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Looking ahead in 2023: Recovery of India’s hotel industry

Updated: Mar 28, 2023

Based on a recent data insights blog published by STR


After a not-so-good start to the year brought on by an increase in the Omicron variant, India's hotel industry eventually had a great 2022 with revenue per available room (RevPAR) recovering to a 100% of the pre-pandemic levels. Adding to the relief of many big and small hotel management companies in India.


Looking ahead at 2023, hospitality management companies in India should keep these key factors in mind while looking at India’s hotel performance and forecasting:

  • Prices and inflation: Real ADR (inflation-adjusted) has improved, but sluggish inflation combined with potential western recessionary headwinds may restrain rate growth.

  • International demand and leisure: Although this goes both ways, we can anticipate a return to some semblance of normalcy in the business mix. Although if domestic leisure demand may not be as strong as it once was, it will still be substantial and crucial. The country's visa restrictions may assist balance the outflow of Indian tourists to other nations, particularly to places like the United States.

  • Incoming supply: While from a global viewpoint, the predicted incoming supply for 2023 (about 6% of the current supply) is not unusual, its effects will vary depending on where in the world you are.

  • Growth vs. absolute metrics: Owners and operators must match growth aspirations to the truth of how successful the prior year was. A comparable outcome or modest growth isn't all that bad, especially in light of prior results and the aforementioned variables.


When India's performance is contrasted with that of the broader Asia Pacific area, including its various variations, and the global performance, the rather exaggerated RevPAR recovery chart that is presented below becomes more fascinating. It reflects a few trends that ProMiller has observed first-hand being one of the third party hotel management companies in India.

After each consecutive COVID-19 wave, India experienced harsher drops but also stronger ascents. Particularly in 2022, once the Omicron variant surge subsided, India RevPAR indexed to 2019 outperformed the global and regional metrics. It brought the much needed break for many hotel management companies in India.


Even if the industry's recovery line is obvious, hoteliers and hospitality management companies in India have legitimate worries about the sustainability and longevity of the recovery. STR’s Karan Mahesh, Account Manager for Central & South Asia notes a few data-driven themes to answer these questions.


Hotel Industry saw its highest year-end ADR since 2008


First, the country's occupancy and rate performance in 2022 defied a ten-year trend. The Omicron impact on Q1 interfered with normal seasonal rhythms, which affected occupancy. In the months that followed, demand (both new and pent-up) significantly increased, which resulted in pricing confidence. The chart below shows ADR bandwidth for the years 2011 through 2021, with dots denoting 2022 monthly ADR.


Recovery across different economic classes


Although India's economy class lagged behind in terms of speed, by the end of 2022 all hotel classes had recovered above 2019 RevPAR levels. Namely, Economy, Midscale, Upper-Middle, Upscale, Upper Upscale and Luxury. This covers almost all types of hotels and resorts in India- they are mostly run by one of the hospitality management companies in India or any of the resort management companies in India.


Weekends, weekdays, and shoulder days all displayed the same pattern of recovery. Business markets have been above their pre-pandemic levels since April 2022, despite leisure markets leading the pack. A study of a few business hotels near office buildings and in business parks revealed positive transitory and group indices for 2019. Let's take a look at the chart below to compare it.



Record-high ADR (Average Daily Rate) for groups


In contrast to other nations across the world, where group business still has to increase before reaching pre-pandemic levels, India has experienced a sharp increase in group demand since April 2022. This bring s a ray of hope for the hotel property management companies which were hoping to catch a break while making their strategy for 2023.


Typically, group business often has reduced rates. Low rates and high group volume have traditionally been the rule. Nevertheless, not in 2022, particularly for India.


In the chart below, transient (10 rooms per day) vs. group (>= 10 rooms per day) ADR is shown for the ten years leading up to 2019 on the left and the monthly tale for 2022 on the right. The outcomes are conclusive.


Profits driven by Weddings in India


Of course, weddings had a significant role in this ADR increase. As opposed to the opinion of many hospitality asset management companies- the best way to describe these weddings is not as "revenge" or "pent-up," as wedding dates in 2023 are also nearly booked.


There is little to no availability of banquet space, and alternative choices like halls and event facilities seem to be taking over. The graph that follows illustrates how these occurrences affected profitability by rates.

Recovery is evident in many cities across India


If we see the major markets in India and their occupancy indexed to 2019, Q1 2022-Q4 2022, it's evident that the recovery is spread across many cities. Scale is the most crucial factor for a long-term healing, to sum up. Fortunately for the hotel management companies in india, the country's recovery is not being driven by just one or two markets. The recovery is widespread, much like the pandemic. So, there's a hope of sustainable recovery for not only the best hotel management companies in India but also for the small hotel management companies.



And thankfully, the future bookings show that the demand remains for the coming months in 2023. While pickup is also somewhat short-term, medium- to long-term occupancy on the books is still relatively low. So, whatever demand is currently unmet for the future should be satisfied closer to the arrival date. As there is considerably more trust in travel now than there was at this time last year, we can already see pickup windows starting to lengthen. This sets an optimistic tone for the hotel industry in India in general. Of course, for specific hotel management companies in India, the endline can only be optimized by a customized strategy. A balanced split of business between sectors like leisure, corporate, transient, weddings and more is vital to capture the demand that looks good for the year 2023.

 

Based on a recent data insights blog published by STR

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