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Why govt needs to privatise loss-making ITDC properties

By transferring the management control of loss-making hotels to state governments, who will perhaps run them as individual entities, these hotels will lack the distribution strength that nearly all the branded hotel chains - foreign and domestic - have been building.

twitter-logo Manu Kaushik   New Delhi     Last Updated: April 3, 2018  | 20:44 IST
Why govt needs to privatise loss-making ITDC properties
Tourism Minister KJ Alphons

At a private gathering nearly two years ago, the writer of this story met with a Cabinet minister in the current government at the New Delhi's landmark The Ashok Hotel. Sitting across the table with his wife and some party members, the minister was talking about issues concerning his ministry, and in the middle of the talk, he looked up at the hotel, and said, "There's no reason for the government to run this hotel, which is located at the heart of the city."
 
The implicit need for privatisation - or disinvestment - of the state-run The Ashok hotel, part of the public sector unit ITDC (India Tourism Development Corporation) that runs nine properties, is present within the government and outside. Yet, there are no discussions around it. Instead, the Tourism Ministry, led by KJ Alphons, is planning to transfer six loss-making properties to the state governments or go in for a joint leasing with the governments. There are also plans to hand over the management and operations of The Ashok (New Delhi) to a private operator. In the last three financial years to 2016/17 and nine months of 2017/18, ITDC has posted net losses of Rs 20 crore.
 
In a reply to Lok Sabha, Tourism Minister Alphons had recently said, "The main reasons for the losses incurred have been competition from new and modern hotels, increase in the available room inventory, increasing wage cost, hike in power and fuel cost."
 
There are serious flaws with this approach. Today, the success of hospitality chains hinges on distribution and digital strategy. Distribution means that having a wide portfolio of hotels - budget, mid-market, upscale, luxury - at key destinations. By transferring the management control of loss-making hotels to state governments, who will perhaps run them as individual entities, these hotels will lack the distribution strength that nearly all the branded hotel chains - foreign and domestic - have been building.
 
Then, these hotels might find it difficult to withstand the current slugfest between hotel operators and online travel aggregators (OTAs). The minister told Lok Sabha that ITDC has taken a series of measures to modernize ITDC properties, including tie-ups with OTAs. Unless the government lives under the rock, the partnerships with OTAs are more than just signing contracts to sell room inventory online. OTA tie-ups are about scale and fees. The large hotel chains have a bigger say in partnerships with OTAs. The smaller chains or individual properties are typically at the receiving end of such partnerships.
 
For The Ashok (Delhi), finding a private management partner might be challenging due to the likely - nagging - involvement of the government in running of the property, and a significant regular employees base.
 
Just like the beleaguered Air India, ITDC properties have been run without much business sense. It's time that the government gives it a serious thought, and finds a long-term solution to stop taxpayers' money being wasted.

 

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