket hotels. Staying at the homes of friends was de-rigueur. That was also when the city was known for its magnificent open spaces and plenty of tourist attractions. Now we have an embarrassment of riches when it comes to choice of hotels. And the number is all set to increase, with several hotel projects nearing completion. This will however coincide with the city becoming increasingly congested and being perceived as one of poor tourism interest. So what will all these hotels do for business?

Countrywide, it is predicted that there will be a fall of about 40% in tourist inflow this year. This is largely due to the economic meltdown in Europe, the slow recovery in the US and the recent travel advisory issued in the view of potential terrorist attacks. Assuming that the same trend will be seen in Chennai, this will coincide with a doubling in capacity of five-star hotel accommodation in the city. In January 2011, the city had around 2000 four and five star hotel rooms. By December this year, this number will be 4000, the additional capacity largely coming from the already inaugurated Hilton and Hyatt and the work-in-progress ITC and Leela hotels, both of which will be open for reservations by year end. It is expected that a further 3000 rooms will be added by 2013, with several business-class hotels coming up in the IT corridor.

A marked contrast to the above figures is the occupancy rate. Chennai, which witnessed 85% occupancy in 2008 (and which figure was most likely the reason for the present boom in hotels), had an average occupancy of 55% in 2010. It is estimated that in the current year it would be around 48% and this is not likely to change all that much in the next two years. This therefore means that hotels are likely to make losses in the immediate short term and it is only those with deep pockets who can continue to survive in the long term. It is a situation where supply is far exceeding demand.

Adding to the industry’s woes is the crippling shortage of trained manpower. Nation-wide, around 10,000 graduate every year from hotel management institutes but the demand is over three times. Moreover even those that qualify do not all join the hotel industry, with the IT sector sometimes snapping up several. And the cost of retention is going up too, with employee costs in the sector rising between 17 to 19% annually while other input costs are going up by 12 to 15%. And those that are retained are not of quality either. It has become a common sight to be waited on and be attended by staff who know only the most rudimentary aspects of hoteliering. Most often this results in tardy service creating a poor impression. It is also a fact that there are very few locals and this has resulted in very many recruitments from the North Eastern parts of the country. While there is no objection to this, it often results in the hotel staff being as ignorant about the city as the guests themselves. That does not create a helpful situation. Clearly there is training wanting on the city and what facilities/attractions in offers.

Taken all in all, the present scenario in the hotel industry in Chennai is rather bleak. But for it to change there is no easy way out. There are several macro factors in play and unless these become favourable, the situation is unlikely to improve.