Hotel occupancies at 5-yr high

Steady flow of foreign tourists, pick-up in leisure activities and growing business travel have fuelled the growth for hotel companies as occupancies have hit a five-year high. According to a report by Delhi-based hotel research company HVS, India's five-star deluxe segment closed last year with an occupancy of 61.4 per cent, the highest since 2009-10. In addition, the overall average occupancy across all segments stood at 60.3 per cent, the highest since 2010-11.

After being under pressure following the global meltdown, the five-star deluxe segment rebounded and came out as the best performing segment with the highest occupancy level among all categories last year.

Occupancies have further improved in the first half of 2015. Mumbai remained the outperformer with occupancy hitting 74 per cent followed by Goa at 72 per cent, according to research company STR Global. "All Cities, except Kolkata, have witnessed improved occupancy levels over the previous year's corresponding period. Demand growth has been 11.1 per cent for this period.

However, the supply-demand gap is still significant (demand higher than supply) in most cities, which impacts hotel industry occupancy and ARRs (average room rate)," said a report by Indian Hotels Company. Rising occupancy rates, despite aggressive addition of new inventory, is a clear sign of the market turning around, giving hotel operators the headroom to charge higher room rates. Income generated from room rentals is usually 50 per cent of a property's total revenue with the balance coming from food and beverage.

The revenue per available room (RevPAR), according to the STR Global data, stood the highest in the past four years for Mumbai, Bengaluru, Hyderabad, Pune, Ahmedabad and Jaipur. Chennai and Pune, which witnessed a supply surge in the recent years, are recovering steadily on room rates. RevPAR, which follows occupancy levels, are expected to further improve in the coming months.

The upcoming holiday season, which peaks around the new year, has started on a strong note, according to hoteliers. Bookings for December and January have started and hoteliers have begun raising rates. Room rates are expected to be 10 per cent higher this year, compared to last year. However, as celebrations peak around the New Year, leisure destination properties such as those in Goa or Kerala come with special packages. For instance, The Leela, Goa's most affordable room (Lagoon Terrace King), comes at Rs 56,000 a night for a minimum of five nights starting December 28, while the most expensive room (Lagoon Deluxe Suite) comes at Rs 1,06,000 for a single night.

B Hariharan, vice-president (marketing) at ITC Hotels, said: "The demand this season is reflecting that optimism with most cities comfortably absorbing additional/increased inventory. The season looks good both in terms of volume and price. It may be safe to assume that demand should grow by 10-15 per cent on a pan-India level."

Overall, the average room occupancies on a pan-India level had hit a 10-year low in 2012-13 at 57.8 per cent following the economic crisis. But, the hotel sector has seen gradual improvement in the past few years. RevPAR of the five-star deluxe category, which peaked in 2007-08 at Rs 8,030, has seen a steady decline over the years closing at Rs 5,357 last year, according to HVS.