Hotel Industry Overview

The hospitality industry in India has 4 sectors – tourism and travel, food and restaurants, hotels and lodging, and recreation. The industry has been growing moderately for the past few years and has a high potential to grow bigger in the future. The primary sector that attracts revenue for the industry is tourism and travel. India Brand Equity Foundation (IBEF) predicts, by 2029 the sector is expected to grow 6.7% to reach INR 35 trillion (USD 488 billion). This growth is partially due to the expected rise in international tourist arrival as India is a destination for spiritual tourism for tourists all over the world. Also, the middle-class number is increasing in India that would benefit domestic tourism. The consistent growth of the middle class, their rising levels of income, the interest of millennials to travel around their home country, and the new spirit of wanderlust are a few of the reasons for domestic travel.

Tourism and travel account for the growth in the hotels and restaurants industries. Business travels are increasing due to the rapid growth of the IT sector and the emergence of several global companies. The market value of the Indian restaurants in hotels is calculated to be around 116 billion Indian rupees in FY2020. The value of the hotel restaurants is lower in comparison to the growth of the other industries. Statista  expected the market value to be 150 billion by 2025 at this rate of growth.

During the pandemic, the hotel industry records low occupancy in April 2020. The average occupancy range of the sector nationwide is 33- 36%. There is a decline of 31- 33%. To balance out the fall of demand and occupancies of the rooms and services, hotels reduced tariffs significantly expecting to attract business. They decreased Revenue Per Available Room (RevPAR) to the minimal cost of INR 1,500 to 1,800 in 2020. And market leaders and deluxe hotels, previously achieving over INR 7,000 RevPAR, has a decline of 63.7% in occupancy. The average of RevPAR based on 1,200 branded and unbranded hotels is INR 4,598 in FY2021. As per the report of  HVA Anarock, the sector has a revenue loss of INR 900 billion in 2020. There was a steady decrease in revenue in FY2021.

Impact of the Pandemic and the Lockdowns

The hotel industry is one of the first industries affected by the outbreak of the pandemic. As travel is stopped for a big part of the year, the industry had suffered huge losses during the lockdown to control the first wave. Hotels all over India have undergone historical low occupancies.

Since October 2020, the struggles of the sector gradually started to move away. The unforeseen crisis showed the signs of recovery, which is again hit by the second wave. This one is severe than the first one. After which the hotel booking was gone down. And revenue per available room (RevPAR) come down to INR 1,582 in FY2021 (May 2020- April 2021).

The hotel industry had a growth of 84.7% in RevPAR during Q2 2021 (April to June) when compared to Q2 2020. Despite the growth, there has been a decline in RevPAR by 53.9% in Q2 2021 when compared to Q1 2021. There is a clear sign of the impact of the lockdown during the second wave.

The decline of RevPAR in 2020 on a YOY basis is due to the lockdown during the first wave in Q2 2020 and similarly in Q2 2021. During May and June of 2021, the restrictions are eased which includes a sharp recovery of the sector driven by the leisure segment.

Hotelivate says BusinessLine,  the hospitality industry will recover in two phases. The first is leisure travel because of the “locked-up” lockdowns. Secondly, the corporates are expected to resume business travels. Data shows in Q2 2021, in a study of 20 hotels, the number of rooms signed is three times more than Q2 2020, including leisure and corporate travels. Lost revenue and business in 2020 are showing hope in 2021 for the industry.

Beyond Pandemic: The Future

In a press release, ICRA  has predicted a gradual but most part slow growth of Hotel Industry in India, post the covid second wave. The industry is expected to make 45-50% of pre-covid revenue in FY2022. In addition to this, the industry, overall, has raised equity for INR 660 crore in FY2021 and has announced equity rising plans for INR 3,300 Crore. All these funds would support the industry to thrive and improve the capital structure.

During August 2021 premium hotels across India had an occupancy rate of 44-46%. For the first five months (5M) of FY2022, the occupancy rate of the premium hotels is expected to be ~32-34%, which is higher than 5M FY2021 (~13-15%). Average Room Rates (ARR) of 5M FY2022 is estimated to be approximately between INR 3,850- 3,950, which remains at the same discount, 25-30%, as before covid. A few of the high-end hotels have met the pre-covid levels of ARR during August and September 2021. This is owed to the lower restrictions and vaccination drive during the Q2 FY 2021. However, after the second wave, the demand for stays at the hotels has been increased considerably

Despite the demand, ICRA’s Assistant Vice President, Ms. Vinutaa, estimates that pre-covid revenue and profits are likely to be attained only by FY2024. The hotels are likely to be reporting 85-90% of pre-covid revenue margins meanwhile. Though, the estimates are contingent on the effects of the pandemic, possibility of third wave, and the efficacy of the vaccines.

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