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Thursday, March 17, 2011

Tourist arrival has little impact on overall hotel business

This story first appeared in DNA Money edition on Tuesday, March 15, 2011.

A 10% increase in the foreign tourist arrival (FTA) figures into India during January 2011 has had a very insignificant incremental impact on the overall hotels business across key business and leisure destinations. A comparative analysis of business performance numbers by Crisil Research indicated that average room rates recorded a marginal decline thereby leading to marginal improvement in revenue per available room (RevPAR) and occupancy levels. A key indicator of hotel's performance, RevPAR is calculated by comparing total revenues of the hotel with total guestroom inventory.

Another interesting revelation was that hotels in south India (Bangalore, Hyderabad and Chennai) have shown positive growth on all three parameters (occupancy, ARR and RevPAR) vis-a-vis their counterparts in west (Mumbai and Pune) and north (Delhi, NCR) India. Being business season, leisure destinations (Jaipur, Agra and Goa) saw higher single-digit growth in overall business.

Commenting on the overall business scenario, Ajay D'souza, head of research for Crisil, said, while individual cities / destinations have demonstrated varied results based on their market dynamics, the overall figures for January 2011 are marginally down vis-a-vis previous year's figures.

“Average RevPAR for premium segment hotels in six major cities increased by 2.6% to Rs 6,900 in January 2011. Occupancy levels improved on a year-on-year (y-o-y) basis by 3% to 73%. Average room rates (ARRs) however witnessed a marginal decline on a year-on-year (y-o-y) basis by 0.7% Rs 9,450,” said D'souza.

The survey compared business performance numbers from premium segment hotels in Mumbai, Delhi, Kolkata, Pune, Bangalore, Goa, Hyderabad and Chennai. The Crisil Research data on FTA showed that approximately 0.54 million tourists visited India in January 2011 as compared to 0.49 million tourists during the same period in the previous year (figures also include arrivals from Pakistan and Bangladesh).

Interestingly, hotel occupancy in cities like Hyderabad, Chennai and Bangalore witnessed an increase in the range of 10% to 16% while hotels in Delhi and Mumbai suffered a setback by 2% to 4%. Key beneficiaries of the tourist season however were hotels in leisure destinations wherein Goa registered the highest occupancy of 81%, while it was 72% and 71% in Agra and Jaipur respectively.

On average room rates, hotels in Chennai (among all business destinations) saw an increase on a y-o-y basis by 4% from Rs 5,900 to Rs 6,200 in January 2011. “While most business destinations witnessed stable ARRs, Mumbai and Pune witnessed a decline. Leisure destinations primarily Goa, and Jaipur recorded an increase in ARRs by 5% on a y-o-y basis,” said Crisil analysts Anshal Chavan, Swaroop G and Dipali Modi in the report.

Significant improvement in RevPAR was witnessed with hotels in Chennai and Bangalore. Improved occupancy levels coupled with increase in average room rates led to double-digit growth of 17% and 12% in RevPARs across premium segment hotels in Chennai and Bangalore on a y-o-y basis respectively. “Most business destinations in South saw improvement in RevPARs, hotels in West India (Mumbai & Pune) and Delhi witnessed decline in RevPARs in the range of 7% to 9% owing to lower ARRs and occupancy levels. Leisure destinations (Goa and Agra) however recorded a RevPAR increase of 6%,” said the analysts.

Commenting on the overall business performance statistics, Noshir Marfatia, associate vice president and general manager, sales and marketing, The Park Hotels, India, said, markets in the Indian southern region have seen a turnaround especially in cities like Bangalore and Chennai. “While the initial few quarters were slow for these markets, there has been resurgence in corporate traffic movement vis-a-vis last year. In fact, the momentum still continues and we are seeing a month-on-month increase as far as business in these cities is concerned. Though static Hyderabad market has shown positive results but I think with all the new inventory set enter the market in the coming quarters, there will be pressure on business. Chennai will see a similar trend going forward. Business in Kolkata continues to remain stagnant which is substantiated from the figures,” said Marfatia.

Industry experts attribute the subdued performance of hotels in Mumbai, Delhi and Pune to the heavy guestroom addition these markets have witnessed in 2010. They said, while FTA figures do show growth, what one needs to take into account is that the number of hotel rooms that got added also increased significantly.

“The January 2010 figures take into account certain number of hotel rooms while January 2011 figures also factor in the incremental guestroom inventory. Thus when you compare taking these aspects in mind, I'd say the overall market in these cities has certainly witnessed decent growth as the decline in occupancy, ARR and RevPAR numbers aren't very significant,” said a top official from one of the leading international property consultancy (IPC) firms requesting not to be quoted citing company's media policy.

With business season almost coming to an end the Indian hospitality industry set to enter the non-business season April onwards, it would be interesting to see how the overall scenario shapes up given the fact that new inventory will continue to be added in Mumbai, Delhi, Pune, Hyderabad and Chennai markets in the coming few quarters.

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