Hotels see room for growth as occupancy, rates move up

The hospitality sector is looking up, with hotel rates headed north in important markets. The increase is likely to be at least in the high single digit.

There is a recovery in both occupancy and room rates across cities, including Delhi and Mumbai. Hotels attribute this to rising corporate and leisure travel, and growth in foreign tourist arrivals.

"There has definitely been a marginal improvement in hotel occupancy and demand has gone up year on year, but since supply has remained higher, rates haven't grown proportionately," said Rattan Keswani, deputy managing director at Lemon Tree Hotels.

According to data from hotel consulting and research firm HVS, the average rate for a Mumbai hotel increased three per cent in 2015 and is expected to grow 10 per cent in 2016. Occupancy could improve from 72 per cent in 2015 to 73 per cent this year.

The occupancy level in Delhi, which saw sizeable addition in supplies as several new hotels came up in Aerocity, has improved from 62 per cent in 2014 to 67 per cent in 2015. HVS expects occupancy to rise further to 72 per cent in 2016 and rates to go up by eight per cent in 2016. Other leading cities like Bengaluru and Hyderabad are also projected to see better occupancy.

Companies see improvement in the demand-supply imbalance that was caused by addition of many new hotels in the last three years. After the recovery in 2015, the first quarter of 2016 has been good.

"The first quarter has actually been better as overall occupancies improved at AccorHotels. The occupancy level across the country has experienced eight-nine per cent growth. The supply pipeline is drying up in most places," said Jean Michel Casse, senior vice-president (operations) at Accor, which operates 37 hotels in the country.

Foreign tourist arrivals during January-March 2016 grew 10 per cent to 2.5 million. The period saw foreign exchange earnings from tourism grow 6.8 per cent to $5.98 billion, government data showed. Domestic travel is also growing.

"There are several factors supporting and fuelling demand, both from the corporate as well as the leisure segment. Various government initiatives such as e-visa expansion, improvement of airports, highways and other infrastructure are helping attract foreign tourists and investments. It is reassuring to see demand continue to grow in Delhi-NCR, which is important for orderly absorption of the supply increase in Aerocity," said Raj Rana, chief executive officer (South Asia) at Carlson Rezidor, which operates 76 hotels under brands like Radisson and Park Plaza.

Rising spending power coupled with the proliferation of low-cost carriers has enabled increased domestic travel.

Though a large portion of domestic demand originates from commercial activity, an increasing number of Indians are also travelling for leisure, giving domestic consumption a boost, according to Shantha de Silva, head of South West Asia, IHG.