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Such a simple, yet effective message displayed on your daily Take-Away Coffee cup, isn’t it? It cautions you about the temperature of its contents, while advising you to be watchful of the way you manage them. No confusing, long drawn disclaimers peppered with opinions and caveats. Uncomplicated, straight and clear! HOT….Handle with Care. That’s it!
The 2023/24 Trends & Opportunities Report for the Indian Hospitality Industry shares the spirit of this very same message. The fiscal year (April 2023 – March 2024) had two clear, yet distinct memos for you. The industry is Fiery HOT! However, this is precisely why what we do from here on must be handled with the utmost care.
Last year’s report had a few key takeaways and then some predictions for 2023/24. Let’s revisit these points first. The year 2022/23 closed with a nationwide occupancy of 66.4% and ADR of `6,931, yielding a decadal high RevPAR of `4,537. We had labelled this performance ‘The Surfer’s Paradise’ and even claimed that its results were worthy of being etched in the Indian Hospitality industry’s almanac. We did also make note of the fact that while ‘the party wasn’t over just yet’, the sector may have reached ‘The Goldilocks Zone’, representing relative stability in the demand-supply dynamics playing out as hotels conduct business in the near to medium term.
Goldilocks would have been pleasantly surprised with the treats that awaited her in 2023/24. The branded and organised hotel sector in India closed with a nationwide occupancy of 67.5% (the highest in a decade), with an ADR of `8,055 (the highest – EVER) and a consequent RevPAR of `5,439 (marginally shy of the lifetime high achieved in 2007/08). As is common knowledge, the percentage of Upscale-to-Luxury hotels made up a larger portion of the existing supply in 2007/08, as compared to this past fiscal, thus making the blended ADR of 2023/24 that much more praise-worthy. That being said, it is perhaps noteworthy that given the Rupee’s decline compared to the US Dollar over the past several years, the nationwide ADR is still shy of US$100 (US$97 in 2023/24), which is considerably lower than the lifetime high ADR of US$199 achieved by the sector in 2007/08, when viewed in US Dollar terms.
The nationwide branded inventory breached 1,80,000 rooms last fiscal, with Upscale-to-Luxury representing 39% of operating rooms, while Mid-to-Upper Midscale contributed 45%, and the remaining 16% were Budget & Economy category Hotels. The 5-year-CAGR of available room nights was 6.6%, while compounded growth of occupied room nights was 7.2% in the same period. Consequently, RevPAR CAGR for the past half-decade stood at 7.8%, reflecting a healthy state of affairs.
The percentage of hotels having achieved higher than 60% occupancy was relatively similar between 2022/23 and 2023/24. However, hotels having clocked an ADR of ₹7,500 or more went up by almost 30% over last year. While the nationwide ADR improved by 16.2% over 2022/23, the highest appreciation was witnessed by Five-star Deluxe and Five-Star Hotels (20.2% and 19.8%, respectively). The two-year growth stands at 62.7% for the sector at large and a whopping 75.6% for the Five-star Deluxe and Five-star Hotels.
Overall, 2023/24 offered most markets the opportunity to break ceilings and cross barriers like never before. However, a few words of caution are warranted. Some of the nation’s best known leisure destinations did not receive the much-awaited inbound traffic in measures that were being expected. (We maintain that the Indian government could have done a much better job of marketing India globally. The fact that international inbound travellers did not cross the 2019 level is in itself revealing.) Meanwhile, domestic outbound was robust and many-a-traveller weighed the option of holidaying in Thailand, Sri Lanka, UAE or Turkey as an alternative to Goa, Udaipur, etc. Airfares also remained relatively palatable for these foreign destinations while domestic fares weren’t economical. Leisure hotels, having pushed their ADRs on the back of recent performances, witnessed some softening of demand. As we publish this report, 2024/25 has further played witness to Goa taking a beating, for instance. Lest we be left suddenly ‘high & dry’, it may be prudent to look at demand trends more carefully from here on.
On another note, while business travel related room night demand remained robust in most markets across India, corporate FIT is shying away from RFP negotiated rates. While the initial reaction was that this has allowed hotels to charge higher tariffs, it has also enabled the business traveller to seek ‘best available rates’ in the open market, moving away from the pre-pandemic philosophy of patronising hotels/brands that had pre-negotiated rates with companies. It would be wise to view this development as a double-edged sword.
The industry continues to perform well. With half of fiscal 2024/25 gone, there is overall growth over a phenomenal 2023/24 already, with the expectedly stronger winter months ahead. However, in most markets, growth has tapered, and in some it has indeed declined. Yes, the industry is still HOT. However, at the cost of repetition, we strongly urge you to handle recent developments with the utmost care.
Performance of Existing and New Hotels (2019/20 – 2023/24)
Analysing the nationwide data as a blended average doesn’t fully capture the market’s true dynamics. In particular, stable state assets often have stronger occupancy and average rate performance, which can be obscured when looking at overall averages. To gain a better understanding of market trends, we conducted a more granular analysis of hotel performance over the past five years.
Figure compares the performance of hotels established before 2019/20 to the nationwide averages. The hotels which have existed since before 2019/20 have achieved a RevPAR premium of 6.4% compared to the national average. Overall, they had an occupancy of 70.7% compared to the nationwide average of 67.5%, and an ADR of `8,195 compared to the nationwide average of `8,055. This clearly demonstrates that stabilised hotels are better positioned to capitalise on industry upcycles.
Figure illustrates the performance of hotels operating since before 2019/20, with each subsequent bar highlighting the impact of adding new hotels to the blended average.This graph illustrates the typical ramp-up phase experienced by new hotels as they stabilise. Excluding outliers due to the global pandemic, first-year occupancy averages range from 40% to 45%, which is an increase compared to the previous five-year period (2014/15 to 2018/19) when first-year occupancies ranged between 35% and 40%. The first-year occupancy of hotels opened in 2023/24 (44.7%) was slightly lower than that of hotels opened in 2019/20 just prior to the pandemic (45.5%). Average rates are generally influenced by the location and positioning mix of new hotels. Recently opened hotels (2021/22, 2022/23, and 2023/24) have a higher percentage of upper midmarket or higher positioned hotels, and a greater presence in leisure locations compared to hotels opened in 2019/20 and 2020/21. This has contributed to higher average rates in their first year of operation.
Industry Performance
by City Tiers
Figures feature the industry performance based on City Tiers for 2022/23 and 2023/24. Tier 1 cities have consistently demonstrated superior performance, both prior to and following the global pandemic, outpacing Tier 2 and Tier 3 markets. This trend is attributable to the substantial demand and minimal seasonality inherent in Tier 1 locations. Remarkably, in 2023/24, Tier 3 cities exceeded Tier 2 cities in average rate, leading to higher RevPAR, despite having marginally lower occupancy rates. The performance of Tier 3 cities can be ascribed to the growing domestic footprint, which has enabled these destinations to significantly elevate their average rates. The increase in average rates and RevPAR, despite stable occupancy levels, can be attributed to several factors. In Tier 1 cities, hotels have more pricing power due to higher demand from business and luxury travellers, allowing them to charge premium rates. Supply constraints in high-demand cities may further contribute to the ability of hotels to increase prices rather than relying on higher occupancy.
In Tier 2 cities, the rise in average rates and RevPAR, despite stable occupancy, reflects growing market maturity. Cities like Udaipur, Shimla, and Jaipur are seeing increased tourist activity through growing social M.I.C.E. demand and regional tourism, presenting opportunities for hotels to capitalise on demand. In Tier 3 cities such as Gulmarg, Ranthambore, Rishikesh, and Coorg, rising rates, despite lower occupancy, point to potential for long-term growth. This is supported by ongoing development and improvements in road infrastructure. Recent promotional efforts in these regions could further drive demand in the coming years, helping to boost occupancy, attract a broader audience, and sustain rate growth.
Typically, the City Tier classification is based on the overall population of the city. However, in the context of the hospitality industry, factors such as economic development, urbanisation, tourism footprint, presence of demand generators and tourist attractions, among others are equally relevant. This multi-faceted approach has been used to classify the cities in the dataset. bLarge metropolitan and commercial hubs have been classified as Tier 1. Economically emerging destinations have been classified as Tier 2. Underdeveloped locations and remote markets have been tagged as Tier 3.
In terms of the number of operational assets, IHCL continues to be the number one ranked company followed by Marriott International, ITC Hotels (including Fortune Hotels and WelcomHeritage), and Radisson Hotel Group. Interestingly, Indian-origin companies have a larger number of assets compared to their international counterparts. This is because Indian-origin companies, with sub-brands operating in the budget and midmarket space, had a headstart growing in emerging Tier 2 and Tier 3 markets whose demand footprint necessitates a smaller room count per hotel. International brands are now expanding aggressively in emerging markets by adopting more flexible product standards and leveraging conversion brands and soft brands.
