 "Slowdown woes get the better of Bickson")
The announcement marked 11 years of frenetic activity for Bickson. It was an unexpected occasion when earlier this month, he announced his decision to step down from his post and leave the company by the end of the month, especially since he had only nine months ago secured the shareholders' approval to continue as managing director for a third five-year term.
Besides patriarch Ratan Tata and his friend R K Krishna Kumar, it is Bickson who can be credited with the rapid growth of Indian Hotels Company. Bickson, the former general manager of The Mark in New York, was handpicked by Tata who chanced upon him at The Mark during a visit in 2002. It was at a time when the company was looking at venturing abroad, and an impressed Tata found in Bickson, a native of Hawaii who had also worked in Chicago, Melbourne and Shanghai, a perfect fit to lead such an expansion.
The shareholders' endorsement of another term for Bickson in 2013 seemed to indicate that they were happy with his achievements in the company. But did Indian Hotels meet the expectations that rode on the appointment of Bickson as managing director? "Bickson was brought in for a specific mandate, which was to take the Taj brand overseas," says the managing director of a competing company. "A certain amount of internationalisation of the Taj group was indeed taken up, but I would not be happy with Bickson's performance if I were a shareholder."
This may sound like a harsh assessment of Bickson's achievements, but even his detractors concede that more than his performance, it was the dramatic economic slowdown across the globe that sent the hotel business into a tailspin. Business Standard asked the company for a comment on the day Bickson announced his exit, but its queries did not elicit any response.
Under Bickson, Indian Hotels opened properties in the heart of premier cities like New York, Boston, Sydney, Cape Town, Langkawi and Marrakech. Two more are set to open in Beijing and Hainan Island soon. The turnover has swelled 13 times to Rs 1,977 crore this year from Rs 152 crore a decade ago, with nearly 40 per cent of it coming from outside India. During this time, the Taj group added one new property every two months in India and abroad, making Indian Hotels the country's biggest hotel chain, followed by ITC Hotels.
However, grim news overshadowed much of his achievements. There were spiralling losses created by the money-losing overseas investments. A couple of US properties, Ritz-Carlton (renamed Taj Boston) and Campton Place in San Francisco, were bought before 2007 at the height of the realty boom, with Indian Hotels pumping in $230 million. Another prime property, The Pierre in New York, was taken on a 30-year management lease in 2005 for a cumulative $150 million investment in fee and renovation. But by the time these acquisitions were ready to welcome guests, the world's economy was going through its worst patch in recent time following the collapse of Lehman Brothers. Jet-setting executives and leisure travellers cut back on spending, pushing hotels into economic turmoil. (The Taj in Mumbai, Indian Hotels' flagship property in India, was damaged badly in the 26/11 attacks. This too affected business.)
These three US hotels have picked up the pieces only recently, but not before they posted a combined loss of nearly Rs 155 crore in 2013-14, as disclosed in the annual report of the company. Occupancy at The Pierre had jumped from around 63 per cent in 2011-12 to around 77 per cent by September last year. The occupancy figures for Taj Boston and Campton Place also went up last year.
For a long time, Indian Hotels depended on its own capital to erect new hotels, which led to its debt ballooning to Rs 4,200 crore by the end of 2013-14. Bickson, therefore, had to consciously switch to an asset-light strategy, taking new projects on management contracts just as rival international chains were doing. "Indian Hotels did not anticipate the rapid changes that the international chains have brought with them. A majority of these foreign brands do not infuse their own equity," says a Delhi-based hotel analyst.
One of the biggest gambles during Bickson's tenure, according to experts, was the attempt to acquire the Bermuda-headquartered Orient-Express Hotels, which, in addition to running luxury trains and restaurants, has hotels in several historically significant buildings across the world. "If you look at that company, it is very similar to Indian Hotels in the sense it has iconic properties in various countries," Ratan Tata had said about Orient Express at the annual general meeting of Indian Hotels in 2012.
The Tata hotel chain spent more than Rs 1,000 crore in buying Orient Express Hotels shares, only to find it repeatedly spurning the Indian company's offer of a full yet unsolicited buy-out. Bickson felt helpless because Indian Hotels could not extricate itself from this mess. Analysts worried that in its eagerness to lay its hands on the Bermuda-based company, which had 44 luxury hotels in 22 countries, the Indian company was losing its focus. Indeed, the repercussions were damning, and in March this year, Indian Hotels took a second impairment hit on this investment, bringing its total write-off to nearly Rs 700 crore.
The push to go international formed an important part of the Tata group's early millennial strategy for all its companies, including Tata Steel, Tata Motors and Tata Tea. Feeling the need to protect its domestic turf from foreign invasion, especially in the mid-scale and up-scale categories, the company launched a series of new brands to add to the luxury Taj hotels. It launched Gateway in the upscale segment in 2008 and Vivanta by Taj in the upper upscale category in 2008 to take on similar offerings from competitors such as Marriott, Hyatt, Intercontinental and Starwood, to name a few.
Earlier in 2004, it had started Ginger hotels in the economy range. But it has taken a decade since the launch for Ginger to turn profitable. At its launch, the tariff had been tagged at Rs 999 per night. Ginger today charges up to Rs 3,700 per night, depending on its location. The company had hoped to rope in budget travellers, but the expectations were perhaps too great, and Indian Hotels has scaled back its expansion plans to 40 Ginger hotels by 2015 from 80 proposed earlier.
A long and difficult journey
The company also faced shareholder criticism when Bickson received a 75 per cent rise in his annual commission in 2013-14 at a time when Indian Hotels made a loss of Rs 590 crore. The total payout to Bickson was Rs 10.4 crore. Given these setbacks, P R Srinivas, industry lead (tourism, hospitality & leisure), Deloitte Haskins & Sells, says, "It has been a mixed bag for Indian Hotels under Bickson."
At the end of 2013, Indian Hotels Company had in its portfolio 39 Vivanta by Taj properties and 29 Gateway hotels. However, many of these hotels weren't new, they had merely been rebranded. The Taj President in Mumbai, Taj Residency in Aurangabad and Taj Garden Retreat in Kumarakom were all recategorised as Vivanta by Taj hotels. However, Bickson and his team failed to create a clear differentiation between the brands, and the exercise only created confusion. So, while Vivanta by Taj was able to find a niche for itself in the category occupied by established brands like Holiday Inn, Courtyard by Marriott and Le Meridien, Gateway found itself in ambiguous territory since its tariff did not differ greatly from the prices at its superior sibling, Vivanta by Taj. Reservations made for August 29 at a Gateway hotel in Bangalore, for example, cost Rs 7,500 per night. A Vivanta by Taj room in the same city cost Rs 8,500 per night. A Gateway in Chennai, however, charged Rs 4,700 for the same day.
Bickson had contemplated a new brand to bridge the space between Ginger and Gateway. The mid-scale segment, as it is called, would come at Rs 3,500-4,000 per night and compete with the likes of Lemon Tree or Novotel. Bickson was also working on creating an umbrella company that would manage all its international assets. On Wednesday, Indian Hotels Chairman Cyrus Mistry announced there wouldn't be any new brand in the mid-market space.
So what can Indian Hotels look forward to? According to estimates, there are around 100 locations in India that can accommodate star-rated hotels, and the company is present in around 70 of these. Analysts assume that international hotel chains will not risk going to these relatively uncharted areas in Tier III cities immediately. This is where Indian Hotels Company could find the headroom for growth.