New hotels spinning off quick profit on high room rates, cost savings

New hotels are delivering healthy financial performance on the back of an increase in average room rates and cost saving measures.

While the average daily room rate increased 16.2 per cent to ₹8,055 in FY24 on an industry wide basis, automation and use of renewable energy among others is helping hotel owners to spin off operating profit quickly.

New hotels are achieving an operating break-even in three to four months, said Arun Kumar Saraf, Chairman of Juniper Hotels. An increase in room occupancy and surge in room rates is helping the sector, he added. Juniper Hotels is the largest operator of Hyatt-affiliated hotels in the country.

According to consultancy Hotelivate, branded hotels across the country added around 15,000 rooms in FY24. The total inventory of rooms increased by 9.2 per cent on a year-on-year basis to over 1,80,000. Yet hotels have been able to increase rates as demand continues to outstrip supply.

“Demand is persistent and there is no longer seasonality impact. Hotels are witnessing high occupancy throughout the year,” said JB Singh, president and CEO of InterGlobe Hotels. He added that the group’s new properties are stabilising in the second year itself and achieving a break-even and gross operating profit (GOP) within the a year of operations.

GOP is an indicator of a property’s performance and brand’s incentive fee is pegged to it. Improved earnings due to consistent demand and favourable macroeconomic factors is encouraging more development.

Radisson Hotel Group said demand now extends beyond metro areas as Indian travellers are seeking diverse experiences that cater to both leisure and business needs. These developments are setting a strong growth trajectory for new hotels across the country. “Our recent expansion into cities like Ayodhya, Srinagar, Mandrem, Gopalpur, Saputara, and Dhanbad reflects our strategic approach to meet this evolving demand and diversify our offerings,” Radisson Hotel Group added.

But it is not high demand and high room rates alone that are generating better results for owners. Managements are a lot more focused on cost control. Adaption of new construction methods is also aiding them.

“Hotel construction has become more efficient, more modular and cost effective, resulting in quicker return on investment. Implementation of technology has supported our industry to gain better returns despite the increase in cost of labour and construction material,” said Dimitris Manikis, Wyndham Hotel’s president for EMEA region.

“We have the right assets at the right locations. Our operating efficiencies are extremely high. We are constantly delivering 45-46 per cent EBITDA margins and that is on the back of revenue leadership and cost efficiencies,” added Sanjay Sethi, Managing Director & CEO of Chalet Hotels.

Sethi said that Chalet’s payroll and utility expenses as a percentage of revenue are much lower compared to the industry average due to right levels of staffing, use of green energy and adoption of new systems and processes. 

According to Vikas Ahluwalia, General Manager and National Head, Zone by Park Hotels, hotels are rationalising expenses and reducing waste to improve bottomline.  

“Whenever a new asset is built we try to rectify or address the issues faced in the earlier properties. Now we have technology to support operations and drive efficiencies. For new hotel openings we do not hire the entire team in one go but do it gradually as the business picks up,” Ahluwalia added.