The Taj Mahal By Moonlight? Think Again

High prices and few flights are clobbering tourism

Out near the airport at the edge of New Delhi stands the 260-room Radisson Hotel Delhi. Built as a franchise by Indian and Singaporean investors, the $22.8 million hotel has been finished since February. Its 400 staff members are trained, ready, and waiting. But the building is empty--no guests have been allowed to check in. Why? Government agencies are squabbling over which one has the power to give permission for the hotel to open. While the bureaucrats bicker, the hotel is racking up monthly losses of nearly $30,000. Hotel managers are beside themselves. Says a senior Radisson executive: "I'm ready to climb the wall."

He isn't the only one suffering. With its economy slowing and the rupee under pressure, India badly needs to boost its tourism industry, the country's third-largest foreign-exchange earner. Instead, even though India got global media attention this year for its 50th anniversary of independence, tour operators report business is down--by some estimates, 30% from 1996. Five-star hotels, which ran at 100% occupancy rates two years ago, have been half-empty for most of this year. Pricey room rates, hefty hotel taxes, government instability, and a shortage of airplane seats have combined to make India one of the most expensive, inaccessible destinations in Asia. "Prices are a little bit haywire," says Sushil Bhatt, director of inbound leisure travel for Thomas Cook in Bombay. "Everybody is feeling the pinch."

Greed is partly to blame. When India's reforms brought a huge influx of business travelers in the early 1990s, hoteliers keen to make profits raised prices, nearly doubling them in four years. Today, a five-star hotel room in New Delhi or Bombay averages $300 a night--comparable to Tokyo or Hong Kong but without the same quality or service. Restrictive building laws and high land prices in cities have discouraged investment in new hotels for midrange travelers, making moderate hotels expensive, too. One dumpy two-star hotel in New Delhi, which a local travel agent wouldn't recommend even to the sturdiest backpacker, is charging $150 a night. "It's not worth it," says Ajay Malpani, a hotel industry analyst for Caspian research in Bombay. Even in more remote tourist destinations, such as Goa, hotels are more expensive than comparable ones elsewhere--a situation exacerbated by currency devaluations of up to 60% in other Asian countries, such as Indonesia.

It's not just affordable beds that are in short supply. During peak tourist season, flights into India are almost impossible to book. New Delhi has been reluctant to let foreign carriers, including Lufthansa, British Airways, klm Royal Dutch Airlines, Singapore Airlines, and Swissair, add new flights to cope with surging demand. As a result, India's state-owned international carrier, Air India, operates at 95% capacity during peak season and 80% the rest of the year on busy European routes. Some flights in the busiest month of December had waiting lists of more than 300 people. Discounts are virtually nonexistent.

BAD REP. Indian officials say the country's airports simply can't handle more traffic. But foreign airlines accuse the government of trying to generate more revenue for Air India by creating higher passenger loads. "You are effectively ensuring that the seats available are far too few," says one European airline exec. Domestic airline prices are also rising following the closure of most of the new private airlines that tried to compete against the government carrier.

No wonder India lags behind other Asian destinations. Only 2.3 million foreigners went to India last year, compared with 26 million to China. And India has earned a bad reputation among European tour operators. Several have pulled India packages from their brochures, citing cancellations and sudden price hikes. "They look at India as a destination that is totally volatile," says Navneet Sahani, a Delhi-based travel agent with Outbound Travels.

With such national monuments as the Taj Mahal and a rich cultural history, India has the raw materials for a thriving tourism industry. Annual revenues from tourism total $2.7 billion, but analysts say they could easily be triple that with enough flights and affordable hotels to go around. "India is the greatest show on planet Earth," says Subhash Goyal, president of the Indian Association of Tour Operators. Perhaps. But until it's more accessible, the show may keep playing to an empty house.

Before it's here, it's on the Bloomberg Terminal.