India’s hotel sector is witnessing a boom in sales

In the December 2022 quarter, revenue for each of the four is expected to increase by at least 50% compared to the same period last year, when concerns about the pandemic ran high. In fact, Lemon Tree and Shale, which had posted quarterly losses during that period, have reported profits in the last three quarters. They feel confident to start expanding again. Indian Hotels is looking to open 18 hotels in the next 12 months, and aims to have 300 properties across the brands by 2025, from 250 now. EIH plans to add 20 properties over the next five years. The Lemon Tree plans to increase the number of rooms from 8,300 to 20,000 over the next five years.

However, such expansion may present its own challenges later on. For example, hotel companies saw huge investments from 2002 to 2008—an optimistic phase between the dot-com crisis and the global financial crisis. However, following the financial crisis, occupancy and room rates fell, affecting revenue. Then, as the sector started to pick up, 2020 hit the pandemic.

improve revenue

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When the pandemic hit, India’s hotel industry looked at three key indicators: Average Daily Rate (ADR), or how much a guest pays for a room per night; occupancy rate, the percentage of rooms occupied in a hotel at any given time; and the resulting revenue per available room (RevPAR) generated. The industry has steadily improved since all three. Personal rates are rising with a revival in personal meetings and travel, even though it fell in October as business travel eased during the festive season. According to hospitality consultancy HVS Anarock, average daily rates are set to increase by a third between July 2022 and December 2022. According to Horvath HTL, another consultancy, ADR exceeded 6,000 for the first time in 10 years. Horvath warned in a report this month, “This does not mean that current rate structures will prevail all the time – premiums will decrease if market conditions are less favorable.”

supply boom

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The supply of new rooms has increased. For example, according to a recent report by HDFC Securities, chain-affiliated hotel rooms are expected to grow from 23,751 in 2001 to nearly 160,000 in 2021. This growth was driven by the mid-market and budget segments. As a result, the premium segment’s share has dropped to 35.5% in December 2021, from 56% in 2001. This trend is expected to continue.

Bengaluru and Mumbai are expected to lead in the expansion. According to consulting firm Hotelivet, of the proposed supply of around 6,800 branded hotel rooms in Bengaluru, more than 51% will be either mid-market or upper mid-market, and 17% will be budget rooms. India lags far behind the rest of the world in terms of supply of rooms. Globally, the penetration of hotel rooms per 1,000 population is 2.7. It is 2.8 in China and 16 in the US. But in India, it is only 0.1, indicating huge scope for growth, especially as the country continues to prosper.

travel push

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The hotel business is closely linked to the travel business, and travel demand is getting closer to pre-Covid levels. According to the International Air Transport Association, domestic air travel in 2022 is expected to touch 86% of 2019 levels. The passenger revenue of the Indian Railways increased by over 70% on a year-on-year basis for the period April 2022-January 2023.

“Domestic travel has seen a sustainable increase post the pandemic. We believe this uptrend may be similar to the trend seen during the period 2004-2008, which is considered to be the best phase for the Indian hospitality sector. The Men’s Cricket World Cup can help. The big question is whether the demand can match the expansion of the industry. In this, both airlines and hotels are making equal bets.

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