Are foreign tourists likely to flock to India this winter? Unlikely, it would seem, given the state of the economy and financial markets in the US and the slowing economies in Europe and Japan.
What’s more, with the domestic economy losing some momentum, companies are learning to do without five star comforts. Analysts at Crisil believe that hotels will find it hard to maintain occupancies during the coming holiday season and feel occupancies could drift down to around 70 per cent.
That may not appear to be a big fall over the average occupancy of 73-74 per cent seen in October–December last year. But if one pencils in lower room tariffs, the pressure on profits could be significant given that costs remain high. Hotel chains would find it difficult to up rates at their leisure destinations such as Goa, Jaipur and Agra.
Bangalore is already seeing a fall in ARR charts, as are Pune and Hyderabad. In October 2007, the tourist inflows grew by around 13 per cent. The numbers picked up subsequently and in November and December 2007, the reported growth was a smart 21 per cent.
This year the trend could be different; even though room capacity is not expected to increase significantly, a dip in both leisure and business travel could keep occupancies in check.
Crisil estimates that average room revenues (ARRs), which grew by 14 and 21 per cent y-o-y in November and December respectively last year, are expected to grow by just 5 per cent this year. That would just enough to keep up with inflation and in real terms, would mean a fall in ARRs.
Around 70 per cent of a hotel’s revenues flow in between October-March; it could be a difficult second half for hotels. At Rs 73, Indian Hotels trades at around 11 times estimated FY09 earnings which is a tad expensive given the challenging environment globally.
