Hotel chains, big or small, would like to forget 2013 in a hurry. The economic slowdown, lack of business travellers and corporate events have not augured well for the hotel industry. Despite the travel season at its peak, hotels still find their occupancy on the lower side.
Hotel industry has been under fire from all quarters: they checked into the year with excess supply of rooms across all major urban areas and tourist destinations; pushing down prices as hotels fought across categories to increase their occupancy rates. The lack of pricing power meant that they had to absorb the impact of the sharp fall in the rupee’s value versus the dollar and higher interest rates in terms of higher costs without being able to pass them onto customers in terms of higher room rates.
A quick snap poll by TNIE this week, showed that room rates in Mumbai and Delhi are on the upswing. One of Taj Hotel’s salespersons in Mumbai said next week it would cost `18, 750 to rent a deluxe room on double occupancy room in the palace wing, which could have been had for `8,000 to `10,000 per night in May and June.
At the Oberoi Delhi, the tariff for the week beginning on from December 23 is `11,942, rising to `24,203 by January 15, 2014. At ITC Windsor, Bangalore the corresponding room rates are `9,500 and `10,500 up from the July tariff of `9,000 for a deluxe room. However in Hyderabad, which is witnessing a glut of room will only see a small uptick in prices for the high season in December to `7,514 before rates sink back to `6,100 by January 15 next year.
HVS, a hospitality consultancy said that the main hotel markets have grown if one were to analyse the number of room nights sold everyday. “We continue to reiterate that India does not have a real demand problem. Supply, however, has witnessed double-digit percentage growth (and outstripped demand) across most major hotel markets; Average Room Rates (ARRs) have come under pressure.”
As ITC’s Fortune brandhead Suresh Kumar explains , “Increased supply and no major movement of foreign tourists have caused the ARRs to turn soft”.
HVS estimates that currently there are 93,000 branded hotel rooms and another 50,000 will be developed between 2013-18 taking the total supply of branded rooms to 144,000 rooms.
Looking at the demand, US major Marriott Hotels’ director of revenue strategy (South Asia) Rahul Puri says his company’s plan is to get to 100 hotels by 2018 with 47 currently under construction. Puri explains, “Thanks to the slowdown, overall travel has gone down so there is pressure on the average rate. Secondly, there is big emphasis on cost management as inflation is very high. We have seen pricing go down in the first half.”
Meanwhile, Indian Hotels’ Co Ltd that runs the Taj, Vivanta, Gateway and Ginger hotel brands have lined up new 36 hotels over the next three years.
According to the leading industry trade body Federation of Hotels and Restaurants Associations of India (FHRAI) data, the July-September quarter saw a marginal improvement in average occupancy rates but the daily average room rate (ARR) and the revenue generated from each available room continued to decline, as supply continued to outpace demand. FHRAI estimates that in 2012-13, the industry added 9,166 rooms.
Rattan Keswani, Deputy Managing Director, The Lemon Tree Hotel Company puts it, “This year has been a challenging one for the hospitality industry.”
With average realisations having declined across all major cities in 2013, hotels have explored alternative revenue sources to maintain their profitability. “The Meetings and Conferences (MICE) segment has shown double-digit growth in most major markets across India and have helped hotels maintain or increase occupancies on a year-on-year basis,” says Achin Khanna, managing director consulting and valuation of hospitality consultancy HVS.
One segment that has bucked the negative trend has been the category of resorts and leisure market, which includes boutique hotels.
Goa, among the top leisure destinations in India, continues to show year-on-year growth as it transforms into a year-round destination rather than a seasonal one. Delhi-based boutique hotels group, Neemrana Hotels has just launched their third property in Goa in Curtorim, Margao. “We want to focus on Goa in a big way. With the third property, we hope to give our clients a choice of destination in the state,” said Aman Nath, co-chairman Neemrana Hotels. FHRAI says that in July-September quarter, Goa was the best performing market in India with average room rates going by up 9.7 per cent.
Leisure properties unlike their urban and business counterparts have also benefitted from the rupee’s fall as a significant portion of their sales are denominated in dollars or euros to foreign tourists. “The increase in the dollar has had a positive impact as this has led to an increase in domestic travel and a renewed interest in India as a leisure destination for Westerners,” says Nath. Neemrana hopes to end the year with its revenues up 10 per cent, though Nath refrained from making any estimate of the firm’s profitability.