Business Standard

Hospitality faces trial by check-out

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Ruchika Chitravanshi New Delhi
The Euro zone debt crisis has found an echo in India’s travel and hospitality sector. The foreign tourist arrival registered a sluggish growth of five per cent in 2012 against 13 per cent the year before, badly affecting both tourism and hotel companies.

Besides slowdown, the hospitality sector is witnessing an oversupply situation as well. A study by HVS, a leading consultancy in the hospitality business, indicates that by 2015-16, 93,335 rooms will be added to the total inventory. The supply pipeline is expected to further drag recovery for the hotel businesses.

“Several projects that had their plans for development formalised and were in the supply pipeline till last year have now been delayed or called off on account of high borrowing costs, tight liquidity and perhaps a lowered confidence in the Indian economy and political leadership,” the HVS study said.
 

Experts argue the hotel sector is completely dependent on the perception of the economy, which is currently negative. "The consumption of hotel rooms is very discretionary and has been very muted. The sector is on a very uncertain and shaky ground right now," said a top executive of a hotel chain, requesting anonymity.

In travel, important source markets for inbound tourism such as Europe, the US and the UK have been reeling under slowdown pressures, thereby bringing down activity.

Domestic tourism, which has not seen any signs of slowdown, is still driving the demand for most companies. “But it’s not enough to drive the demand for the luxury and five-star hotel segment. Our source markets continue to be the US and Europe, and there we are not seeing any pick-up in demand,” said Kamlesh Barot, president, Federation of Hotels and Restaurants Association of India.

This has resulted in a flat growth of average room rates across hotels. Even though the last quarter saw an increase in demand due to holiday season, Hoteliers have chosen not to increase the room rates at the cost of losing the customer. “Room rates will remain flat. However, we are seeing three-four per cent increase in our occupancy,” said Dilip Puri, managing director, Starwood India.

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First Published: Feb 23 2013 | 11:54 PM IST

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