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Sun 7 Dec 2008 04:00 AM

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Mumbai terror attacks hit Indian tourism

The attacks have compounded problems for airlines and hotels that were already facing a slowdown.

The Mumbai terrorist attacks struck India's tourism industry at the start of peak season, compounding problems for airlines and hotels that were already facing the slowest growth in visitor numbers in five years.

"People are scared," said HA Subramanian, general manager of Shiv Niwas in Udaipur, Rajasthan, a converted royal palace where suites cost as much as $1600 a night.

"Travel agents will not take the risk of bringing people to India at least in the next couple of months. The market was already affected by the financial crisis."

Hotel occupancy will be a major casualty in the short term. It will take at least two months for confidence to be restored and travellers to return.

Subramanian said cancellations were already coming in for the hotel, owned by the Maharana of Mewar.

Terrorist attacks aimed at foreign tourists, such as the Mumbai assaults, may hurt hotel bookings and airline ticket sales for more than a year.

The island of Bali, which accounts for one-third of all foreign tourists to Indonesia, had not recovered a year after the 2002 bomb that killed 202 people, according to a World Bank report.

Shares of Indian Hotels Ltd, which runs the Taj chain, fell as much as 14 percent in Mumbai, or the most in seven years in intraday trading. EIH Ltd, owner of the Oberoi chain, plunged 18 percent, the biggest drop in more than 15 years.

Jet Airways Ltd, the nation's largest domestic airline, fell as much as 7.1 percent. Kingfisher Airlines Ltd, the second largest, tumbled as much as 10 percent.

"Hotel occupancy will be a major casualty in the short term," said K Seshadri, vice president of research at Mumbai-based Jaypee Capital Services Ltd. "It will take at least two months for confidence to be restored and travellers to return."

GlaxoSmithKline Plc, Europe's largest drugmaker, Merck KGaA, which is seeking to expand in India, and other companies have asked employees to restrict travel to India after the attacks in Mumbai that killed 188 people.

Terrorists armed with grenades and rifles stormed into the Taj Mahal Palace and Tower hotel and the Oberoi Trident complex at about 10 pm local time on Nov 26, saying they were targeting Americans and Britons, according to witnesses.

"The target in this case has been high-profile locations where tourists frequent," Binit Somaia, a director of the Centre for Asia Pacific Aviation said. "You could expect air travel cancellations in the coming days and weeks. This is the start of the peak tourist period."

Tourist arrivals to India rose 10.4 percent in the April to September period, compared with 14.2 percent a year earlier.

One in five foreign tourists visit India in December or January, according to the Ministry of Tourism.

"I think leisure and tourism for sure will be immediately impacted," Venu Srinivasan, chairman of the Confederation of Indian Industry and head of motorcycle maker TVS Motor Co, said in an interview. "After 9/11, Britain had incidents, Indonesia had incidents and they have all come back."

Earnings for the hotel industry in the quarter ended Sept 30 "indicate demand slowdown on the back of moderation in both global and domestic economic activity," Mumbai-based brokerage India Infoline Ltd said in a Nov 7 note to clients.

Occupancy declined as much as 6 percentage points in cities such as Mumbai and New Delhi, it said.

Mumbai's Taj Palace and Oberoi are popular with international visitors to the city, India's business hub.

Previous Oberoi guests have included News Corporation chairman Rupert Murdoch and Microsoft Corporation co-founder Bill Gates, according to the hotel's website. Mick Jagger and Prince Charles have stayed at the Taj, according to the website of owner Tata Group.

Unilever's CEO Patrick Cescau and incoming CEO Paul Polman escaped unhurt from the Taj Mahal hotel after the attacks.

Indian Hotels, the biggest lodging chain in India, expects the attack to lead to a lot of cancellations, vice chairman RK Krishna Kumar said in an interview to CNBC-TV 18 in Mumbai. He said the top floor of the company's hotel near the Gateway of India has been damaged.

"The Taj Mahal Palace and Tower Hotel and the Oberoi Hotel in Mumbai contribute a lot to the revenue and profit of these companies because of the high occupancy and room rates that they command," Apurva Shah, head of research at the Mumbai-based Prabhudas Lilladher Ltd, said.

This article is courtesy of Bloomberg.

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