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Hospitality sector is also witnessing an oversupply situation in some of the market, which has not been absorbed yet. An 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 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,” HVS study said.
Experts argue that hotel sector is completely dependent on perception of the economy which is currently negative and has taken away business from hospitality chains. "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," a top executive of a hotel chain who did not wish to be quoted said.
In travel, important source markets for inbound tourism such as Europe, USA and 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 is not enough to drive the demand for the luxury and five star hotel segment. Our source markets continue to be US and Europe and there we are not seeing any pick-up in demand,” Kamlesh Barot, president, Federation of Hotels and Restaurants Association of India said.
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 3-4 per cent increase in our occupancy,” said Dilip Puri, managing director, Starwood India.
