The hotel trail up to 2012
India’s hospitality industry has seen a variety of opportunities and successes, challenges and losses in the last seven to eight years. Horwath HTL and STR Global present a detailed overview of the Indian hotel market. The analysis is based on Occupancy,
The present scenario
First, the range of hotel products has widened across the spectrum of international positionings; in several cases, the brand standards have been ‘upped’ compared to the product in the brand’s home market. Second, there is a greater play from the international hotel companies leading to a plethora of brands seeking and gaining presence in the country. International hotel companies now have about 46 per cent share of the total chain- associated supply, compared to about 37.5 per cent in 2006. Third, the assetlight approach is gaining much greater footing with the notable difference that there is increasing investment commitment by hotel chains in the select service sector. Fourth, chain-associated hotels are deepening their presence with increased play outside the main cities and markets; within cities, several micromarkets have arisen for busi- ness in general and for the hotel sector. Fifth, restaurants and more importantly, meeting and function facilities are playing an important role in generating rooms’ demand, improving cash flows, thereby creating/ aiding viability. Lastly, ownership patterns are quite scattered with few major players outside the hotel chains, but with greater diversification than was seen 10 years ago. FDI is increasing, but slowly.
Trends witnessed
Q4 2008 was the tipping point for the industry. Till then, 2008 had been a very good year with strong Q1 and a very healthy summer. Demand declined in the aftermath of the global financial crisis, followed by continuing rate losses and the trend has been pretty much downwards since then. The Mumbai terror attacks of 26/11 added to the hurt, impacting the winter of 2008 and Q1 2009 in particular. 2010 showed recovery in occupancy levels and nominally in RevPAR, possibly only in comparison to the extraordinary slump in 2009. The sharp occupancy decline is undoubtedly a matter of concern; nevertheless it needs to be viewed in the context of significant supply growth that has occurred since 2006. While ADR has also declined by 12.66 per cent between 2006 and 2012, part of this decline is a downward rate correction from supply shortage led high rates in 2006; a significant element of this decline is also on account of increased supply share from the Upscale-UpMid and M-E segments. Of course, the fact of decline in an inflationary economy means a loss of ‘real’ value of ADR earned.
‘Occupancy’ drift
The occupancy trend clearly challenges the perception of India being 'severely under-supplied' - that position is, in some ways, shown up as a myth; if the undersupply were truly severe then the significant occupancy and rate decline should not have occurred. At the same time, we cannot lose sight of the business reality of the last five years, during which the bulk of capacity addition has taken place - global investment, economic outlook and global travel were severely impacted in the 2008-2010 period due to the global financial crises. The last two years have seen weak investment and economic scenario in India which have impacted business travel and hotel stays in general.
Average Daily Rate
The Lux-UpperUp segment enjoyed peak ADR of Rs 10,888 in 2008 following on an ADR of ` 10,113 in 2007. In all other years, ADR has ranged between ` 8,100 and ` 8,600 with limited decline over the years. On the other hand, this segment has drawn increasing premium over the national average ADR 18.8 per cent premium in 2006, gradually increasing to 31.5 per cent premium by 2012. Upscale and Up-Mid hotels achieved ADR below the national average.