Indian hotel industry sees economic fundamentals improve

30 October 2017 3 min. read
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Around 65% of hotels in India are currently at their highest level of occupancy since 2007, according to a report from consultancy HVS. The average room rate (ARR) is also at a four-year high, currently resting at nearly Rs.5,700. The spike comes after consecutive years of decline in the ARR.

In its annual 'Trends and Opportunities Survey', which gathered data from 941 hotels with nearly 1,20,000 rooms, consulting firm HVS found that the Indian hospitality sector has entered a lucrative period since last year. According to the researchers, demand in the sector increased by 9.6% since 2016, pushing the hotel occupancy up by 3.5 % to a ten-year high of 65.6%. The consulting firm attributes the growth to a mixture of government tourism initiatives and overall economic growth resulting from new economic policies in the country.

Travel and Tourism Contribution to the GDP

With regards to the impact of the government’s drive to boost tourism, the report highlights the role that “branding and marketing initiatives,” such as ‘Atithi Devo Bhava’ and ‘Incredible India,’ have played in bolstering revenues for the hospitality industry. In 2016, the Travel and Tourism industry in India not only contributed 9.3% to the country’s overall employment, but was also the fastest to grow amongst the G20 countries, growing by 8.5%.

The report also highlights how economic policies, namely the introduction of FDI and its growth of 8% over the past year, have improved the outlook in the industry. The relaxation of regulations under the policy has significantly boosted the traffic flowing into the country.

Moreover, the introduction of the Goods and Services Tax (GST), which has significantly boosted revenues for the consulting industry, has also benefitted the hospitality industry in particular. Under the GST regime, taxes applied to inputs for the industry, such as raw materials, food, and cleaning supplies, can now be adjusted against the output with much greater ease and efficiency.

Three-star hotels leading the way

Amongst the hotel segments, three-star hotels registered the highest occupancy rates at 66.5%, with four-star hotels in a close second at 65.6%. Five-star hotels registered impressive levels as well at 64.6%. Meanwhile, two-star hotels had the lowest levels of occupancy, at 62.7%.

Occupancy of Indian hotels

Meanwhile, the overall growth also drove the ARR of the entire country up to Rs. 5,658, up from Rs. 5,527 the year before that. This was the first time in four years that the ARR in the country registered an increase. Intuitively, the amount of time that a hotel has been operating directly affects its ARR. For example, hotels that have been running since 2012/2013 registered an ARR much higher than the national average, surpassing Rs. 6000.

In tandem with the increase in demand, the supply of hotel rooms is also on the rise. The supply of rooms went up by more than 6,000 this year, taking the total up to 1,19,219 rooms. Kolkata saw the highest increase in supply amongst cities, growing by 18.4%, while Goa and Chennai followed, with 14.8% and 9.8% growth respectively. However, New Delhi and Mumbai remained in the top two spots, at 14,296 and 13,494 rooms respectively.