Hotels eye higher room rates as average occupancy levels plateau

Hotels eye higher room rates as average occupancy levels plateau
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First Published: Sat, Aug 18 2007. 12 47 AM IST

Updated: Sat, Aug 18 2007. 12 47 AM IST
New Delhi: In several major tourist and business destinations in the country, hotel occupancy rates stabilized or even dropped in fiscal 2007 after five consecutive years of increases.
But that’s because occupancy levels in many places are at a point where it is not easy to raise them, forcing hoteliers to look at other ways to boost revenue, say analysts.
Siddharth Thaker of HVS International, a hospitality consulting firm, said in a report that in fiscal 2007, hoteliers’ focus had shifted towards increasing revenues at stable occupancy rates. With continued consumer demand, once average occupancies start nearing the 80% threshold, said Thaker, “you can’t really go anywhere from there”.
As a result, hoteliers have begun to replace low-spending guests with executives, who are typically higher-paying guests, he added.
Rattan Keswani, executive vice-president of EIH Ltd’s Oberoi Hotels and Resorts in Mumbai, said that the company would be redesigning four floors by October in order to attract higher-revenue guests, anticipating a room rate increase of 20% across the company’s two hotels in Mumbai in the coming months.
HVS reported that occupancies in markets such as Bangalore, Kolkata Chennai, New Delhi, Hyderabad and Mumbai all approached or exceeded 80% in fiscal 2007.
India’s hotel industry has seen a steady increase in room rates, revenues and profits since fiscal 2002, driven by high GDP growth and increased tourist arrivals. For example, EIH, the primary owner of the Oberoi Group of Hotels, reported an increase in revenues of about 150% to Rs1,004.2 crore in fiscal 2007, from fiscal 2002. India received a record 4.4 million overseas tourists in 2006.
Even as the occupancy rates have stabilized or even dropped in some markets, average room rent had increased “35 to 40%” nationally in fiscal 2007 over the previous year, said Crisil Ltd, a ratings agency.
Crisil estimated a 1 percentage point drop in occupancy to 78% in fiscal 2007 in New Delhi’s hotels, but a 44% increase in average room rates to about Rs10,700 per night in fiscal 2007 compared to the previous year. Similarly, HVS estimated that there was a 2 percentage point drop in occupancy rates to 78% in the same period, but a 38% increase in average room rates to about Rs9,750.
Thaker said that a “parallel sector” of accommodations, in the form of boutique hotels, company guesthouses and other forms of hospitality had developed in major markets, adding to supply.
At the ITC Maurya in New Delhi, occupancy rates dropped 8 percentage points to 70% in fiscal 2007 compared to the previous year, while average room rates increased 49.6% to Rs12,281 per night, the hotel’s management said.
Even in Hyderabad, a market that had the largest drop in occupancies according to analysts in fiscal 2007, HVS estimated a 4 percentage point drop in occupancies to 78%, but a 21% increase in average room rates to Rs5,500 per night.
An internal industry survey by The Indian Hotels Co. Ltd (IHCL), the owner of the Taj Group of hotels and India’s largest hotel company by revenues, showed that the trend of stabilizing or falling occupancy rates continued in the three months ended June 2007.
Occupancy rates fell in Mumbai, Bangalore, Chennai and Hyderabad compared to the same period last year, IHCL said at its annual general meeting.
“Hyderabad saw its capacity increase by 50% and Bangalore’s capacity increased by 30%, even when North Mumbai saw a 100% increase in capacity,” said Ajoy Misra, senior vice-president (sales and marketing) for IHCL.
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First Published: Sat, Aug 18 2007. 12 47 AM IST