Pent-up demand for travel to boost hotel industry’s revenue, says CRISIL

Indian hotel industry is expected to see its revenue increase by 45% from a decadal low in the previous fiscal helped by strong pent-up demand for leisure travel, opening up of international and corporate travel, and wide vaccination coverage, according to CRISIL Ratings agency.

Improved revenue and prudent cost structures are expected to push operating profitability higher by 200-400 basis points this fiscal, compared with fiscal 2020, a CRISIL Ratings analysis of hotels with an aggregate 30,000 rooms across categories.

The rating agency’s analysis had covered mid-sized to large hotel chains, which have more than 3,500 rooms on an average. It noted that the rate of recovery is expected to be slower for smaller firms and single properties due to limited financial flexibility and modest sponsor profiles.

The report said that tourist and leisure travel destinations such as Udaipur and Goa, have seen average room rent (ARR) and occupancy surpass the pre-pandemic levels in the third quarter of last fiscal itself, on demand for staycations and the wedding season.

However, the flow of inbound tourists, which is a key user segment, may witness slow rate of recovery. But high pent-up demand from domestic travellers would provide an offset.

The rating agency noted that the mid-premium and budget segment hotels, with average room rent of Rs 3,000-5,000, benefited from upgrades by small and medium enterprise (SME) clients due to hygiene concerns amid the pandemic. ARR and occupancy in this segment recovered 80-85% of the pre-pandemic levels, and should rebound fully in the first half of this fiscal.

CRISIL Ratings’ Associate Director Rakshit Kachhal said that hotels had pruned fixed costs over the past two years by reducing headcount per room, increasing the use of technology in areas such as room service, and cutting down on expenses such as power, sales and promotions, and commissions and discounts.”

He added that a rebound in occupancy will increase some of these costs, however, hotels will likely hold on to cost efficiency, and the leaner cost structure should help them serve a sharp recovery in profitability. The ability to maintain service standards with leaner cost structures will be a monitorable.