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Mumbai hotels, in spotlight after attacks, struggle to recover  Dec 18, 2008

As the Mumbai hotels struck in last month’s terrorist attacks prepare to reopen after three weeks of repairs, competitors across the nation’s financial capital are bracing for more sustained damage.

Metal detectors and security guards now greet visitors at some of Mumbai’s five-star hotels, as the assault on the Taj Mahal Palace & Tower hotel and the Oberoi-Trident complex forces the industry to adjust to a grimmer reality.

For Mumbai’s hotels, the attacks that killed 164 people and laid waste to parts of the Taj Mahal and the Trident and Oberoi, threaten to turn the traditional peak tourist season into a washout.

“Bookings at five-star hotels may have dropped by two- thirds since the attacks,” said Suresh Kumar, owner of Mumbai’s Seagull Tours & Travel agency. “Typically, most top-rated hotels are packed with business and leisure travelers around this part of the year, but this year most of them are only about a third occupied.”

At the Marine Plaza hotel, located about 200 meters north of the Trident and Oberoi hotels, occupancy has tumbled to less than 50 percent from 92 percent before the Nov. 26 assault, said General Manager Sanjeev Shekhar. Business at the hotel’s restaurants have roughly halved, he said.

“We have had a lot of cancellations because of the terror attacks,” said Shekhar in an interview. “The impact over the long term will be very bad. Foreigners won’t come back for a while.”

60-Hour Siege

Guests and staff at the luxury hotels were shot by terrorists armed with automatic weapons, grenades and explosives. The militants also struck a railway station, a Jewish center and a cafe during the 60-hour siege, India’s worst terrorist attack in 15 years.

“Mumbai is going to take a terrible hit,” said Akash Sheth, chief executive officer of Raj Travel & Tours Ltd. in Mumbai. “Five-star hotels will get badly hit, both in the in-bound corporate and leisure segments.”

The 105-year-old Taj’s newer tower wing, with 278 rooms, is scheduled to reopen on Dec. 21. EIH Ltd.’s Trident, located about two miles west of the Taj, also plans to resume operations that day. EIH hasn’t said when the Oberoi will be ready to receive guests.

The Taj’s heritage wing may not reopen until March 2010, Parag Gupta, an analyst at Morgan Stanley in Mumbai, said in a note on Dec. 11. The hotel, with antique furniture, Belgian chandeliers and 19th century paintings and artwork, has hosted celebrities including Madonna, Gregory Peck, Nelson Mandela, Brad Pitt and Angelina Jolie.

Foreigners Targeted

India’s hotel industry was already slowing before the attacks, after the supply of rooms increased in major business and tourist destinations during a four-year economic boom. The economy grew in the quarter ended Sept. 30 at the weakest pace in four years, curbing travel demand.

Growth in average room rates slowed to 11 percent in the seven months ended Oct. 31 from 16 percent a year earlier, Citigroup Inc. analyst Ashish Jagnani wrote in a Dec. 2 note. The average occupancy rate declined to 64.1 percent from 66.8 percent, he estimated. Jagnani downgraded Indian Hotels to “hold” after the attacks, and kept a “sell” rating on EIH.

Unlike previous terrorist attacks in India, this one targeted locations where foreigners gather, a shift that may drive wealthy tourists away, travel agents said.

“Overseas travelers are faced now with the factors of recession, terrorism and the fear that foreigners were targeted in the Mumbai terror attacks,” Jyot Jhaveri, general manager of Birla Viking Travels Pvt. in Mumbai, said on Dec. 8. “Half of the inbound travelers have canceled India plans, while the rest have postponed their trips to January.”

Revenue Loss

EIH, India’s second-largest operator of hotels, gets about 38 percent of its revenue from the Mumbai hotels, Citigroup’s Jagnani estimated. EIH’s earnings are likely to decline this year and the next, he said.

Indian Hotels Co., the nation’s largest hotel company and parent of the Taj, will be forced to spend about 4.4 billion rupees to renovate the property, which accounts for 12 percent of the company’s total revenue, Gupta estimated. Indian Hotels is likely to record a loss in revenue of 823 million rupees for the year ending March 31, and 1.4 billion rupees for the following year, he said.

Sarita Hegde Roy, director for public relations at the Taj, and Richa Thakur, a communications manager at the Oberoi, didn’t reply to e-mails and phone calls.

Indian Hotels has dropped 11 percent since Nov. 26, compared with an 8 percent advance in India’s benchmark Sensitive Index. EIH has gained 29 percent in the same period.

Cutting Rates

Indian Hotels, part of the Tata group of companies, will record an 18 percent drop in the average room rates for luxury, business and leisure bookings for the year starting April 1, according to Morgan Stanley’s Gupta.

Some hotels have already begun slashing rates, said Seagull’s Kumar.

“Hotels are informally offering discounts of about 20 percent to attract tourists,” he said. “The hotels want to avoid cutting tariff upfront for fear of officially admitting their rooms are going empty.”

Mumbai hotels, in spotlight after attacks, struggle to recover
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