EARLIER this year, moneycontrol.com, one of the country’s most respected financial portals, had a story by Maryam Faroqui on the red-hot hospitality industry. The piece spoke about the speed at which global hotel chains are expanding into the Indian hinterland. ‘’Marriott, the world’s largest hotel chain,’’ the piece added, “plans to add 100 properties in India by 2025. Hilton, the third biggest, wants to double the number of hotels in three years. And more international hotel groups are expanding beyond the country’s metros. French hospitality group Accor is focusing on developing economy- and mid-scale brands primarily in Tier-II and III cities through franchises in a country it deems a key growth market. For premium brands, the company is focusing on Tier-I and II cities under the management contract, with the possibility of considering franchises.’’
All-time high occupancy
Credit rating agency ICRA has in a perspective on the hotel industry outlined that premium hotel occupancy should be at an all-time high of around 70-75 per cent in FY24. “Sustenance of domestic leisure travel, higher bookings from meetings, incentives, conferences, and exhibitions (MICE), and business travel, along with an increase in foreign tourist arrivals (FTAs), would support demand.
The industry is also likely to benefit from specific events like the G20 summit and the ICC World Cup 2023,” it said. ICRA estimated that revenue growth for the industry in FY24 was likely to be in the 13-15 per cent range. One reason for such a fantastic return is ‘’ the costrationalisation measures undertaken during the Covid period, along with operating leverage benefits, resulted in a sharp expansion in margins.”
Shaman Chellaram, Senior Director (Asia), hotel advisory, Colliers Hong Kong, told Singapore’s South China Morning Post “India has the potential to be a major growth driver for [AsiaPacific] with its large and growing population, expanding middle class and economic progress.” To that, said Chellaram, one could add the fact that the market is also underserved in that there are just about 2.6 million hotel rooms in a country expecting 30 million visitors a year by 2030.
Major growth engine
“The hospitality and tourism sector is set to be a major growth engine for India in the next decade in terms of both domestic tourism and inbound and outbound tourism, benefiting both the local Indian economy and the wider AsiaPacific hotel sector,” said Chellaram.
He is right, the hospitality industry is viewed as a critical element of the country’s Make-in-India programme and was described by Finance Minister Nirmala Sitharaman as a `sunrise sector’. It is expected to contribute over $260 billion to the country’s GDP by 2028. For example, the Government has the Swadesh Darshan Scheme, which aims at creating a national network of religious tourism. The draft tourism policy talks about close to $400 billion in foreign exchange earnings from tourism by 2047.
Like many things that changed substantially during Covid, one element that caught the attention of the hospitality industry was the hardiness and resilience of the smaller towns and cities of India. Vikramjit Singh, President of Lemon Tree Hotels, which runs over 80 hotels across the country, told the media, “One big learning from Covid-19 is that smaller cities and towns are the most resilient. They have bounced back much faster and much stronger than the big cities.”
Tier-II and Tier-III cities
As the Economic Times reported recently: ‘’The share of hotel rooms in the tier-II and tier-III cities increased to 38% of the total inventory at the end of 2022 from 33% four years ago, according to a recent HVS-Anarock report. The share of hotel rooms in metros reduced to 19 per cent from 30 per cent during the period.
“Cities such as Agra, Haridwar, Manali, McLeod Ganj, Kasauli, Katra, Mahabaleshwar, Puri, Pushkar, Rishikesh, Tirupati and Vrindavan reported the opening of new hotels in the mid-market and upscale segments.
“Travel trends such as weekend getaways, road trips, staycation (vacation close to home), workation (leisure trip in which work is an add-on) and Bleisure (business trip which gets extended to leisure trip) have boosted leisure travel in the past two years.’’
What we haven’t added here is the phenomenal growth in air travel and the spectacular highway network across the country that has also added to the allure of travel and leisure. It is a multiplicity of factors that have dovetailed to produce this sustained growth that is unlikely to end anytime soon.