New-age hotels go light to take on big chains

The new arrangement, instead of the prevalent practice of setting up properties and hiring firms to manage them, keeps Ananta Capital-backed Alivaa’s finances strong and ensures stable and predictable returns for hotel owners. It owns one property each under its Alivaa and The Hoften brands in Gurugram, and an Alivaa resort will soon open in Jim Corbett area of Uttarakhand.

Founder Vikramjit Singh, previously the president of Lemon Tree Hotels, is betting on the new approach to stand out in India’s competitive hotel market.

Singh’s company is among the small but growing group of new-age hotels, including Cygnett Hotels and Resorts, Brij Hotels, and Signum Hotels, looking to challenge the dominance of Indian Hotels Company Ltd, the owner of Taj chain, and Oberoi and Marriott-branded hotels groups.

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The confidence reflects momentum in leisure and business travel after the pandemic. And better return on investments. According to a report by hospitality consultant Hotelivate, the number of hotels charging an average room night rate of ₹7,500 or more has increased from 23% (354) in FY23 to 30% (517) in FY24.

Seeking to ride this upcycle, at least three hospitality chains—SAMHI Hotels, Juniper Hotels and Park Hotels—have listed on the stock exchanges. ITC Hotels will follow in February this year. And listed peers including Chalet Hotels and IHCL have rewarded investors with strong returns.

Hospitality consultants say leasing helps fledgling hotel operators compete with existing peers by cutting costs, besides providing owners the flexibility and easing their burden of drawing customers. 

Typically, single or first-time hotel owners offer properties on lease as they find it difficult to meet the standards of large, established chains. 

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“New hotel management companies don’t necessarily have a lot of strict guidelines as to which architect to work with. This gives owners of hotels an easier passage into the business and some level of comfort when they are first starting out,” said Ishaan Koul, director at Delhi-based Naaz Hotel Consultants.

According to Koul, hotel owners no longer depend as much on selling rooms directly. A large portion of their bookings—about 30-40%—now come from online travel websites, like Makemytrip or Booking.com, he said, adding some of the new ventures are looking at tier II and III to get a headstart.

Going light

Alivaa’s Singh expects the growth under the leasing model to be a “little slower” in the first two years, and then to pick up pace “quite rapidly”. “We will target the bigger metros first as we want to look at profitability to start with.”

In fact, he said, the company was profitable from the first month that Alivaa launched in Gurgaon. “This is because of our unique operating model wherein we have outsourced our entire food and beverage which is a first in the industry. This gives us an advantage because we only run rooms which generate the highest margins in the hotel business.”

Other newer and some older hotel companies, too, are reinventing their business models with operating leases or management contracts. A lease allows a company to rent a property from its owner and manages it as a separate, self-sustained business. A management contract, on the other hand, is an agreement where a hotel owner hires a company to operate their hotel, while retaining ownership.

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Brij Hospitality Pvt. Ltd, which runs the bespoke luxury small-key assets, now has nine hotels under asset-light models. It either does a revenue-share agreement with the owners or signs a conventional management contract.

“We began about three years ago and found great success in our marquee asset in Varanasi and decided we wanted to only be in the sub-30 room properties which were luxury developments,” said Anant Kumar, co-founder of Brij Hotels.

The company will also look to develop its corporate team and build its portfolio further from eight to 25 hotels in the next two years, and hopes to hit about 50 hotels in the next five years, taking the entire inventory to about 1,500 luxury rooms. The next three hotels will come up in Bandhavgarh, Madhya Pradesh; Ranthambore and Pokharan, Rajasthan, Anant said. Its partners have also acquired land in Mulshi near Pune and Jaipur.

Cygnett, a Gurugram-based company that has been operating for a decade, has switched from marketing an international brand in India to managing its own hotels directly. It has a portfolio of 25 properties, primarily located in tier II cities, with a total of 1,000 rooms. It also is working with 23 hotel owners for properties under development in Pushkar and Jaipur in Rajasthan; Kharagpur in West Bengal; Chail in Himachal Pradesh; Dibrugarh in Assam; and Mahad, Alibaug, Maharashtra and and Gurugram, Haryana.

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Similarly, seven-hotel Signum Hotels and Resorts is looking to expand to the UAE and the UK, where it has already started a few projects. This month, the company signed a new hotel in Shirdi, Maharashtra and is likely to work with the same owners to manage their future hotels in Agra and Goa. It has properties in Igatpuri in Maharashtra and Hissar, Haryana, among others.

“We began the business in 2019 and were managing hotels around the country but had a lot of learnings from the pandemic. By October 2022, we pivoted our business model to move towards hotel operating leases which helped us scale,” said Mehul Sharma, founder and CEO of the company.

“Now, the business will look to be a global hotel brand. We’ve pivoted now but are also focused on India as this is the time to capitalize on the India market,” he said. The company has signed a contract for a 300-luxury-tent property, which will be ready in the next few years.

Sharma, too, prefers to work with newer hotel operators as the terms of business are far more profitable. For instance, established brands would charge anywhere upwards of 12% to manage a property, while newer hotel companies would ask for around 7%. Entrenched businesses also charge owners a one-time fee to sign up as well as a recurring fee each year, besides a percentage of the gross operating profit. Most of these terms, he said, are far more flexible with new-age hospitality companies.