ARR surge: Silver lining for hoteliers
With the increasing foothold of mid-market segment hotel brands, both international and domestic, the dynamics of the hospitality market in India have changed. One such change is price, especially with India being a price-sensitive market. Hoteliers tell
As economic growth is taking place in the country, the hospitality industry will also have more business and better profitability. I am not of the opinion that the ARRs of hotels in India are on a decline. With regard to tourist destinations, as the tourist inflow increases, the demand for hotel rooms also increases during seasons and the rooms are sold at right prices. In a nutshell, it's good that the hospitality sector is looking up in business and profitability.
In my opinion, every city has a different dynamic and the city ARR does impact ADR of the hotel. However, the cost of operations also plays a major role in ascertaining the price. The team here is presently engaged in promoting Rameswaram, and since it’s the first branded hotel in the city, the cost of operating a full-fledged hotel on an island like Rameswaram is very high. We have managed to sell the property at a decent ARR so far, and we are hopeful that it will only increase.
The ARRs are actually increasing in the country. This change is mainly visible in the budget segment in the hospitality industry. In my opinion, there has been a healthy 5-10 per cent increase in the ARRs of hotels that come under the mid-market segment. This rise is driven by a surging domestic travel demand. However, the acute shortage of skilled workforce in the hospitality space is making it difficult for players to scale quickly.
The recently introduced GST has impacted the ARR in a big way. Hotels have had to readjust their tariff to fit into the right tax bracket. Higher taxes translate into higher cost for guests, which in turn could impact the value they derive from a stay. Besides this, the industry today has become saturated with a large number of players operating in the same market. This has led to increased competition. However, some hotels have also chosen a different route to increase their services and quality to match their existing ARR.
ADR is on a decline because of high supply of rooms in major cities. But it is increased due to overall increase in inbound and domestic travellers. However, smaller cities have seen an increase in ADR. Few hotels are dropping rates just to fill their hotels and ultimately the whole industry is suffering due to rate disparity. This needs to be corrected as it’s not viable to run bigger hotels on lower ADRs as operational costs are way too high.
In the last decade or so, upscale and luxury properties in the leisure space have seen a strong demand of hotels, resorts and even luxury camps, which are accessible from metropolitan cities. This has resulted in ARRs being on the rise, owing to limited supply. Even MICE business has started to move strongly due to ticking corporate and business activities across the country. This has led the ARRs to increase as it’s a growing segment with a huge demand.