Mumbai: Indian hotel occupancy is expected to remain subdued over the next 12 to 18 months on account of the gap between supply and demand, ICRA Research said in a statement on Tuesday.
ICRA estimates that fiscal third quarter revenues will grow by 5% to 6%, while growth for 2014-15 is expected to be in the range of 7% to 9%, largely driven by incremental rooms and food and beverage income.
However, growth is expected to accelerate to 9% to 12% over the next two years, it said. “Average Room Rates (ARRs) are expected to be largely flat while occupancies are estimated to improve by 2-4% during 2014-15,” ICRA said.
As a result of the supply-demand mismatch, the industry has been tightening its belt by keeping a check on key cost drivers like payroll expenses, which have gone up only by an estimated 4% over the past three fiscals, according to ICRA. “Hotel operators have also heightened their focus on the F&B segment, revenues of which have been consistently increasing even as ARRs and room revenues have fallen.”
ICRA also said that measures by the government to drive tourism through several strong policy initiatives could bring in stronger demand, supporting the industry over the next 12-18 months.
Domestic demand has been strong and has showed a growth of over 10%, driven by both business and leisure travellers during 2014-15. “However, falling global economic sentiments have affected inbound travel and with a booking window of 8-12 months for Western leisure travel, the impact is expected to be felt in 2015-16 as well,” said ICRA, adding that the drop in oil prices has also impacted inbound travel.
However, ICRA expects easing visa and policy norms to support inbound travel into India even as a weaker global economy curtails traveller budget. Growth in foreign tourist arrivals increased from 5.9% in 2013 to 7.1% in 2014.