Occupancy rates are going up, but average revenues per room seem to be witnessing a fall
Declining room rates have been a concern for hoteliers across the country. Though occupancy rates are going up, this is not having a direct impact on the average revenues per room in the major metros and other tourist destinations across the country.
The International Air Transport Association (IATA) has said that it expects airlines to earn $2.8 billion in 2010 on a global basis. IATA is also bullish on the prospective growth in demand from carriers in the Asia-Pacific region.
This means that inbound travel should not be severely impacted as far as India is concerned. But according to a research report released by CRISIL Research, average room rents (ARRs) across the country have fallen by 2.7% year-on-year (y-o-y) to Rs8,300 in April 2010. The report also states that occupancy levels have marginally gone up on a y-o-y basis to 67% from the 60% recorded in April 2009. All these figures are for the premium hotel segment in India.
Shreenath Shastry, national director, hospitality and leisure, Knight Frank (India) Private Limited, told Moneylife, "Declining ARRs are not a nationwide phenomenon at this stage. It is seen in cities which have been hit by oversupply of newly-developed hotel rooms combined with a slower pick-up of demand. Secondly, the decline has to be seen in view of the fact that in 2007, ARRs had reached astronomical proportions. Now if ARRs have declined in most cases, it is merely a correction and not a reflection of a slowdown in the business. But the business today is back to earlier levels." Mr Shastry said that this correction is mainly visible in cities like Pune, Hyderabad and Jaipur where there has been an oversupply of hotel rooms.
As the CRISIL report states, "Pune witnessed the steepest decline in ARRs, as supply additions forced hoteliers to reduce ARRs by 13% (y-o-y) to Rs5,600 in April 2010."
Commercial travel (despite the positive IATA projections) might still take a backseat as many corporate houses are going after their travel budgets with a vengeance. After all, with the latest developments in teleconferencing technologies, it makes little sense to fly down top executives to exotic locales-and falling exchange rates in currencies like the euro are also not helping either.
However, destinations that depend on tourism might not bear the brunt of any possible slowdown. Ramesh Ramanathan, managing director, Mahindra Holidays & Resorts India Limited seems positive about the leisure space, "Our occupancies are over 75% and are to a great extent immune to changes in economy-or the traffic of domestic and international tourists. If analysts speak of (a decline in room rents in) major cities, the reference is possibly to business travel and not leisure."
Sridhar Chandrashekar, Head, CRISIL Research said, "ARRs in leisure destinations such as Goa and Agra recovered to some extent from their low levels last year, increasing by 5%-10% in April 2010."
According to Thomas C Thottathil, head-corporate communications, Cox & Kings India Limited, "The April-June quarter witnesses a decline in hotel rates in the metros as we are in the midst of the holiday season and corporate travel is down. However, this quarter is a strong period for hotels in tourist destinations such as Goa and places in the North-East as this is where people travel for holidays. So, it is natural that there has been a decline in room rates in metros." He also added, "Come 15th June, the occupancy in metro hotels where the big chains are located will witness an increase in demand and the rates would firm up once again."
Developers are also monitoring the situation due to credit issues and astronomical real-estate prices.
According to industry analysts, in the months to come, the hospitality industry is expected to report a marginal improvement in occupancies. ARRs, however, will still remain under pressure. Mr Shastry seems positive about the industry's growth, "Timing of new launches (of hotels) and continuing political stability will be the key issues impacting growth in the Indian hospitality industry. Overall, I would rate the outlook in 2010 to be positive."
Neha Pathak from Kisan Ratilal Choksey Shares & Securities Private Limited told Moneylife that hotels will post better growth in 2010, "Going ahead, we feel that the hotel industry will surely improve."
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