New Delhi: Although the festive season is just around the corner, India’s travel and hospitality companies are seeing subdued demand for the quarter starting October, traditionally a high-growth period for the industry.
The situation is worsened by India’s airline crisis, which has resulted in a hike in air fares, and a glut of hotel rooms in India’s major cities, causing a fall in occupancy, say industry experts.
The peak season for travel and hospitality companies, which starts in October and continues till March, includes the year’s major festivals such as Diwali, Christmas and New Year.
“Tour operators and hoteliers have reported a decline in leisure and business travel for the current quarter because of slump in global economy,” said Praveen Chug, vice-president, Travel Agents Federation of India (TAFI), a lobby group. “Industry insiders are afraid that this declining trend may spill over to the quarter from October to December of the winter season also.”
Demand in terms of bookings for the December quarter this year has been rather
flat compared with the previous year, said Dipak Deva, chief executive, India and South Asia, at Kuoni Destination Management, a tour operator.
flat compared with the previous year, said Dipak Deva, chief executive, India and South Asia, at Kuoni Destination Management, a tour operator.
“The demand has been bleak,” Deva said. “There won’t be any upswing year on year in demand from our traditional markets, including Europe and the US.”
The bookings for holidays are normally done three-six months in advance. In a typical year, the festive season sees year-on-year growth of 25-30%, according to industry estimates.
“The outlook for the (December) quarter is bad,” said Patu Keswani, chairman and managing director, Lemon Tree Hotels Pvt. Ltd. “Though there may be some announcements by the government on reforms, clearly there is unstability that will reflect in further shakiness of demand with corporates tightening their purse strings.”
“If you look at industry production growth, businesses across the globe are not doing well,” said Pankaj Arora, managing director of Protiviti, a business consulting firm that works with hospitality companies. “Add policy changes, political scenario and airline fiasco to it. Putting all of this together, people in the travel and hospitality industry are worried.”
He added, “There is a strain on international arrivals, and with airlines taking austerity measures (cutting costs and high airfares), even the domestic travel segment is getting beaten up.”
Travel agencies that focus primarily on domestic tours say demand in terms of requests or forward bookings has been flat for the coming quarter.
“In context with air passenger numbers and market sentiment, the market is not growing massively because of increase in price of airfares, inventory reduction and increased taxes,” said Ashish Kashyap, chief executive, Ibibo group, which runs online travel company goibibo.com. “So, overall demand from the domestic market would remain flat as compared to the last year, whereas outbound is more likely to grow.”
Declining travel demand along with increasing room supply across the hotel segments has put pressure on the profitability of travel and hotel companies.
“Tourist business in the lean season has already been adversely affected, and even the winter business during the October-December quarter may be much less compared to the same quarter last year, and it is anticipated that the declining trend may drag on till March 2013,” said TAFI’s Chug.
This holds true for hotel companies as well.
“Hotels won’t be able to charge as much as they were charging last year or in the first quarter of this year because across the segment there is enough supply, but demand is not growing,” Kuoni’s Deva said.
There are around 112,818 hotel rooms in the top 14 cities in India, while 66,371 are upcoming, according to a recent report by Cushman and Wakefield, a property consultancy. In 2012 alone, 14,800 rooms are expected to be added in the top six cities of the country, out of which 2,000 new rooms have already entered the market, it said.
“By December 2012, there will be more inventory than there was in December 2011, but occupancies and revenue per available rooms will be similar as the previous year,” said Akshay Kulkarni, regional director, hospitality, South and South-East Asia, Cushman and Wakefield. “So, if you look at actual numbers, the so-called drop is due to lack of growth rather than drop in actual numbers.”
The report said metro cities in India reported a 9% drop in average room rates and occupancy between 55% and 60% in the first half of 2012.
“The quarter is going to be pretty distressed. We have seen 10-12% less demand (in forward bookings for October-December),” said Rahul Pandit, president and chief operating officer of Lemon Tree Hotels. “But when you consider it with reduced room rates, the overall impact makes the demand for the season 20% lower than the previous year across the industry.”
“In times like these, when you travel down the price point, the mid-market segment still is able to retain occupancies, but obviously not room rates, but the top-end hotels lose both on occupancy and rates,” Pandit said.
International travellers contribute around 65% of the revenue for major hotel chains running premium segment hotels. The growth in foreign tourist arrivals slowed to 6.2% between January and August this year, to 4.2 million travellers, from 10% in the same period a year ago.
