The ratings agency expects demand to stem largely from domestic leisure/transient travel, although there will be gradual recovery in business travel and foreign tourist arrivals (FTAs). Demand recovery was also aided by leisure, transient passengers, MICE (meeting, incentive travel, conferences, and exhibitions), and weddings.
Although the first quarter of FY23 was among the best quarters since the onset of Covid-19 pandemic for the hospitality industry, revenue per available room, or RevPAR, remained 20-22% lower than pre-Covid levels and at about 45-50% discount to the FY09 peak, the report added.
Icra expects pan-India premium hotel occupancy to be at 68-70% for FY23, while the average room rate (ARR) is expected to hover around ₹5,600-5,800. The improved operating leverage along with sustenance of cost optimisation measures will support margins and accruals for hotels.
Vinutaa S, vice president and sector head for the firm said, “The industry witnessed a healthy start to FY23 with 56-58% occupancy in premium hotels in the Q1 (of) FY23. It was up from 40-42% in FY22 and closer to pre-Covid occupancy of 60-62% in the first quarter of FY20."
The ARRs pan-India stood at ₹4,600-4,800 in the first quarter of FY23. The FY2022 ARRs pan-India was ₹4,200-4,400. It still remains at a 16-18% discount to pre-Covid levels on an average, although a few high-end hotels and leisure destinations witnessed ARR spike to higher than pre-Covid levels in the last few months.
While leisure destinations and gateway cities witnessed healthy occupancy, cities largely dependent on business travellers like Bengaluru and Pune will take a few more months to recover, said the report.
For midscale hotels, the recovery has been slower due to the dependence on business travel. Further, cost inflation can also have a bearing on mid-scale hotel demand.
Compared to the previous downcycle in FY09, which saw untimely supply increases of over 15% of the inventory at the bottom of the cycle in FY09-13, the current pipeline inventory is about 3-4% for the period FY22-FY25 with supply anticipated across markets. This is despite the anticipated rebranding and upscaling in the midscale and upscale segments, which will add to organized supply in the sub-5-star category.
This will facilitate an upcycle as demand improves over the medium term, and the supply lags the demand. The supply addition in the mid-scale segment is broadly expected to be similar to that in the premium segment. Construction activity has restarted in the majority of the deferred projects. However, the per room cost has increased by 10-15% because of cost inflation.
Also, acquisitions/consolidation of smaller hotels have been significantly lower than expected due to the demand revival and improvement in liquidity.
