Analysts predict the occupancy at most hotels will either decline or stay at last year’s peak season level. They also expect room rates to grow by 5-10% only.Hoteliers themselves are a bit more cheery about their estimates of business, although they expect things to be more difficult than they were in the past two years.
Hotel chains in India grew rapidly in 2006-07 and 2007-08, years when the economy expanded by 9.6% and 9.1% respectively. The country’s largest hotel company Indian Hotels Co. Ltd grew revenue by 16.5% to Rs2,920.03 crore in 2007-08 after growing it by 36.4% to Rs2,506.25 crore in 2006-07. It grew net profit by 25.1% to Rs463.30 crore in 2007-08 compared with 48.8% to Rs370.31 crore in 2006-07.
Encouraged by their ability to command high room rates and occupancy levels that typically averaged in the late 1980s or even the 1990s, many hotel firms embarked on ambitious expansion projects. Several new firms, some with links to established multinational hotel chains, entered the business.
In 2008-09 though, the economy is expected to expand by below 8%, lower than earlier estimates, and combined with inflation, which is at a 16-year high, this has driven companies to look to cut travel budgets, among other efforts at reducing operating costs.
The result of a slowing economy and the consequent need among companies to cut costs, and the launch of new hotels is affecting both occupancy rates and tariffs, say analysts. And this trend is more evident in some cities.“For the upcoming peak season, average room rates in Bangalore, Hyderabad and Pune will marginally fall by around 5-10% and as these cities see additional supply coming up, we expect occupancy to fall further over the next 18 months by 3-4 percentage points,” said Binaifer Jehani, senior analyst at research firm Crisil Research and Information Services.
In some of these cities, this trend is already evident. ITCWelcomgroup Hotels, part of conglomerate ITC Ltd that runs 86 hotels in the country under five brands, says that its Bangalore and Hyderabad properties have already seen a slowdown.These cities are highly dependant on the technology sector which has seen a slowdown in recent times. We are growing at par with the industry at 5-7% in these cities,” said B. Hariharan, vice-president marketing at ITC-Welcomgroup.Overall, however, Hariharan said, there is “cautious optimism about the coming peak season.” “The usual growth during peak season is normally in the 17-20% range in terms of revenue, but this season growth will marginally drop to 12-15%.” Hariharan would not comment on room rates but analysts expect a marginal growth of 5-10% in average room rates between October and March for large hotel chains such as ITC-Welcomgroup, Taj, Oberoi, and Grand—much lower than the 15-20% increase in room rates they saw during the last peak season.