Adani's Strategic Move: Owning Hotels Without Running Them
In today’s Finshots, we delve into the Adani Group’s clever hotel play. But before we begin, a quick note: our team works tirelessly to bring you the latest in business and finance. We’re taking a short break starting tomorrow, but we’ll be back with new stories on January 2nd. In the meantime, we’d love your feedback. Please take a moment to fill out our <a href="https://tally.so/r/QKMz78?ref=finshots.in">short Finshots Readers’ Survey</a>.
When the IndiGo fiasco unfolded, it sparked conversations about the lack of serious competition in Indian aviation. The Adani Group, however, has been quietly building its airport business. One significant move was the acquisition of a majority stake in the Flight Simulation Technique Centre (FSTC), India’s largest independent flight training and simulation provider.
This led to a natural question: with airports, pilot training, and critical infrastructure under its belt, why hasn’t Adani launched its own airline? The answer lies in the unit economics of aviation. It’s a capital-intensive business with thin margins, which doesn’t align with the Adani Group’s investment philosophy. Jeet Adani, Director of the group’s airports business, confirmed this in an interview with CNBC TV18.
However, the group has a different plan for the hospitality sector. The Adani Group is planning to build over 60 hotels across India, making it one of the largest hotel portfolios in the country. This might seem counterintuitive, given that the hotel business is also known for its thin margins and high operational costs. But the key lies in Adani’s strategy: it doesn’t want to run the hotels.
Instead, Adani plans to own the real estate and partner with established hotel operators. This model is already successful in India, as seen with Chalet Hotels. Chalet is a listed real estate and hospitality company that focuses on owning premium properties in prime locations. It partners with global hotel chains like Marriott and Westin, which handle daily operations. Chalet earns a management fee and a share of the hotel’s performance, while avoiding the operational risks.
This approach makes sense for Adani. By owning the real estate, it can focus on returns and strategic investments, such as upgrading facilities and optimizing room mixes. This strategy also aligns with Adani’s past moves, such as its aggressive bids for stressed assets from the Jaypee Group and Sahara Group. These acquisitions provide valuable infrastructure and real estate, which can be repurposed and refinanced at lower interest rates.
But why now? This hotel push is not just about diversification; it’s about strengthening Adani’s airports business. Adani Airport Holdings Limited (AAHL) currently earns revenue from aeronautical and non-aeronautical sources. However, these revenues can be unpredictable. Hotels, especially those near airports, bring in a steady flow of business travelers, airline crews, and event participants, boosting overall airport revenue.
Moreover, Adani’s plans for a massive convention center in Mumbai, near the airport, further enhance this strategy. Large events attract business leaders and international visitors, who are likely to stay at nearby hotels and spend more across the airport ecosystem. This diversified revenue stream makes AAHL more attractive to investors, especially when it comes to a potential IPO.
The Adani Group plans to invest about $11 billion over the next few years to expand its airport network. This diversification strategy helps Adani capitalize on India’s growing aviation sector while repositioning its airports beyond just runways and terminals. And the clever part? It all happens without Adani having to operate a single hotel. Pretty smart, eh?
Until next time…
