Hotels will continue to struggle in 2016, says report

Hotels in India will continue to struggle for confidence in pushing through rate increases this year, a new report has said.

While occupancy is expected to grow, development activity will remain muted and investment and lending will remain soft, according to the India Hotel Review Report – 2015 released by Horwath HTL and STR Global.

The year 2015 saw the smallest addition to chain-affiliated hotel inventory in the last seven years – only 7,853 new rooms. The last year was also the ‘driest’ in recent years in terms of chain affiliation deals for new projects or conversions which signals lack of confidence in the sector among deployers of equity and debt capital.

While the all-India occupancy rose to 62 per cent, which is the highest in the last seven years, RevPAR (revenue per available room) increased by 5 per cent (only ₹168 in real numbers) because room rates were down by a half-point, the report added.

As far as new supply is concerned, 51.7 per cent was outside the key markets, including 9 per cent in tier-2 and 27 per cent in leisure markets.

“Food & beverage and banquets continue to be significant revenue generators across all segments, even forcing changes in operating models for select/ limited service hotels,” the report said.

However, there are areas of concern. Improved occupancies are partially the outcome of supply slowdown, especially in markets such as Mumbai, Pune and Bengaluru.

“Inbound leisure is down and we don’t have a sustained response that recognises visitor and source market concerns – incredibility can be pushed only to a point; the on-ground reality must consistently deliver such an experience but that does not happen,” it said.

Industry continues to suffer high indirect taxes – Delhi has raised the luxury tax rate (applied on published tariffs) to 15 per cent. The effective tax rate at luxury and upper-upscale hotels is 33-35 per cent, it said.

In the coming year, the report expects development will continue to spread outside the main markets in most regions of the country.

“The Marriott-Starwood merger will be closely watched, particularly the heavy concentration in markets such as Pune, north Mumbai and central Bengaluru. GST implications will need to be assessed for their impact on top lines, bottom lines, contracts and covenants,” it added.