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
Excerpts
What Went Wrong?
Over the years, ITDC had witnessed a gradual slump in the operational profit of its hotels. There was a decline in the percentage of tourists staying at ITDC hotels from 30.89% in 1974-75 to 25.9% in 1979-80. Further, the total share of ITDC hotels in the Indian hospitality industry dropped to 8.1% in 1979-80 from 17.7% in 1974-75. The average occupancy rate of the ITDC hotels in 1981-82 fell to 57.04% from 60.95% in 1978-79. In 1982, when India hosted the Asian Games, the private hotel operators took it as an opportunity to launch more hotels....
The Disinvestment
As the government was unable to make money from these hotels, it decided to dispose of those that were making losses. The process of disinvestment of the hotels was started in 1996-97. However, to sell the ITDC hotels was a Herculean task as the hotels were in every corner of the country and could not be sold to a single entity. Moreover, the accounts of the company were in a terrible state and the break-up of ITDC hotels required a long legal process for each hotel. The divestment of the hotels was even more of a problem as their ownership papers, completion certificate, and statutory clearance were difficult to find.....
The Aftermath
The executive and non-executive employees had serious reservations about the disinvestment of the ITDC hotels. To protest against the privatization, they formed the ITDC Workers and Officers Sang-Harsh Samiti. Protests were in the form of bad service to guests, showing brooding faces to them, and wearing black arm badges. Guests soon started to take note of the poor services at ITDC hotels and bookings went down. For instance, in early 2000, a travel agency, Mega Tours and Travels, cancelled a bulk booking of 2,300 rooms per nights in Hotel Kanishka and Hotel Ashok saying they had lost confidence in ITDC’s ability to handle a large group of tourists. Meanwhile, in November 2001, The Hotel Ashok Employee Union...
The Sun Rises...
After divesting its loss making properties, ITDC started seeking new avenues to generate revenues. It negotiated with Air India to supply duty free merchandise for in-flight sales. It also decided to enter the railway catering service segment with an investment of Rs30 million. Ashwini Lohani, Chairman, Managing Director, ITDC, said, "Business was slow and we didn't look at diversification, something we need to do, particularly if our core business (hotels) is going away". They even started setting up of food plazas at railway stations, motels, and fast food joints at petrol pumps. ITDC signed a Memorandum of Understanding (MoU) with the Central Cottage Corporation Ltd for the promotion and sale of products in New Delhi, Bangalore, Chennai, Mumbai, and Kolkata......
...Only to Set Again
While there was steady growth in the domestic tourist arrivals and total tourist arrivals in India, business at the ITDC run hotels began to slump again (Refer to Exhibit VII for the growth in total number of tourist arrivals in India and Exhibit VIII for Net Profit/Loss of ITDC hotels (2011- 2014)). By 2013, though the turnover of ITDC had increased by 6.57% to Rs4.7 billion, it still faced a loss of Rs830 million in three successive years (2010-2013) from eleven hotels. Hotel Ashok, Delhi, faced a loss of Rs306.5 million between 2010 and June 2013. Following them, the Lalitha Mahal Palace hotel, and Hotel Ashok in Jaipur and Jammu incurred a loss of Rs203.4 million, Rs107.4 million, and Rs40 million respectively...
Exhibits
Exhibit I: Classification of ITDC Hotels
Exhibit II: Loss Making Hotels of ITDC (In Millions of Rupees)
Exhibit III: Sales of ITDC Hotels (in millions of rupees)
Exhibit IV: ITDC Hotels – Profit/Loss (in millions of rupees)
Exhibit V: A Brief Note on Disinvestment Policy in India
Exhibit VI: ITDC Properties Sold/ Let out on Long Term Lease
Exhibit VII: Total Tourist Visits
Exhibit VIII: ITDC Hotels Net Profit/Loss (Before Tax) (in millions of rupees)
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