Higher check-ins boost occupancy at branded hotels to 9-year high

Tariff growth icing on cake; trend expected to continue in FY18

The domestic hospitality sector seems to have gained firm ground after years of muted performance, with average occupancy at branded hotels estimated to be at a nine-year high of 65 per cent in FY17.

At the individual level, some companies are getting higher rates. Better still, growth in occupancy and tariff is projected to continue in FY18. Stocks of listed hotels are also reacting to this positive development.

Achin Khanna, managing director, consultation and valuation, HVS— a consulting and research firm, said it was quite likely the closing occupancy will be close to 65 per cent in FY17. This would mean the average rate was up 3-4 percentage points over FY16.  

This is the fourth consecutive year occupancy has increased. In FY08, it was 68.8 per cent; it was the last leg of the five-year uptrend which started in FY04.

Experts claim the sector is entering a new positive cycle.

There is a recovery in both occupancy and rates across cities, including key markets such as Delhi and Mumbai. Hotels attribute this to rising corporate and leisure travel, and growth in foreign tourist arrivals.

Dipak Haksar, chief executive, ITC Hotels, said the company witnessed higher occupancies in FY17 compared to recent years.  “Given the current outlook, a healthy growth rate is expected in FY18 for both occupancy and average room rate,” he said. ITC, which owns and manages 100 hotels in about 70 domestic destinations, had a “healthy” growth in room rate last year vis-à-vis a muted trend in the previous years.

International hotel company Carlson Rezidor, which has 84 hotels in India, had an average occupancy of 67-68 per cent last year. “Demand is no longer a concern. Occupancy continues to improve and we won’t be surprised if it moved close to 70 per cent this year, as new supplies have slowed down,” said Raj Rana, chief executive officer (South Asia) at Carlson Rezidor.

Some listed hotel stocks have reacted.

The stock price of EIH, which runs the Oberoi group of hotels, hit a 52-week high of Rs 138 (on May 9) at the BSE— gaining over 60 per cent from the 52-week low of Rs 86 in November last year. Indian Hotels Company’s stock has also appreciated 50 per cent since November to Rs 133.

“Supply is going to grow at 7-8 per cent annually for the next three years or so. Demand has grown between 11 and 14 per cent annually in recent years and is likely to continue at a similar pace, supporting higher occupancy levels,” said Khanna of HVS.

Lemon Tree Hotels clocked an average occupancy rate of 76 per cent in FY17, a significant growth from the 71 per cent the previous year.

Vikramjit Singh, president, Lemon Tree, said the company’s hotels registered a growth of eight per cent in tariffs last financial year. “Occupancy and tariffs are bound to continue their upward trend,” said Singh. The company owns and operates 38 hotels.

ITC’s Haksar said the current macro trends indicate demand will continue to outstrip supply, thereby supporting a healthy average growth rate trend. Factors such as e-visa, enhanced airport capacities along with India’s increasing relevance in the global landscape shall support the growth in international arrivals. Increased flight connectivity supported by the new regional air connectivity scheme and improved domestic purchasing power will further boost domestic travel.