A tough summer for hospitality industry

Written by Vishakha Talreja Guha | Updated: May 27 2012, 06:57am hrs
This summer is an especially tough one for the hospitality industry. A weak economic sentiment and spiralling airfares, besides the Air India and Kingfisher chaos, are adding to its woes. Even as demand remains subdued, players of all manner are adding to the hotel room supply in the country.

One one hand the inflation is high, while on the other airfares are up by 30-40%, forcing many to cancel plans for domestic travel. No wonder then hotels are going all out to get customers this summerattractive low-priced packages, add-on activities and increased marketing spendsthey are doing it all. Says a hotelier who does not wish to be named, Even though its not difficult to fill rooms, I wont call it a great season. Unlike the other busy summer months, customers have higher bargaining power today.

Credit ratings agency ICRA in a report has said a weak macroeconomic scenario, the European sovereign debt crisis, geo-political turmoil in the Arab countries, high interest rates, inflation and a muted domestic corporate performance during the current fiscal have sapped the hotel industrys ability to sustain inflation adjusted average room realisations (ARRs). The report further says that while the start of the season may bring some relief to the industry in some specific markets, real traction will return to the industry only by 2013-14. As per estimates owing to the slowdown, occupancies during this summer season are 10-15% lower as compared to the same period last year.

Within Asia, India is definitely weaker than other markets. But occupancies are recovering fast and things will pick up, says Vasant Prabhu, chief financial officer, Starwood Hotels and Resorts. Adds chairman and managing director of mid-market hotel chain Lemon Tree Hotels Patu Keswani, Room rates are significantly lower as compared to what was projected. This summer we dont see much hike in room rates. Hotel experts see only a single-digit growth in room rates, that too if any.

Even as demand remains weak, there are hotels across categories opening their doors, resulting in oversupply in many markets. According to the Trends & Opportunities report by hotel consultancy HVS, the proposed supply of new branded hotels in 2007-08 was 1,14,466 rooms, which declined to 94,115 rooms in 2008-09 due to the economic downturn. The decline continued through 2009-10 with the total proposed supply amounting to only 89,499 rooms. With the recovering economy, the proposed supply figure, which represents new hotels expected to open over the next five years, has risen to 1,02,438 rooms in 2010-11. In the next five years, hotel room supply is projected to grow by more than 40%. Though one cannot generalise, there are pockets where there is an oversupply of hotel rooms. Also, many destinations in India are seasonal, so there is a need to differentiate and give much more to customers, says Pankaj Arora, managing director, Protiviti Consulting.

But for customers, it might be a good opportunity to finally get a cheaper deal at their favourite hotel.