Despite supply restraints, 2024 will see sustained domestic travel demand

Bengaluru: A significant gap between demand and supply in the hospitality industry is expected to continue this year after occupancy rates surged in 2023 amid a resurgence in both leisure and business travel. Industry experts DH spoke to highlighted that the boom in travel triggered since the Covid lockdown was lifted is expected to be a lasting phenomenon, and hotel chains are scrambling to build inventory for the rising demand.

“In terms of the number of hotels and rooms added, by year-to-date November, 2023 was the best year. More than 12,300 rooms were added in the supply which was kind of a record. This momentum is going to continue when it comes to supply. A lot of new signings are happening and the market is on its high cycle,” according to Jaideep Dang, managing director of hotels and hospitality at real estate consultancy JLL.

Even then, a 30 per cent drop in new inventory is expected in 2024 compared to last year, when many of the projects that were deferred during Covid finally finished construction, he added.

“As the Indian economy advances towards achieving a $5 trillion GDP milestone, the ongoing demand is expected to surpass the available supply. Presently, India boasts approximately 1.75 to 2 million branded keys, a quantity comparable to a city like Singapore or Las Vegas, and an additional 10-12 per cent is in the process of being added in various phases,” according to Nikhil Shah, director of hospitality at Colliers. It could take at least five years before the demand-supply gap can be matched as such properties take a long time to be set up, as per him.

Apart from a surge in domestic demand, the drive to increase inventory has also been spurred by an exceptionally profitable year for listed hotel companies, which reported double digit revenue growth along with widened operating margins last year. In 2023, India saw the highest revenue per available room (REVpar) and average room rates (ARR) at an aggregate level, according to Rajat Mahajan, partner at Deloitte.

He added that these metrics are expected to continue an uptrend in 2024, albeit at a slower pace. While ARR in 2023 stood at Rs 6,900-7,000, it is expected to cross Rs 7,500 this year.

“The performance of hotels is projected to remain strong, with well-established hotels anticipated to yield 10 per cent more than in previous years, marking a transition from supernormal profits to normal profits. The RevPAR growth, which has seen a substantial increase of 25 per cent to 50 per cent in certain cases over the past two years, is expected to stabilize at around 10 per cent,” Shah said.

Even in the absence of marquee events like the Cricket World Cup and G20 that shouldered the travel growth in 2023, occupancy rates in the new year are also poised to breach pre pandemic levels at over 70 per cent, up from around 67-68 per cent last year, thanks to a revival of meetings, incentives, conferences, and exhibitions (MICE) and business travel along with sustained upward demand for leisure travel.

In 2024, travellers can be expected to prefer more personalised and curated itineraries, which could lay emphasis on local food and culture, immersive offbeat experiences and sustainability, as per Cleartrip's chief business officer Prahlad Krishnamurthi.

Increased travelling for religious and spiritual reasons, medical treatment and remote work will also drive growth.