Due to favourable demand-supply dynamics, the hotel industry is continuing to function well and is predicted to do so for the foreseeable future. To capitalise on the continuous trend of growth in the hotel business, all of the major players are using their combined strength. As per a report by Motilal Oswal, the hospitality industry is currently in the midst of an uptrend, led by favourable demand-supply dynamics. Horwath HTL, a hospitality consulting firm, has estimated that the demand for branded rooms in India will witness an approximate 10.6 per cent CAGR over FY24-27, while supply of branded rooms may clock an approximate 8 per cent CAGR over the same period.
The gap is even wider for the top eight cities and the leisure market. For that, supply growth in the cities which account for the majority of revenue in the hospitality basket is expected to be just 5 per cent CAGR, while demand growth is expected to be as high as 9 per cent.
Additionally, the supply growth is lower in the luxury or upper upscale segments with around 5/7 per cent CAGR over FY23-27, leading to better pricing power for premium players. It’s interesting to note that every important player has a different strategy to take advantage of this opportunity. Companies like Indian Hotels, Lemon Tree, EIH, and The Park, among others are considerably more focused on revenue diversification and managing hotels.
Meanwhile, the demand in the leisure market is expected to witness a 13 per cent CAGR over FY24-27 against supply CAGR of 10 per cent.
Growth drivers
The hospitality industry is expected to grow in the upcoming years due to reasons including infrastructural development, increase in business travel, leisure demand on rise and growing theme based tourism.
Infrastructure in India is on spree as the country’s total airport count is predicted to increase from 149 in CY23 to approximately 220-250 by CY30 and national highways throughout India with approximately 55,000 to 85,000 km to be built over the next seven years. Business travel is also being fueled by the opening of new convention centres and a thriving economy. The opening of the Jio convention centre in Mumbai and the Bharat Mandapam and Yashobhoomi conference centre in Delhi has greatly increased hotel occupancy in those cities.
Demand for leisure destinations will be accelerated by the rise in foreign tourist arrivals as it is expected to reach about 28 million by CY30 from 9 million in CY23. Meanwhile, the emergence of spiritual or religious tourism is predicted to reach 16 per cent CAGR by CY30. Weddings in India and rising wildlife tourism will also add new places and provide an impetus to expansion.
The current favourable scenario is expected to continue over the next couple of years, leading to improved occupancy and rising ARR, significantly benefiting the key players, which are well positioned to tap this opportunity.
Players’ game plan!
Indian Hotels has plans to introduce the reimagined brand, ‘Gateway’ in FY25 to capture growth opportunities in emerging micro markets in metros and tier-II and tier-III cities. It is further expected that the new portfolio consisting of TajSATS – Air catering, Ginger – Lean luxe, Ama’s – Homestay, Qmin – QSR & delivery and Chambers – Club has witnessed 35 per cent YoY growth in FY24, accounting for 12 per cent of the company’s total revenue.
Meanwhile, Lemon Tree will focus on adding hotels under management contracts (accounts for 98 per cent of the total pipeline of approximately 4,156 rooms), with the majority of inventory coming from outside top key cities. It will also increase its spending on renovations across its brands. However, The Park is expanding the company’s presence through management contracts in high growth markets such as Indore, Manali, Mussoorie and Udaipur as it opened eight new hotels in FY24. Going ahead, it expects to add 228 more keys under management contract in FY25 in key leisure locations. Apart from this, the company is also adding 830 owned rooms across Pune, Kolkata, Jaipur, Visakhapatnam and Mumbai.
Furthermore, most of the hotel companies have witnessed a relatively muted demand in April and May 2024 due to elections and severe heat waves in North India, and now expect a rebound from June 2024. Overall, Q1FY25 is expected to be a relatively muted quarter with single-digit to low double-digit RevPAR growth on a YoY basis while the medium to long term outlook remains strong.
