Hotel industry revenues, margins likely to return to pre-COVID levels this fiscal: ICRA

‘Domestic leisure, transient travel will be main demand drivers’

The hotel industry's revenues and margins are expected to return to pre-COVID levels in 2022-23 despite potential impact on demand in case of further waves of the pandemic, according to rating agency ICRA.

Domestic leisure and transient travel will be the main demand drivers, although there will be a gradual recovery in business travel and foreign tourist arrivals (FTAs), ICRA said in a statement.

Pan-India, premium hotel occupancy is expected to be at 68-70% for FY23, it said, adding that the average room rate (ARR) is expected to hover at about ₹5,600-5,800.

"The improved operating leverage along with sustenance of cost-optimisation measures will support margins and accruals for hotels," the agency said.

Notwithstanding the potential impact on demand with further COVID waves, if any, ICRA said it expected the industry's revenues and margins to return to pre-COVID levels in FY23.

ICRA vice-president and sector head Vinutaa S said the hotels industry witnessed a healthy start to FY23, with 56-58% occupancy in premium hotels in the first quarter of the financial year.

It had climbed from 40-42% in FY22 and was closer to the pre-COVID occupancy of 60-62% in Q1 FY20, she added.

"Pan-India ARR stood at around ₹4,600-4,800 in Q1 FY2023, as against ₹4,200-4,400 in FY2022. It still remains at a 16-18% discount to pre-COVID levels on an average, although a few high-end hotels and leisure destinations witnessed ARRs spike to higher than pre-COVID levels in the last few months," Ms. Vinutaa said.

The demand recovery was aided by leisure, transient passengers, MICE/weddings and gradual pickup in business travel and foreign tourist arrivals, while some cities also witnessed traffic from specific events.

MICE refers to meetings, incentive travel, conferences, and exhibitions.

"While leisure destinations and gateway cities witnessed healthy occupancy, cities largely dependent on business travellers, like Bengaluru and Pune will take a few more months to recover," she added.

Ms. Vinutaa said although Q1 FY23 was among the best quarters since the onset of the pandemic, the Revenue per available room remained at 20-22% lower than pre-COVID levels and at about 45-50% discount to the FY2009 peak.

For mid-scale hotels, the recovery has been slower, due to the dependence on business travel. Further, cost inflation can also have a bearing on mid-scale hotel demand, she said.

ICRA currently has a stable outlook on the industry, Ms. Vinutaa.