Branded hotels' occupancies grow but tariffs yet to catch pace

Average tariff declined 30% since FY08 to Rs 5,541 in FY16, says hotel consultancy firm HVS

The rising occupancy at branded hotels in the domestic market is yet to reflect on the room tariffs. Average occupancy rates is estimated to have hit a nine-year high of 65 per cent in FY17 bringing cheer to the industry. Tariffs, even after an improvement, is lower than the last peak seen in several years of the last one decade.

The average tariff for branded hotels declined 30 per cent since FY08 to Rs 5,541 in FY16, HVS data showed. Tariffs would have seen some growth in FY17 but would be nowhere closer to the Rs 6,000 plus rates seen between FY10 and FY12 and much lower to Rs 7,000 plus rates seen during the period between FY07 and FY09. While tariffs have not kept pace, cost of operations continue to go up due to higher wage cost, power tariffs and cost of consumables. In its 2016 report, hotel consultancy firm HVS said the increase average daily rate during FY16 was ordinary but points to an improvement in the health of the sector.

Indian Hotels Company, which runs hotels under the brand like Taj and Vivanta, said at an analyst meet in February that pricing is still 'under pressure' in some markets like Chandigarh, New Delhi, Kolkata, Jaipur, Ahmedabad, Gurgaon, Chennai, Bengaluru. Citing STR Global, a consultancy, Indian Hotels said average room rate increased two per cent in April-December of FY17 while demand grew over seven per cent. The company operates 119 hotels in the country as of December 2016.

Experts say the industry is now entering a new positive cycle. There is a recovery in both occupancy and room rates. Hotels attribute this to rising corporate and leisure travel, and growth in foreign tourist arrivals. Factors like e-visa, enhanced airport capacities along with India's increasing relevance in the global landscape shall support the growth in international arrivals.

Raj Rana, chief executive officer (South Asia) at international hotel company Carlson Rezidor, said occupancy has found its legs and rates are bound to follow. "Excess supply has been absorbed in an orderly manner and supply addition has slowed down. There will be a gradual reflection on margins".
 

Horwath Consultants said in a report last year that occupancy will undoubtedly grow but rates will improve in a 'range-bound' manner. Occupancy rates have increased for the fourth consecutive year in FY17 while tariff has been almost flat till FY16. Kurt Straub, Vice President - Operations (India), Hyatt Hotels & Resorts said, "I believe that the hotel industry will see many ups and downs in terms of room rates in the next few years as India continues to surge ahead towards becoming one of the world's fastest growing economies." He said the company's earnings report show that last financial year had a positive growth. "The positive momentum has continued into this year with the company achieving a strong first quarter in 2017".

While tariffs are yet to recover, many hotels have seen challenges since April after the Supreme Court decided to ban serving of liquor at all establishments within 500 metres of a highway. Hundreds of hotels and their restaurants have been impacted leading to a decline in food and beverage earnings and revenue from weddings, parties and conventions.