News: Dream run for hotels continues

(DNA 24/03/2007) Mumbai - The Indian hospitality industry has been witnessing a strong growth in the past few years and the sector's performance seems to be only getting better year after year. With the hotel room inventory in the organised sector continuing to remain more or less stagnant, the average room rates (ARRs) are only headed northwards irrespective of the cyclical (seasonal) nature of the business.

In fact, hospitality sector analysts are of the opinion that in general the ARRs and occupancies are very much sustaining at higher levels. Despite a high base, ARRs are up 33% year on year and occupancies are at high levels of 72% for the period between April 2006 and January 2007.

"Primary reason behind this market scenario is the fact that demand is outpacing supply and no major change in supply is expected at least for another 16 to 18 months. Thus we expect the trend to continue and this augurs well for hotel sector earnings," said Ashish Jagnani, Citigroup's hotel sector analyst.

Growth in the leisure segment has had a positive impact on leisure hotels business in cities like Delhi, Jaipur, Goa, etc. Tourist traffic in the leisure segment has witnessed a healthy growth of 15% (YoY) for April 2006 to January 2007. The revenue per available room (RevPAR) across most tourist destinations has seen an increase of over 35% during the nine months under consideration.

Adding to the positive business outlook is the strong operating environment and other factors like the all-time high business confidence index and conducive macro environment.

These are being coined as the key growth drivers of hotel room demand in the country. This apart, the efforts to grow the food and beverage business and allied services like spas, service apartments and management contracts are expected to aid the sector's profitability.

Thus the general consensus among industry observers is that the sector's performance is very much as per the predictions being made in the recent past. So while continuing to see increase in the average room rates, the outlook according to industry analysts is that some cities might grow at a much higher rate while others like Bangalore might have to do with more or less the same growth levels.

"Bangalore has already crossed its peak in terms of ARR growth and any further increase will only hamper occupancy levels, something the city has already started to witness.

However, once the new inventory starts pouring into the city two years hence, the market scenario is expected to change considerably, leading to some amount of correction in room rates," said Binaifer Jehani, research analyst with Crisil Research & Information Services. India's organised room inventory currently stands at just over a lakh rooms and the shortage of room supply is estimated to be close to 1,00,000 rooms.

With the country's current demand-supply gap expected to continue until the end of 2009 fiscal and no significant supply expected to come either from domestic or international chains, the markets like Mumbai, Delhi, Kolkata, Pune, Hyderabad, Chennai, etc are likely to enjoy gains in business.

"Cities like Pune, Goa and Jaipur in particular will certainly see a surge in business. The situation in Delhi will, however, not change much considering that city is already short of room supply by over 20,000 rooms. And with Common Wealth Games scheduled for 2010, the average rooms rates there are not expected to come down at all," said Jehani.

According to an international hospitality consulting firm HVS International, there are over 150 hotel projects under various stages of development while the figure from the tourism ministry is 300 leading to over 50,000 hotel rooms.