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Indian travelers are becoming an attractive source market, a McKinsey says. And a boom in the domestic travel market is leading to "substantial investments."

India is becoming a fast-growing source of outbound tourism, according to a report by consulting firm McKinsey and Company.

The report reiterated McKinsey’s earlier projection of India becoming the fourth-largest domestic travel market in terms of spending by 2030 – it currently ranks sixth.

“They are developing fast-growing pools of first-time tourists,” the report said.

Indian travelers have reached a new peak in overseas spending. Data from India’s central bank showed that Indians spent $31.7 billion overseas in the 2023-24 financial year. About 54% of that amount was on travel, or $17 billion.

In a report released last year, Booking.com and McKinsey projected that travel spending by Indians would rise from $150 billion in 2019 to $410 billion by 2030.

Countries such as Thailand, Sri Lanka, and South Africa have eased visa requirements for Indian travelers. The UAE, Saudi Arabia, Mauritius, and Turkey are also looking at India as an important source market for tourism and are stepping up marketing activities. 

Domestic Travel Boom

Domestic travel makes up the bulk of travel spending in India, the McKinsey report said, and Indian airlines and hotels are making “substantial investments” to meet demand.

IndiGo last year placed the largest single purchase order in commercial aviation when it ordered 500 A320Neo-family jets. Air India placed orders for a total of 470 aircraft with Airbus and Boeing last year. Domestic carriers such as Akasa Air and SpiceJet are also expanding their networks within India and outside.

Meanwhile, hotel companies are ramping up their portfolios in India. The report added that the development focus has shifted from major metropolises to smaller cities.

Indian Hotels Company (IHCL) has a portfolio of over 200 operational hotels in the country, and more than 90 hotels are in its development pipeline. The company aims to open 25 hotels in the 2024-25 financial year. It has also announced its decision to revive its Gateway brand to cater to emerging markets in metros and Tier 2 and Tier 3 cities.

IHG Hotels and Resorts is planning to double its presence in India to 100 operating hotels over the next five years. 

Hilton believes that 2024 is going to be its best year yet in India, according to India country head Zubin Saxena. With 26 operational hotels in India, the company is looking to double its portfolio in the next 3 to 4 years. It is also looking at an aggressive expansion in terms of the Indian markets where it operates, including emerging Tier 2 and Tier 3 markets. 

Accor, in 2023, signed a record 11 hotels in India and opened six properties. The company plans to open nine hotels this year. However, CEO Sébastien Bazin believes that India is an untapped market, stating that the top five hotel operators in India collectively have less than 1,000 hotels.

Challenges For India

The McKinsey report studied the cities of Mumbai and Delhi to assess the potential risks that these destinations deal with in terms of tourism. 

The report noted that while Mumbai has the lowest tourism density relative to its population in the cities it studied, visitors have been experiencing “long waits for entrance to attractions and a plethora of guides and vendors competing for attention.” Road traffic is also a major issue.

Mumbai is at a risk of an overloaded infrastructure due to tourism. This could lead to a negative impact on the visitor experience in a city where the local economy depends considerably on tourism. 

On the other hand, Delhi is at a risk of having a negative visitor experience because of threat to its culture and heritage.

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Tags: air india, air travel, airlines, akasa air, hotels, india, india outbound, india travel, indian airlines, Indian Hotels Company, mckinsey and company, middle class, tourism, travel spending, Travel Trends

Photo credit: Domestic travel continues to constitute the bulk of travel spending. Incredible India

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