ICRA expects pan India occupancies to improve by 2% - 4% during 2015-16, leading to RevPAR growth of 3%-5%, even as supply growth curbs Average Room Rates (ARR) expansion. Room inventory in the country is expected to grow by 12% during 2015-16, as compared to 4% during 2014-15, says ICRA in its research on Indian Hotel Industry.
Notwithstanding delays in commissioning of under construction supply during 2009-2014, supply additions (in the premium segment) still continue to trickle in from projects announced during the pre 2009 industry heydays, says ICRA.
Domestic travel, going by domestic Revenue Passenger Kilometre (RPKM) trends exhibited strong growth during the past 12 months. However, weak corporate results can impact discretionary travel. Travel for business can be curtailed in view of technological advancement which supports highly interactive meetings in virtual spaces. In ICRA's view, pickup in consumer confidence, coupled with improved connectivity from newer airlines and higher travel is expected to revive demand for hotels soon.
Citing these underlying trends, quarterly (year on year) revenue growth for the industry is expected to be weak at 3%-4% for H1, 2015-16, with addition/stabilisation of few new properties; operating margins are expected to stay flat. In view of continued weakness in the Indian Hotel industry, ICRA has marginally revised growth estimates for the industry down to a top-line growth of 5%-6% during 2015-16, with flat operating margins.
Pan India Average Room Rates (ARR) are estimated to have fallen by 2%-3%, while occupancies have grown by 3%, leading to flat RevPARs during 2014-15. The occupancy expansion during 2014-15 was also a function of the weak supply addition of around 4%. In line with ICRA Research's expectations, revenue for the industry grew by 4% during Q4, 2014-15, while operating margins at 20.5% exhibited a flat trend.
Increasing internet penetration in India, high mind space captured by Online Travel Agents (OTAs), ease of online booking transaction and competitive rates have led to sharp increase in hotel bookings through OTAs. According to ICRA Research, while OTAs are a boon for hotels, the downside is the high commissions charged by OTAs which impacts the hotel’s profit margins. To benefit from the internet boom, hotel operators would have to maintain tight control on rates offered across distribution channels while drawing more customers to their own websites, which can lower the cost of customer acquisition.
According to ICRA research, the Pune hospitality market is set to witness demand growth in the range of 9%-10% (CAGR) over the next three years (2015-16 to 2017-18), whereas supply growth is expected to be slower (growing at a CAGR of 5%; but with bulk of the growth coming up in 2016-17 and 2017-18). This is expected to result in better absorption of existing supply, thereby resulting in improved occupancy in the market. However, ICRA expects ARRs in Pune to continue to remain constrained at the current levels, at least till the first half of 2016-17.
