Hotels - Time to check in

The Hotel industry in India was on a dream run during CY2004-08, with demand for rooms outstripping supply. Factors like high economic growth, rising income levels, government’s ‘Incredible India’ campaign, low cost airlines, etc., all contributed in increased movement of both domestic and foreign tourists within the country. Aiming to grab a share of the growing hospitality industry, many players, both domestic and international, announced aggressive plans to set up hotel properties across key destinations in India. This led to fears of over-supply in rooms, which would have put pressure on Occupancy Rates (ORs) and Average Room Rates (ARRs) of the hotel players thereby adversely hampering their profitability. However, sentiments reversed by the end of CY2008 due to dire global economic conditions, leading to lower tourist activity both for leisure and business purposes. Moreover, tighter liquidity conditions led to many players cancelling/delaying their earlier announced roll-out plans. However, with India emerging as a frontrunner in recovering from the global turmoil, signs of improving demand are visible again, with tourist movement picking up thereby resulting in ORs improving, which would consequently be followed by ARRs in the coming quarters. This coupled with lower supply of rooms than earlier estimated would enable hotel players to regain lost ground.


By Mr. Viraj Nadkarni, Research Analyst, Angel Broking