The Indian hotel industry can expect a recovery only in 2010-11, says the chairman of EIH Ltd, P.R.S. Oberoi. The industry has been hit by falling foreign tourist arrivals, first due to the global financial crisis, followed by the Mumbai terrorist attacks and now the swine flu pandemic.
The first quarter of FY10, too, saw revenues and profits decline. But there are some bright spots visible amidst the gloom.
The international tourism body, World Travel and Tourism Council, estimates in its August update that the decline in tourist inflows has moderated, led by Asia-Pacific and America. Some of these signs are visible in India’s tourist arrivals too.
Tourist arrivals did not decline in June and July, reporting small growths of 0.2% and 0.7%, respectively. These small numbers translate to significant growth in value terms. Since the rupee has fallen against the dollar, total spending by foreign tourists increased by 14% in rupee terms, but grew by 28.8% in dollar terms.
If this trend continues into the peak tourist season that is around the corner, the tourism industry may have something to cheer about. But foreign tourist arrivals are only one part of the story for hotels. Their revenue growth is a mix of occupancy and room rates. These, in turn, are a function of demand and availability. While the availability has gone up in recent years and will continue to do so, demand has dropped off the cliff. Most large hotel chains responded to high growth periods by adding capacity.
Gloomy outlook: The Taj Mahal Palace and Tower in Mumbai. Vijayanand Gupta / Hindustan Times
Indian Hotels Co. Ltd, for example, added 1,176 rooms in FY09 and will add about 1,400 rooms in FY10. Other large hotel chains, too, have new properties under construction. More capacity will come up in 2011 too, but on the bright side, the real estate sector slump has forced developers to postpone their diversification into hospitality.
A combination of higher availability and lower demand has led to lower revenue for hotels, even as the operating costs of new properties are affecting margins. In addition, depreciation and interest costs have gone up too.
Thus, even if tourist arrivals pick up in the near future, the Indian hotel industry will feel the warmth only with a lag.
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