Taj, Oberoi, other Indian hotel chains take to asset-light model for growth

NEW DELHI: The asset-light model is steadily gaining prevalence in India’s hotel industry, with domestic chains increasingly considering adopting the management approach in keeping with the strategies employed by major global groups like Marriott and Accor.
In February, Taj unveiled its new five-year strategy with chief executive Puneet Chhatwal stating that 60% of its assets will not be owned by the company by 2022. Consultants said all legacy hotel companies have gradually changed their growth models from asset heavy to asset light — managing hotel properties under their brands while not owning the real estate.

Mandeep S Lamba, India managing director for hotels and hospitality group at JLL, said all international hotel operators have been operating in India on the asset-light model and the growth of the Indian hotel industry over the last decade has been on account of this model which distinguishes between the hotel owner and the hotel operator.

“Taj, Oberoi, ITC and Leela are looking at managing hotels not owned by them and have gradually moved from their earlier position of owning the real estate. So, while they may still continue to make some strategic investments in owning assets, they are all looking at growing their portfolios and distribution through the asset-light approach,” said Lamba.

“Newer entrants such as Lemon Tree which originally started by only owning their assets, have also clearly stated their plans of concentrating on the asset light approach going forward post their IPO,” he added.

Rattan Keswani, deputy managing director of Lemon Tree Hotels which went public in March this year, said within its current portfolio of 49 hotels, 21 are managed by Carnation Hotels, a wholly owned subsidiary. As many as 22 of its upcoming hotels comprising 1,775 rooms are also under management contracts.

Listed entity Royal Orchid Hotels has 38 hotels under management contracts, four under joint venture arrangements and five under leasing arrangements with only one fully owned asset. Managing director Chander K Baljee said none of its 15 upcoming hotels in this financial year will be owned. “We are not looking at owning properties in the near future. However, if any opportunities come up in Delhi and Mumbai, we may look at them,” said Baljee.

Jehangir Aibara, director at business consulting firm Mahajan & Aibara, said big chains continue to build their assets but are increasingly looking at management contracts to fund growth and their distribution networks to keep them relevant in the competitive landscape.

In April this year, Marriott trumped Taj to become the biggest hotel chain in India in terms of the number of rooms, after launching its 100th hotel in Bengaluru. Debt-laden Leelaventure has also had to resort to a management contract approach for its upcoming hotels.

Global Hotel chains have been steadily gaining a strong foothold in India through hotels under management contracts. Globally, AccorHotels, Europe’s largest chain in terms of the number of rooms, sold its majority stake in its real estate arm in March to a clutch of investors including sovereign wealth funds valuing the entire business at 6.25 billion euros.