CRISIL Research expects the profitability of premium hotels (5-Star Deluxe and 5-Star) to be impacted significantly due to a sharp decline in occupancy rates arising from falling demand for hotel rooms as well as additional rooms being added across cities in India.
The demand for rooms in the premium segment is expected to fall by 11 per cent in 2008-09 as compared to the previous year, and further decline by 15.5% in 2009-10.
At the same time, premium segment room inventory is expected to collectively grow at a CAGR of 9% from 2007-08 to 2011-12 across twelve major cities.
Consequently, hotel occupancy rates are expected to show their steepest decline in a decade, reversing the trend of very high growth rates witnessed in these select destinations during the past few years.
The twelve destinations covered as part of CRISIL Research’s analysis are Agra, Ahmedabad, Bengaluru, Chennai, Goa, Hyderabad, Jaipur, Kerala, Kolkata, Mumbai (North and South), NCR and Pune.
Additional supply, combined with lower corporate travel expenditures in the slowing global and domestic economies, would result in a decline in occupancy rates. Occupancy rates are expected to come down from 72 % in 2007-08 to 62% in 2008-09.
Says Sridhar Chandrasekhar, Head, CRISIL Research: “We expect occupancy rates to further drop to 47 per cent in 2009-10 and hover around this rate in 2010-11. With occupancy rates falling, hoteliers are expected to lower Average Room Rates (ARRs) to attract customers.”
Our research forecasts ARRs to fall by around 23% in 2009-10 (from the levels of around Rs9,200 in 2008-09) and decline further by around 18% in 2010-11.
These trends would lead to revenue per available room (RevPARs) collectively declining by 20% in 2008-09 and further by 42% and 20% in 2009-10 and 2010-11, respectively, creating severe profitability pressures.
“Hotels in Gurgaon and Pune will be the most affected,” Sridhar adds.
Room inventory in Gurgaon and Pune is projected to show the highest increases amongst the twelve cities with CAGR of 41% and 35% respectively during the period 2007-08 to 2011-12.
These cities will also witness the steepest drop in RevPARs. The year-on-year (y-o-y) decline in RevPARs in Pune is likely to be 50 per cent and 24 per cent in 2009-10 and 2010-11, respectively.
IT/ITeS dependant destinations like Bengaluru and Hyderabad are also expected to be severely hit as IT companies rationalize travel expenses following the turmoil in the financial markets globally.