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Hotel profits up in India

India's hotel industry back in the black

May 29, 2011

NEW DELHI, India - Just a year ago, Anju Bali, a travel and tour operator in New Delhi, was being chased by hotel executives with discounts and freebies and even offers for foreign junkets. This summer her business is brisk, but she rues that the offers from the hotels have disappeared. Welcome to a rejuvenated hotel industry after two bad years following the global meltdown.

"Nationwide occupancy in 2010-11 was 68%, which matches the occupancy levels of 2007-08," says Kaushik Vardharajan, MD of the hospitality industry consulting firm, HVS Consulting & Valuation Services.

What's more, revenue per available room, which indicates a hotel's profitability, grew 10.7% in 2010-11. Nationwide revPAR had dropped by 14% and 11.6% in 2008-09 and 2009-10 respectively. Hoteliers also say that demand for number of room nights grew by 15-30% on an average across the nation. Demand is a measure of the number of rooms sold, while occupancy is a ratio of demand and total rooms available.

Crisil Research , the research wing of credit rating agency Crisil, says in its report that the April-June 2011 period is expected to witness an improvement in occupancy rates compared to the same period last year though average room rates are expected to be stable. Traditionally, occupancy during this quarter dips - as compared to winter. HVS's Vardharajan adds that he expects revPAR to also grow at 9-10% during the current fiscal year.

As an industry patriarch, PRS Oberoi knows this best. When ET spoke to the chairman of EIH Ltd , which owns and operates the Oberoi and Trident hotels, earlier this month, he said, "The winter has been reasonably good. Most hotels have met their budgets. Business will be better than expected. I am expecting the current months to be good as well."

EIH will be putting out its quarter numbers on May 30. Most of the other big hotel chains including ITC and Indian Hotels Company (Tata's Taj group of hotels) have reported higher revenues in the fourth quarter ended March 30, 2011 and for the fiscal year 2010-11. IHCL says its net profit for the quarter grew 56.7% to 93.93 crore. The company attributed this to improvement in occupancies across most key markets driven by improved demand cutting across major customer segments. This began in October 2010, it added. ITC's hotel's business grew 17%.

What is, however, interesting is the fact that it wasn't the international business which drove growth; instead it was the ever growing domestic traffic. For luxury hotels, international guests contribute nearly 70% of the demand, while for mid-market hotels, nearly 90% of the demand comes from domestic travellers.

Even Oberoi acknowledges that. He says that a decline in the global flow of foreign direct investments, especially into India , has slowed down foreign executive travel. Despite this, and the dip in tourist flow from some European countries, his hotels have maintained momentum in the last few quarters.

Dilip Puri managing director-India and regional vice-president (south Asia) for Starwood Hotels & Resorts , says, "Some of our big hotels in the country are still getting nearly 60% of their occupancies from international footfalls. But the domestic demand has seen higher growth in the past fiscal." He sees this as a growing trend, and expects domestic and international guests to contribute equally to the hotels' business in the coming years.

Average room rates in the cities like New Delhi, Mumbai and Bangalore were up 5-6% in luxury and first class hotels in 2010-11 compared with the last fiscal year. On a pan-India basis average rates were up 5.8% in 2010-11 compared to the previous year. Average rates were down by about 18% for hotels nationwide in 2009-10 compared with 2008-09.

Hotel companies and analysts believe occupancies will continue to grow, though additional supply of hotel rooms across several markets will put pressure on average room rates in the short term.

India's hotel industry back in the black
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