Room for hope

The hospitality sector has had it bad for a while. But the worst may be over soon. Check in for the details

The hospitality industry in India has had it rather inhospitable for quite some time now from 2009 to be precise, when the go-go days in the Indian hotel industry gave way to a painful down-cycle. Since then, hotel occupancy levels in the country have dipped, average room rates (ARR) have fallen and the revenue per available room (RevPAR) has slipped badly.

Big squeeze

Blame this on the pincer the sector has been caught in. On the one hand, there is an oversupply of rooms with the massive expansion of the boom years coming to fruition.

On the other hand, demand growth has been less than expected due to weak economic conditions. Data from hospitality consultancy HVS shows that between 2009 and 2014, the number of branded rooms in the country grew at an annual average of above 17 per cent to cross the 1,00,000 mark.

Demand picked up after a disastrous 2009 when the global economic crisis and the Mumbai terror attacks took a heavy toll. But the growth has lagged supply, which already had a head-start. This meant a decline in room occupancy levels to about 57 per cent in 2014, a far cry from the nearly 70 per cent levels between 2005 and 2008.

In a highly competitive and fragmented market with numerous players, worried hoteliers have been resorting to discounting rates to draw in the tourists and businesspersons. This resulted in ARR (total room revenue divided by rooms occupied) declining nearly 6 per cent annually between 2009 and 2014.

Consequently, the RevPAR (total room revenue divided by room inventory), a key performance indicator in the segment, dropped nearly 7 per cent on an annual basis over this period.

The pain in the sector is reflected in the financials of several listed hotel companies. The Tata Group-controlled Indian Hotels, the countrys largest hotel chain, has seen its losses widen over the past few years.

The troubles have been worse for players which borrowed heavily to fund expansion, the luxury hotel chain Hotel Leelaventure being a case in point. Another biggie, EIH, which runs the Oberoi and Trident chains, has managed to stay in the black, but its operating profit has been under pressure for the past few years. Similar is the case in the hotel business of ITC.

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Room for hope