Hotel occupancy may hit record low

The bad news just doesn’t seem to end for the hotel industry. The profitability of premium hotels that include 5-Star Deluxe and 5-Star is expected to be impacted significantly as occupancy rates have declined sharply due to falling demand for hotel rooms and new hotel rooms are being added across cities in India, according to a report by Crisil Research.

The demand for rooms in the premium segment is expected to fall by 11 per cent in 2008-09, compared to the previous year, and further by 15.5 per cent in 2009-10. At the same time, premium segment room inventory is expected to collectively grow at a CAGR of 9 per cent from 2007-08 to 2011-12 across 12 major cities.

Consequently, hotel occupancy rates are expected to show their steepest decline in a decade, reversing the trend of very high growth rates witnessed in the 12 cities during the past few years, the report says.

The destinations covered in the analysis are Agra, Ahmedabad, Bengaluru, Chennai, Goa, Hyderabad, Jaipur, Kerala, Kolkata, Mumbai (North and South), NCR and Pune.

Additional supply, combined with lower corporate travel expenditures in the slowing global and domestic economies, would result in a decline in occupancy rates. Occupancy rates are expected to come down from 72 per cent in 2007-08 to 62 per cent in 2008-09.

Sridhar Chandrasekhar, head, Crisil Research, said, “We expect occupancy rates to further drop to 47 per cent in 2009-10 and hover around this rate in 2010-11. With occupancy rates falling, hoteliers are expected to lower Average Room Rates (ARRs) to attract customers.”

Crisil Research forecasts ARRs to fall by around 23 per cent in 2009-10 (from the levels of around Rs 9,200 in 2008-09) and decline further by around 18 per cent in 2010-11.

These trends would lead to revenue per available room (RevPARs) collectively declining by 20 per cent in 2008-09, and further by 42 per cent and 20 per cent in 2009-10 and 2010-11, respectively, creating severe profitability pressures.

Sridhar said hotels in Gurgaon and Pune will be the “most affected”. Room inventory in Gurgaon and Pune is projected to show the highest increases among the 12 cities with CAGR of 41 per cent and 35 per cent, respectively, during the period of 2007-08 to 2011-12. These cities will also witness the steepest drop in RevPARs. The year-on-year (y-o-y) decline in RevPARs in Pune is likely to be 50 per cent and 24 per cent in 2009-10 and 2010-11, respectively.

IT/ITeS-dependent destinations such as Bengaluru and Hyderabad are also expected to be severely hit as IT companies rationalise travel expenses following the turmoil in the financial markets globally.