It is fast approaching two months since gunmen began their assault on Mumbai.
Three days later, 172 people were dead and 293 injured, many of them tourists.
Three iconic Mumbai hotels—the Taj Mahal Palace & Tower, The Oberoi and The Trident —were targeted and suffered considerable damage.
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| Damien Little |
Mumbai’s response to the attacks has seen the city’s residents defiantly push on. The owners of the Leopold Café took little time in reopening, and the crowd has returned to show that they will not be intimidated by such violence. The beer flows freely and the ambience is lively, albeit tempered by the grim reminder of the odd bullet hole. The Oberoi and the Taj Mahal Tower hotels have reopened. To the casual observer, the Trident Hotel and the historic Palace wing of the Taj appear to be no more than under renovation with little evidence of the tragedy they witnessed. It is also reflective of the city’s response to the event that the food and beverage outlets in The Oberoi and Taj Mahal Tower again teem with guests.
While the city appears to have rebounded quickly, there is no point denying the profound impact of the attacks—not least on the performance of the local hotel market. Occupancy dropped to below 40 percent (despite more that 1,400 rooms being taken out of the top-tier market as a direct result of the attacks on the Taj and Oberoi complexes) and room rates dropped by 15 percent to 20 percent.
With negative travel advisories released by governments across the globe and the cancellation of meeting events planned for the first half of December, such an impact was to be expected. A decline in business travel reflecting safety concerns and increases in security at airports and hotels aggravate the situation. Mumbai is a city dominated by business travelers, and the immediate dropoff of hotel demand ran right into what is a slow Christmas and New Year period, further reducing performance levels.
2008 was a challenging year for Mumbai even prior to the attacks, with occupancy levels market-wide down somewhere around 10 percentage points over results recorded the year before. Monthly statistics from STR Global show that as the year progressed, the monthly year-on-year occupancy declines became larger. While ADR growth was maintained in 2008, STR Global data shows that these increases moderated as the year progressed.
Underpinning the decline in occupancy performance for the Mumbai hotel market has been the strong increase in ADR witnessed over the past four to five years. Room rates have reached a point where middle-management and local executives are changing their itineraries to cut costs. Business trips are being shortened, often replaced by day trips. Declining airfares have also made it more economical to make more frequent, but shorter visits to the city. And on occasion, travel to the city is being avoided full stop.
This underlying impact on demand from rising ADR, combined with other factors in a year that ushered in a global financial crisis (something keenly felt in India’s financial capital) and significant declines in the Bombay Stock Exchange’s SENSEX (from a peak of 21,206 in January 2008 to around 9,000 at the time of writing) have led to an impact on market performance levels exceeding what most analysts expected.
With the downward trend and the current financial turmoil muddying the waters for 2009, the test will be how the market responds in the coming months. Two other markets (Jakarta and Bali) in the region that have also witnessed major terrorist attacks in the past could serve as a reference for Mumbai. However, any lessons learned are tempered by the fact each market bears characteristics and demand segmentation that makes it unique.
Nevertheless, there is much to learn from history to draw conclusions from the differences.
On 12 October 2002, Indonesian terrorists detonated three bombs, two near popular nightclubs in Kuta and the third outside the United States Consulate in Denpasar, killing 202 people. The majority of fatalities were foreigners, mostly Australian. Following the attacks, the occupancy performance of the Bali market suffered for two years. Bali is, however, a leisure destination and as such comprised of discretionary travellers, most international. Two key source markets are Australia and Japan. The perceived targeting of Australian tourists and the large number of casualties had a profound impact on the Australian market. The Japanese market, with a reputation for being conservative and risk-averse, was also affected heavily.
Mumbai differs from Bali in that it is a primarily corporate-oriented market, which has fewer discretionary travellers. There is also a much larger proportion of domestic demand that tends to be more resilient under such circumstances. We would not expect Mumbai to suffer such a prolonged dampening in demand due to the recent attacks.
Jakarta has witnessed a number of violent attacks since the late 1990s, one of which occurred on 5 August 2003 when a suicide bomber detonated a car bomb outside the lobby of the JW Marriott hotel. As in Bali and Mumbai, foreigners seemed to be the primary target of the attacks. However, in Jakarta, of the 12 fatalities, 11 were Indonesian. Jakarta, like Mumbai, is primarily a corporate-oriented hotel market: However, unlike Mumbai, the market had been in a six-year prolonged slump set off by the Asian Financial Crisis of 1997 and the fall of the Suharto government in May 1998. By 2003, when the bombing occurred, average occupancy levels for the market were just reaching 50 percent for the first time since 1997. The bombing actually had little impact on the market trend other than perhaps stalling the moderate growth recorded in 2002 and 2003.
Mumbai will likely feel the impact of the attacks more than Jakarta, but as a corporate market, any impact should be felt primarily in the short term as the city’s residents try to move on with their lives. We would expect business travellers to also return to work in India’s financial capital. The main concerns of Mumbai’s corporate travellers are more likely to continue to focus on the affordability of hotel rooms and whether, given the ongoing financial crisis, they will still have a job to do.
Ananth Ramchandran from Horwath HTL’s Singapore office contributed to this article.
Damien Little is the Director of Horwath HTL’s Beijing office and has previously been based in both the Singapore and Hong Kong offices of Horwath.