A doorman stands on duty at the front of The Taj Mansingh Hotel in New Delhi, India. (Photographer: Amit Bhargava/Bloomberg News)

Hoteliers Bet On Rising Occupancy Levels In FY20

India’s hotel industry expects margins to improve as lack of fresh capacity and increasing travel for business and leisure has pushed occupancy to its highest in a decade.

The hospitality sector, which clocked operating margins between 35 percent and 40 percent a decade ago, clawed back to 25-30 percent in the last financial year, according to Ambit Capital. The rising occupancy levels, the brokerage said, will lead to higher prices even as room inventory addition is likely to moderate.

The proportion of rooms occupied rose to 65 percent in 2018, according to Smith Travel Research. That’s the highest in a decade as Indians are now travelling more. Demand in cities like Mumbai, Bengaluru, Delhi, Kolkata and Pune is skewed towards business travellers, according to a CARE Ratings January report. In other cities, it’s led by tourism and leisure travel.

Pan-India occupancy levels are moving towards 70 percent, according to Kapil Sharma, chief financial officer at mid-market Lemon Tree Hotels Ltd. The mid-scale and budget hotels will see 80 percent occupancy, he said, while for upper midscale it could go up to 82 percent in the near term.

Still, higher occupancy comes when India’s air passenger traffic growth has slowed with airlines choosing to fly empty seats rather then cut fares.

But slower air traffic growth won’t affect occupancy, Vishal Kamat, CEO at Kamat Hotels, said. Though not at the same pace, the number of flyers is still rising, he said. “The number of hotels remains the same.”

In fact, slow addition of rooms has driven up occupancy. According to an HSBC note, demand outpaced supply for the sixth straight year in FY18.

Sharma expects demand and supply to grow at 12.5 percent and 8 percent, respectively, till the year ending March 2021. That will lead to a shortage of rooms, increasing the average room rate.

The demand-supply dynamics is expected to remain favourable for the hotel industry until 2021, JPMorgan said. The industry will enter a growth cycle over FY19-20, the brokerages said, adding that provides room for the revenue per available room to increase in the domestic market.

Chalet Hotels will move forward aggressively for growth as it combines high-performing assets with right location and right market conditions, according to Sanjay Sethi, managing director and chief executive officer. The industry, he said, is in early phase of an upcycle that shall last for five to seven years.

Kamat, however, doesn’t think it’s an upcycle. But he agrees that the outlook is positive.

Puneet Chatwal, managing director of Tata Group-owned Indian Hotels Company Ltd. had told BloombergQuint in an earlier interaction that occupancies are expected to reach the same levels as 2008 upcycle.