More on India

MUMBAI, India -- Although nightmare memories of the terrorist attacks here two years ago will no doubt linger for some time, all signs of the attack that closed the Oberoi hotel in 2008 have been erased by an ambitious restoration.

The lobby is bright and open, with a floor of white marble tile handpicked by the company's chairman and CEO, P.R.S. Oberoi.

Sunshine streams in from skylights.

A bright-red grand piano graces the center of the lobby, where a young Indian woman quietly plays.

While iron gates, X-ray machines and pat-downs greet guests outside, staff members stand at the ready inside, eager to provide the five-star service synonymous with the Oberoi Hotels & Resorts brand.

It was just last month that the hotel debuted its $40 million, top-to-bottom overhaul, designed to erase all vestiges of the terrorist attacks that killed more than 160 people here, including three dozen at the Oberoi.

Occupancy has been under 10% since the reopening, but hotel executives said they expect it to be back in the 60% range by year's end.

The hotel is already a popular spot again for locals. In fact, the very first week it reopened, residents waited as late as midnight for tables in the hotel's new restaurants.

And while the Oberoi marked the reopening with a private religious ceremony in memory of lost colleagues rather than a traditional gala, the hotel's new beginning is marked by an air of pride and optimism.

"It's exciting for the city," said General Manager Steven Kalczynski. "You can feel the vibrancy returning to the south side of Mumbai."

The reopening of the hotel, coupled with the planned reopening of the palace wing of the Taj Majal Hotel later this year, also symbolizes a fresh start for India as a whole.

Official figures indicate that tourism is on the rise this year, after those in the industry here said it took a huge double hit from the terrorist attacks on top of the global economic slowdown.

Sanjay Sethi, an Abercrombie & Kent tour guide who recently led a group of reporters around India to visit the renovated Oberoi Mumbai and several of the company's other hotels and resorts, estimated that tourism dropped as much as 50% last year. More conservative estimates are in the 10% range.

'Five-star or no-star'
Tourism or no, this country of 1.18 billion is a developing economic giant in desperate need of more hotels to accommodate a fast-growing market of domestic and international business travelers.

According to Jones Lang LaSalle, all of India has just 112,000 hotel rooms, fewer than New York. By comparison, the U.S. has 4.5 million rooms, and China has 1.6 million.

A uniquely Indian paradox is that its hospitality offerings tend to be either ultraluxurious or close to squalid -- or, as Sethi put it, "five-star or no-star."

Oberoi AmarvilasOberoi, for example, in addition to operating luxury business hotels in major cities such as Mumbai and Delhi, has ultraluxury resorts near major tourist attractions: Jaipur, the Taj Mahal and Udaipur.

Other Indian hotel companies, such as Taj, Leela and Park, also focus primarily on luxury properties.

And while India does have a tradition of using guesthouses rather than traditional hotels, it is experiencing major industrial- and high-tech-related growth outside its city centers that has left business travelers with few lodging options.

As one American business traveler here noted, when she was in Chennai, every room was booked because a trade show was in town. And for most of the four months she was working in Bangalore, she stayed at a guesthouse owned by the Indian corporation Tata because the conditions in the first hotel she tried were unlivable.

Likewise, another American, who has been spending time in an outlying region to oversee construction of a Kohler plant, said the best accommodations he and his colleagues can get are at best equivalent to a one-star motel at home.

"But at least it doesn't have bugs," he said.

Little wonder then that Western hotel companies are scrambling to plant their flags here, particularly with midscale and upscale brands. The hotel rush began a few years back, and while the global downturn slowed things temporarily, this year the contest is back in full swing.

"To say that India today is under-hoteled relative to future demand is a massive understatement," said Frits van Paasschen, president of Starwood Hotels and Resorts, who recently returned from a 10-day tour of the country.

In a conference call with investors last month, he compared India's current market position to China's five to 10 years ago and said that while "the global economic crisis may have slowed [progress] ... it certainly did not derail the unstoppable forces of globalization and the emerging middle class."

Starwood was the first Western brand in India, he said, opening a Sheraton in 1973. It now has 21 hotels and another 15 under development. And the company also has local teams in place scouring for new opportunities.

Oberoi Rajvilas"Westin is a rising giant in India," van Paasschen said. "We recently opened three new Westins in the country -- Hyderabad, Mumbai and Pune -- and expect another to open later on in the coming months in Gurgaon."

InterContinental Hotels Group, which currently has 11 hotels in India, has another 31 under development, most of which are Holiday Inns.

Tony South, IHG Asia-Pacific chief of development, told a recent investment conference: "We have committed sizeable resources to focus on India. These include a team of over 30 hotel support professionals locally based in our Gurgaon corporate office and a dedicated design and engineering team to support owners and their consultants, ensuring developments are cost-efficient and meeting the needs of the Indian market."

Hyatt Hotels Corp. recently announced plans to grow its presence in Delhi, Goa, Calcutta and Mumbai, as well as to expand into 15 new Indian markets, including Bangalore, Chennai, Hyderabad and Pune, over the next five years. The company said it will open Hyatt Regency Pune, Hyatt Regency Chennai and Grand Hyatt Goa in 2010.

It has also chosen India as the first location outside the U.S. for its upscale select-service brand, Hyatt Place.

"We believe India represents one of the greatest hotel markets over the next decade, one that will play a key role in driving Hyatt's long-term growth," Hyatt Hotels Corp. President and CEO Mark Hoplamazian stated in a recent news release.

In another sign of the importance of the market, Carlson and Choice both recently acquired the companies that manage their operations there.

Choice Hotels International said it had agreed to buy the remaining 60% ownership interest in Choice Hospitality India, making it a wholly owned subsidiary.

Carlson Hotels Worldwide, meanwhile, said it had signed an agreement to increase its stake in RHW Hotel Management Services from 13% to 87%.

Carlson also said it would be adding 50 hotels, increasing its presence from 28 hotels currently to 78, by the end of 2012.

Reasons for optimism

While most of the current hotel building boom focuses on midscale and upscale brands, some of the hotels already in the country consistently rank among the finest in the world.

Oberoi New DelhiIn fact, luxury is in a bit of oversupply in India currently. Oberoi says its occupancy last year was about 66% at business hotels and 47% at resorts.

Still, companies like Oberoi see a long-term need to also continue expanding their luxury portfolios as the country struggles to improve its notorious lack of modern infrastructure.

Currently, traveling the 150 miles from Jaipur to Agra can take six hours, as buses, trucks, scooters and animals jockey for room on the roads. Traffic is often forced to stop for sheep- or camel-herd crossings.

"There are highways and byways and trains and all sorts of modern things being put in place," said Liam Lambert, president of Oberoi, which also runs the upscale Trident brand. "There are billions being spent. So, generally speaking, infrastructure in India is being improved radically. My long-term view would be very optimistic."

That optimism, it turns out, is widely shared. He cited estimates that in five years the number of visitors to India will almost double, from the current 5 million to 9.5 million.

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