|The Economic Times,
IndiaMcClatchy-Tribune Regional News
Feb. 17, 2008 - MUMBAI, India -- Every day, a large number of hoteliers receives a 'business report' on occupancy and prevailing room rates of competing hotels. On the face of it, this may seem like a perfectly routine practice in a highly competitive business. However, this 'business report' is being used not to stay one step ahead of the competition, but to help create a cartel that can dictate price.
Quite like the tyre and cement industries, hoteliers are veering around to the view that cartelisation is the best way to stem rampant price undercutting that has taken place in recent times.
Mid-priced and premium hotel companies are sharing information not only about occupancy and room rates but also about banquet revenues, crew pricing and corporate tariffs. Says Siddharth Thaker, consulting and valuation analyst, HVS International, a hotel consultancy firm: "The hotel companies get to know if they are faring equal or better than competition."
A leading hotelier based in Mumbai admitted that information sharing among top hotel chains is quite common and based on that, the average room rate (ARR) is adjusted. He, however, does not believe that it is a cartel. "There is information sharing among us. Based on the feedback, we adjust prices on a daily basis, or on a weekly basis. I won't agree that it is cartelisation. It's an arrangement between the hotel groups, " he said.
However, most premium hotel companies denied the existence of any kind of cartel. They said while general managers may know and talk to each other, there is absolutely no arrangement to fix room-pricing. Said Mumbai-based Leelaventures' VC & MD Vivek Nair: "It is fiercely competitive, and it is impossible to maintain room rates amongst hotels." It also prevents undercutting in a fiercely competitive market and tour operators from pitching one hotel against another.
For instance, if five-star hotels cater to corporates, then on weekends, the occupancy levels will be considerably low.
"The weekend packages are often discussed between duty managers of competing hotels in a region," said a source. Internationally, some markets like Dubai and Kuwait follow cartelisation. Senior managers meet once in a year to fix room rates and that is strictly followed, sources said.
As more than 70 percent of the business for hotel companies is based on contracted rates (50 percent from corporates and 20 percent from meetings and conferences), it works well when hoteliers share information on room rates and occupancy, sources said.
There are others who believe that it is unlikely that cartelisation is taking place in the bigger cities, given the dynamics of the industry. Says Pranay Vakil, chairman, Knight Frank India:
"It's not easy to form cartels in the hotel industry given that many foreign tourists come on a referral basis. For example, Hilton in the UK will recommend Hilton Mumbai to its customers coming to India." However, in some Tier II cities, cartelisation takes place where business volumes are low compared to bigger cities," Vakil added.
By Lijee Philip and Rajesh Unnikrishnan
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