Good Times Will Come Again
The India Hotel Review Report 2017 is a collaborative study by Horwath HTL and STR. The report examines occupancy, average daily rate and revenue per available room for several key markets. Besides assessing the performance of 13 major markets that accounts for almost 70% of India’s branded inventory, this year the report has taken a dipstick on the performance of newer markets across the country.
2017 will be associated with two defining events – the liquor ban for bars located 500m from highways and GST. The first shut down an important element of the travel and hospitality experience – a routine everyday life need for foreign visitors. The latter pushed up the travel bill to the long-term detriment of leisure and MICE travel. Additionally, foreign tourist arrivals crossed 10 million for the first time, up 15.6% from 2016.
All India occupancy rose to 65.3%, the highest in nine years. Growth was foreseen but fell short of expectations. ADR grew by a mere INR 89, and still remains behind the 2013 market; high GST clearly had its impact.
About 10,000 rooms were added in 2017 to chain-affiliated hotel inventory, taking the total count to 1,33,000 – supply slowdown has enabled some operating consolidation with beneficial results. But a thinner-supply pipeline is a longer-term concern. On the other hand, increasing supply spread through newer markets is creating opportunities.
India major cities – YoY RevPAR Change’
TIME FOR GOOD NEWS
There is some good news as well. ADR went up by 1.6%, RevPAR by 3.8%. Most major markets saw growth arcoss parameters; amongst the declines the most notable was the drop in occupancy at Goa, rate and RevPAR at Gurugram.
New bankruptcy and insolvency resolution regulations will bring assets to market, forcing recalcitrant owners to reasonableness; this will further improve lending appetite for the sector. Demand and development continues to grow outside major markets. Hotel transactions are slowly increasing with more rationality of expectations by sellers and buyers. Longer duration loans are more pragmatic and are making life easier for all.
F&B and banquets continue to be significant revenue generators across all segments, but the pace of growth has declined; APCs are largely stagnant.
THE NOT-SO-GOOD NEWS
ADR is very slow. As every year goes by without meaningful rate gain, the real ADR is declining further – there is no real gain.
With GST rates in the hospitality industry at 18% and 28%, one of the biggest potential employment revenue generators and exchange earners is being penalised by outdated conceptions of global competitive pricing. Further, the rule makers adopted published rates as a criterion, when the days of published rates are long gone. High GST has started to divert domestic leisure and MICE business overseas.
WAKING UP TO REALITY
We keep hearing that we don’t need foreign visitors, the domestic market is sufficient. Well, temporarily the answer is yes. But in the long-term it is no. Take, for example, the scale of top-tier demand shortfall in Goa and Jaipur and the need for (and potential gain from) upper-tier foreign demand becomes absolutely evident. Development will not remain concentrated in major markets – on the contrary it will diversify in location and segment.
Let us also not delude ourselves that the world loves us so much that they will come despite of our weak infrastructure, lack of convention centers and high taxes.
Another wishful thinking is that staffing challenges are over or that payroll costs will decline. Neither is the notion that project delays don’t cost money and that guest is patiently waiting for the hotel to open doors. Struggling owners will be more than happy to dispute this misconception.
While it is positive thinking that occupancy and ADR will surge in 2018, one can expect moderate results. There is no money to be made in the leisure segment; in fact, the potential is massive across segments.