Expect premium hotel occupancy in India to be at decadal-high of up to 72%: ICRA

Premium hotel occupancy in India is estimated to be at a decadal-high of 70-72 per cent with average room rates expected around Rs 6,000 to Rs 6,200 in FY24, ratings agency ICRA said on Wednesday.

Consistent improvement in consumer sentiments despite the inflationary environment, stable corporate performance, and domestic air passenger traffic inching above pre-Covid levels augur well for travel and hotel demand, ICRA said in a statement.

The ratings agency said it "estimates pan-India premium hotel occupancy at around 70-72 per cent in FY2024, after recovering to 68-70 per cent in FY2023."

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Pan-India premium hotel average room rates (ARRs) are expected to be at Rs 6,000 to Rs 6,200 in FY2024, it added.

"While the occupancy is expected to be at decadal highs, the RevPAR (Revenue per available room) is expected to remain at a 20-25 per cent discount to the FY2008 peak," ICRA said.

ICRA Ltd Vice President and Sector Head – Corporate Ratings, Vinutaa S said gateway cities like Delhi and Mumbai are likely to top the occupancy chart at over 75 per cent in FY2024.

"Demand is expected to remain healthy across markets, although Bengaluru and Pune are likely to be laggards compared to other key cities," she said.

While the G20 summit would support occupancy across cities in FY2024, improved economic activity and business associations stemming from these meetings are likely to translate into incremental demand for hotels over the medium term, Vinutaa added.

ICRA expects an improving trend in ARRs as well across markets in FY2024, driven by healthy occupancy. Further, mid-scale hotels have also witnessed traction across cities and are likely to continue reporting healthy ARRs and occupancy in FY2024, she said.

In terms of new rooms, Vinutaa said the healthy demand uptick resulted in a pick-up in new supply announcements and commencement of deferred projects over the last 12-15 months.

"The incremental premium supply is concentrated in select markets, with Mumbai and Bengaluru accounting for a bulk of the upcoming inventory," she said, adding there were sizeable supply announcements in tier-II and religious destinations as well.

However, she said, "The hotel supply pipeline is expected to grow only at a three-year CAGR of 3.5-4 per cent, adding approximately 15,000-16,000 rooms to the pan-India premium inventory of about 95,000 rooms across 12 key cities in India."

ICRA said demand recovery has been strong in the last one year, and it anticipates the trend to continue in FY2024 as well.

"Sustenance of domestic leisure travel, higher bookings from meetings, incentives, conferences, and exhibitions (MICE), and business travel, along with an increase in foreign tourist arrivals (FTAs), would support demand. The industry is also likely to benefit from specific events like the G20 summit and the ICC World Cup 2023," it said.

The ratings agency further said that the revenue growth for the Indian hotel industry in FY24 is estimated to be 13-15 per cent notwithstanding the potential impact on demand from exogenous shocks, if any.

"Sustenance of a large part of the cost-rationalisation measures undertaken during the Covid period, along with operating leverage benefits, resulted in a sharp expansion in margins," it said.