Post demonetisation, hotels brace for lower occupancy

Corporates form biggest chunk of bookings for hotels operating in metro and tier-I, tier-II cities

Hotel companies are preparing for a possible decline in occupancy in the next few months as declining economic activity post demonetisation could impact business and leisure travel in the country. Companies have initiated cost management measures like reduction of inventory for consumables and better staff management practices. There may be some impact on new hiring too.

Hotels in most cities had seen an improved occupancy level in 2016 and tariffs were also firm but companies apprehend that the pace of new bookings may slow down this quarter and impact revenues. Hotels are reacting to the changed business environment. "We have proactively tightened spends and introduced measures to manage costs so that the profit margins for our owner partners do not suffer," said Raj Rana, chief executive officer (South Asia) at international hotel company Carlson Rezidor, which operates 82 hotels in India under brands like Radisson and Park Plaza.

Carlson Rezidor has turned conservative while ordering consumables for every hotel so that the inventory is not high. It is trying to do an adjustment of staffing at hotels. Staffing happens to be one of the biggest costs for mid-size and large hotels. "It is not that we have done a freeze on hiring but we are consciously not inflating manpower costs," said Rana. The hotel chain had seen a five per cent increase in occupancy rates on an average in 2016. 

"There is some softness in new bookings on the corporate travel side but we are not sure if it is directly related to demonetisation," he added.

Rattan Keswani, deputy managing director at Lemon Tree Hotels, said occupancies moved up well till early November though rates have moved up only marginally. "After the announcement (of demonetisation) leisure hotels booking pace has dropped and in hotels dependent on large banquets (weddings and social functions) there have been postponements or drop in numbers. Travel for business seems to be slowing down due to drop in economic activity," Keswani added.

Corporates are a significant chunk of bookings for hotels operating in metro and tier I and II cities. For some hotels, 50-60 per cent business comes from corporate travellers including small/medium enterprises. "Corporate travel is bread and butter for us," Rana said. These corporates also use hotels for meetings, conventions and seminars. With sales across various segments such as automobile, FMCG and consumer durables etc being impacted post demonetisation, corporates may trim travel budgets.

"Sectors where business is getting impacted will try to bring down various costs, including travel budgets. This can have a ripple effect on hotels," said Anshu Sarin, chief executive officer at Keys Hotel, which operates 25 hotels.