Average room rates to continue to be elevated in FY25 by 7-8 per cent

April 19, 2024

The Indian hospitality sector is optimistic about the future, with experts predicting a further increase in average room rates (ARRs) for FY25. This comes after a strong showing in FY24, which saw a significant rise in ARRs compared to the previous year.

“We’ve seen a significant jump in ARRs this year,” said Ajay Bakaya, MD of Sarovar Hotels. “The first quarter alone witnessed a 16 per cent growth, exceeding last year’s gains.” This positive trend is expected to continue, with experts anticipating stabilisation at these elevated rates throughout FY25.

Market dynamics

Rajeev Menon, President of APEC (excluding China) for Marriott International, acknowledges the impact of inflation but remains optimistic. “While stabilisation is likely,” he says, “there’s still room for further increases, especially with ongoing inflation,”  Menon emphasises the role of market dynamics, with areas experiencing higher demand witnessing steeper rate hikes.

Looking closer at the numbers, credit rating firm ICRA paints a clear picture. Their data reveals a substantial rise in the average daily rate (ADR) for premium hotels across India during the first eleven months of FY24. Compared to the same period in FY23, ADRs have jumped by a healthy 14-16 per cent. This trend is expected to hold steady, with ICRA projecting a further increase in revenue per available room (RevPAR) for pan-India premium hotels in FY25.

Several factors are fueling this optimistic outlook for ARRs. The leisure travel segment is expected to remain robust, with a growing trend of destination weddings held at hotels.  The Meetings, Incentives, Conferences, and Exhibitions (MICE) segment is also anticipated to maintain its strength, contributing to overall revenue. Business travel is expected to stay healthy as well, with a slight dip during the upcoming election period.  Travel to tier-II cities is another driver of growth, with these destinations attracting increased tourist interest.

The one remaining question mark is Foreign Tourist Arrivals (FTAs). While not yet at pre-pandemic levels, a gradual recovery is expected as the global economic climate improves.

Industry expert Karan Khanna, CFA – Director – Ambit Private Limited said, “We expect industry ARRs to grow by 8-10 per cent pan-India with a higher skew towards luxury and Tier-1 cities in FY25 backed by strong FTA recovery.”

Accor, a major hotel chain, sees India as a land of opportunity. “While ARRs remain lower than major international cities,” said Duncan O’Rourke, CEO of Accor for the Middle East, Africa and Asia Pacific, “India offers excellent value compared to more expensive destinations. The value provided here is just as good, if not better, for travellers seeking a high-quality hotel experience.” This sentiment reflects the bullish outlook on the Indian market.

Wyndham Hotels and Resorts echoes this optimism. “2023 was our best year ever in India,” said Dimitris Manikis, President of Wyndham for Europe, Middle East and Africa (EMEA). “Our properties reported a 10 per cent increase in occupancy and a 15 per cent increase in revenue per available room (RevPAR).”  Manikis is confident about India’s growing middle class and economic boom, factors that will fuel outbound travel as well.

Overall, the Indian hospitality industry is poised for continued growth in FY25. A combination of strong domestic demand, a healthy MICE sector and the potential for increased FTAs paints a bright picture for hotel room rates. So, if you’re planning a staycation or a business trip, be prepared for slightly higher room rates – but with the industry booming, you’re sure to find a comfortable and luxurious stay.

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