Disinvestment of ITDC Hotels
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Case Code: BSTR480 Case Length: 14 Pages Period: 1997-2015 Pub Date: 2015 Teaching Note: Available |
Price: Rs.500 Organization: India Tourism Development Corporation (ITDC) Industry: Tourism Countries: India Themes: Tourism Marketing, Crisis Management, Strategic Planning |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
In May 2015, the Ministry of Tourism in India announced that it would privatise eight loss-making hotels run by India Tourism Development Corporation (ITDC) after efforts to revive them proved futile. The eight hotels which were likely to be divested were those at Jaipur, Bhubaneswar, Puri, Jammu, Guwahati, Ranchi, Pondicherry, and the Lalitha Mahal hotel in Mysore, all of which were reporting losses. "We propose that all our sick units need to be offloaded. Out of 16 hotels, eight are in very bad shape and we propose to disinvest it in the very first phase. It is not wise to bear the burden of these loss-making units. The ball has started rolling," said Dr Mahesh Sharma (Sharma), Minister of State with Independent Charge for Tourism, Government of India. Although the turnover of ITDC had increased by 6.57% to about Rs 3 4.7 billion in 2013-14, many of its hotels had run into losses. Eleven hotels run by ITDC had reportedly registered losses to the tune of over Rs830 million between 2010 and 2013. 4 The losses were attributed to problems such as a rise in the availability of overall room supply compared to demand, high wage bills due to implementation of the Sixth Pay Commission 5 , and the weakening of the global economy.
ITDC, founded in 1966, was involved in the development, promotion, and expansion of tourism in the country. The group was engaged in running hotels and restaurants; production, distribution, and sale of tourist publicity literature; and providing entertainment and duty free shopping facilities to tourists. ITDC entered the hotel business with Hotel Chola in Chennai in 1975. In the early eighties, it spread across India, setting up 35 hotels and 12 transport units, duty free shops, restaurants, and tourist service stations. However, the corporation ran into losses between 1997 and 2001. The cumulative loss from the hotel division alone was Rs1.05 billion. According to industry analysts, ITDC-run hotels could not withstand the competition from private hotels and became puppets in the hands of politicians and bureaucrats as seamy tales of abuse of power, loot, and corruption were reported....
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