Hospitality sector sees more revenues, profit in 2018

NEW DELHI: Banking on growing domestic tourism, foreign tourist arrivals, airline passenger numbers as well as muted supply growth, hotel chains and sector experts predict 2018 to result in better room revenues and profit margins than in the year that just ended.

The past year saw the start of an uptrend in the hospitality sector, but was also marked by multiple challenges like curbs on liquor sale and the GST rollout. With these issues behind them, hotel operators expect business growth to pick up momentum in 2018.

Demonetisation and the ban on liquor sales within 500 meters of highways had affected MICE (meeting, incentive, conference and exhibition) activities and the food and beverages segment, said Pavethra Ponniah, vice president at ratings firm ICRA. “As active supply pipeline — especially the hotels which are nearing completion — is still narrow across most cities, we expect the industry growth to pick up significantly starting financial year 2019 . By then, domestic demand would have fully recovered from the temporary blips witnessed due to demonetisation and the GST rollout.”

Going by recent trends in foreign tourist arrivals and forex earnings growth, and improving domestic macroeconomic data — barring a transitory dip in economic activities due to demonetisation and GST — ICRA expects improvement in average room rates across most markets in India. “We expect corporate request for proposal rates for the current year to increase by about 5%,” Ponniah said.

More than 10 million foreign tourists arrived in India in 2017 and the country is estimated to have earned $27 billion from them.

Chains like Accor, ITCBSE 1.12 % Hotels and Lemon Tree said the business outlook for 2018 was optimistic based on the current performance trends at both business and leisure locations.

“Markets across the country are looking strong, leaving some markets like Kolkata which are oversupplied. Demand in high-occupancy markets like Mumbai, Delhi, Gurgaon, Bengaluru and Pune will continue to peak, which is an opportunity for rates,” said Arif Patel, AccorHotels India’s vice president for sales, marketing and distribution loyalty. “In 2018, for AccorHotels India, we are looking at double-digit revenue per available room growth — 60% to 70% of which will come from the average daily rates,” he said.

Patel said the company would post better revenue and profit margin this year.

According to sector experts, India finally surpassed the 65% occupancy rates threshold in 2017, with revenue per available room growth of 4.2% (2.9% from occupancies and 1.7% from average daily rates).

Consulting firm HVS estimated that occupancy of branded hotels hit a decade-high rate of 65.6% in financial year ended March 2017, compared with 63.3% in financial year ended March 2017, compared with 63.3% in fiscal 2016. The last time India reported occupancy rates of about 65% was in fiscal 2008.

“The 2018 outlook is premised on the following data points — continued strong growth rates in foreign tourist arrivals (and) airline passenger movement coupled with muted supply growth. The settling down of business sectors to all the new initiatives rolled out in 2017 and growing demand from the domestic market segment will add further impetus,” said Dipak Haksar, the chief executive of ITC Hotels and WelcomHotels.

Hotel chains expect most of the growth to come from higher room rates. Lemon Tree Hotels chairman Patu Keswani said the demand-supply imbalance, skewed towards demand, was expected to stay so, resulting in higher occupancies in the hotel sector and giving the players confidence to raise prices.

“We expect the rates to go up by 10% for our hotels. Demand continues to grow. It will grow much faster than supply this year,” said an executive at a global hotel chain.


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