Indian hotel sector: Opportunities knocking at the door

According to the most recent industry data, room demand increased by more than 55 per cent year on year between January and August 2022

The Indian hotel sector is finally seeing renewed growth after months of low occupancy and falling average rates due to the pandemic. In the first eight months of the calendar year 2022 (YTD August 2022), nationwide occupancy was in the 57-59 per cent range, 20-22 percentage points (pp) higher than the same period in 2021 and only 6-8 pp lower than 2019. The strong recovery in demand is driving consistent increases in average room rates, with hotels, particularly in the leisure segment, outperforming pre-pandemic average rates. Meanwhile, the resurgence of corporate travel and large-ticket conferences and events is reshaping the fortunes of commercial markets and popular MICE destinations. As a result, the country’s YTD August 2022 average rates were 42-44 per cent higher than the same period in 2021, while remaining only 3-5 per cent lower than pre-pandemic levels. The strong recovery in occupancy and average rates has helped India-wide RevPAR to reach Rs 3,200-3,400, reflecting growth of over 120 per cent compared to 2021.

Month on month RevPAR recovery through the pandemic

The upcycle in the sector is clearly underway and is expected to last for the next four-five years, as demand is spiralling while supply growth is relatively low, which is a significant difference from any previous disruptions that took place be it the 9/11 US terror attacks, GFC crises or the Mumbai terror attacks wherein the supply continued to grow. This augurs well for the sector because, as shown in the graph below, hotel performance in India is highly sensitive to supply and demand dynamics.

Indian Hotel Sector: Supply, Demand and RevPAR Trend

According to the most recent industry data, room demand increased by more than 55 per cent year on year between January and August 2022 whereas room supply increased by only 1-3 per cent. The demand will continue to grow by double digits due to strong domestic travel and the gradual return of inbound tourism, but we anticipate supply to grow at a CAGR of only 3-5 per cent over the next six to seven years. This, coupled with India’s strong economic outlook, will, in our opinion, help the Indian hotel sector achieve occupancy of 70 per cent in 2024, after a wait of nearly two decades, despite several challenges such as inflationary pressure, the possibility of a recession in the US and Europe, and manpower shortage. We also anticipate the ADRs to finally cross the previous high witnessed almost 18 years back in 2007.

Opportunities are knocking at the sector’s door

The Indian Government is once again placing more emphasis on the expansion of the tourism industry, which is predicted to contribute US$250 billion to the country’s GDP by 2030. The Government also plans to soon introduce the National Tourism Policy for sustainable and inclusive tourism growth in the country. The hotel sector should develop strategies to take advantage of the short- and long-term opportunities that are emerging as the Indian tourism industry gains momentum.

India’s G20 Presidency advantage

India will hold the G20 Presidency for one year beginning December 1, 2022. Over 200 G20 meetings are expected to be held across 55 destinations in the country during this period. The Indian hotel sector stands to gain significantly from this development, as there will be substantial incremental demand for hotels in the cities where the meetings will be held. Additionally, the government intends to make the most of this chance to promote India as a top travel destination worldwide by showcasing the history and cultures of these places, which will benefit the hotel industry in the long run.

Bleisure travel is back in business

Bleisure travel – business travellers extending their business trips by a few days for leisure tourism activities – is expected to grow at over 19 per cent CAGR globally in the next ten years and is a segment that has gained significant traction post-Covid19. This segment is expected to gain further momentum as international business travellers and high-profile MICE events return to the country. As a result, it is critical that the hotel sector, particularly traditional business hotels, recognise the opportunity and create special packages and offerings by incorporating more leisure elements into the experience to attract corporate guests looking to extend their trip. Providing customised experiences to meet the evolving needs of the business traveller will give them reasons to stay longer, helping the hotel sector to generate more revenue and guest loyalty.

Reinventing city tourism

Indian cities such as Delhi, Mumbai and Bengaluru took longer to bounce back post-pandemic compared to leisure destinations as they are heavily dependent on corporate and MICE segments. City tourism boards and the hotel sector must collaborate to develop strategies to attract more leisure tourists and bleisure travellers, particularly domestic visitors, going forward. Increasing marketing efforts by using social media and influencers, leveraging VR and AR to enhance tourist experience, and regularly hosting must-attend events can help cities to shift the narrative about city tourism, by giving tourists new reasons to visit or to extend their business visits to club leisure activities, rather than viewing the city as merely an entry, exit, or transit point. 

Return of the ‘Big Fat Indian Wedding’ 

The ‘Big Fat Indian Wedding’ is making a comeback after two years of incredibly personalised and intimate weddings, with several hotels already sold out for the upcoming wedding season. Couples who postponed their weddings for the last two years due to the pandemic and related restrictions are now going all out in terms of their wedding budgets. Furthermore, due to the difficulties associated with visas and the high cost of international travel, many couples seeking celebrity style destination weddings in picture-perfect foreign locations are turning to luxury and upscale hotels and resorts in India for their wedding ceremonies. 

Rise of medical tourism

The relaxation of international travel restrictions and the falling rupee is expected to increase medical tourism in India. As per the Invest India website, the country aims to become the world’s top medical tourism destination, tripling its revenue to US$13 billion in four years. During the pandemic, hotels and healthcare facilities, the two key stakeholders in this growing segment, successfully collaborated to provide quarantine services. The two sectors should now build on this success to provide medical travellers with a seamless medical tourism experience. Developing dedicated hospital-hotel mixed-use projects and patient hotels designed to meet the needs of medical travellers, as is common in Scandinavian countries, could be a profitable business model in the future and help the country realise its true medical tourism potential.

Finally, the often-overlooked opportunity to multi-skill hotel employees is a great way to address the staffing issues in the hotel sector, especially in the post-pandemic world where staff shortages are worsening, and companies are looking to reduce staff-to-room ratios. Employers can reduce labour costs, improve efficiency, and increase operational flexibility, while employees gain new skills that will help them advance in their careers. Multi-skilling also prepares employees for higher-level positions within the company, which aids in succession planning while increasing employee loyalty and motivation and can help companies retain their human capital in today’s fiercely competitive environment.

This article was published in BW hotelier issue dated '' with cover story titled 'BW HOTELIER - THE WEDDINGS & MICE SPECIAL'


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