How India's booming hospitality sector can do even better

Despite growth in occupancy rates in hotels across India, the hotel and hospitality sector is far from achieving its true revenue potential, according to new analysis from hospitality consultancy Hotelivate. The firm offers a number of recommendations that could drive up revenues. 

The hospitality sector in India has been doing well for many years now. The country is endowed with myriad tourist attractions, which draws visitors from all over the world as well as from within the country. Hotels in India have thrived in this scenario, performing strongly across a number of indicators.

Occupancy rates and average room rates (ARR) are the most common metrics used to gauge performance in the hotel sector, and both are fairly high in India. Some analysts have lauded the role that recent government policies such as the goods & services tax (GST) have played in easing the administrative burden on the hospitality sector.

ARR has also been on the rise in this scenario. According to Hotelivate, however, rising numbers do not mean that the sector’s revenue potential is being realised. A number of strategies currently being employed in the hotel sector are sub optimal for revenue generation.

Occupancy rates of 70% and above are currently rated high in the hotel sector. 35% of the 1,000+ hotels surveyed by Hotelivate had occupancy rates in the 70s over the last year, signifying a particularly strong performance. The consulting firm points to nearly 15% of the hotels in India that registered occupancy rates in excess of 80% over the same period to demonstrate that the sector can do more.

The biggest edge that this handful of hotels had over the rest of the sector is that their occupancy rates remained relatively steady rather than relying on certain spikes on weekends and in high season. This is despite the fact that not all these hotels are helped along by market factors.

Many, for instance, are based in urban corporate markets, where occupancy rates tend to dip during the weekends. ‘Yet, these hotels ducked the trend and performed well on weekends, without which achieving an occupancy in the high 80s or 90s as a year-round average is not mathematically probable,’ said the report.

The hotels in question also have a large number of rooms, countering the argument that high occupancy rates are relatively easier to achieve for them. According to Hotelivate, the success of these companies is a product of a shift in strategy and approach to annual occupancy rates.

The hospitality advisory firm, which was conceptualised last year as a consultancy for the contemporary market, has put forth a few possible strategies to achieve similar success. Many hotels operate on the principle that sales during the high season and over the weekends will cover the lion’s share of their revenues.

As a result, prices in these high-revenue periods are also set at their highest. Hotelivate recommends a focus on drawing occupancy at all times, and not spiking rates during high season. The resultant steady stream of visitors is likely to bring a much heavier revenue stream. The firm provides an example of this. 

“Once that target is met, for say a Tuesday, perhaps consider lowering the ADR for a certain segment of guests who would likely be willing to stay through the weekend.This will entice such guests to keep the room for an extended period, as their overall spend now is an acceptable figure,’ says the report.

The firm also recommends overselling rooms. If a surplus of guests arises, upgrading high-priority guests to better rooms is a way of creating space and satisfying core customers. Lastly, the Hotelivate recommends maintain steady rates even when occupancy is lower than target levels, as most bookings occur in clusters.