More guests, sure, but room rates drag

Hotels are slowly and steadily getting back on track with occupancy rates surpassing 2009 levels.

Revenue per available room (RevPar, which is total revenue divided by total rooms available) has seen only a modest increase, thanks largely to higher occupancies.

However, average room rate (ARR), or the rate at which rooms are let out, is under pressure and is likely to stay that way because of a surge in supplies.

Vincent Hoogewijs, general manager, Four Seasons Hotel in Mumbai, said there has definitely been a vast improvement as business confidence has returned though the market is not as strong as in late-2007.

“Most of our guests are corporate travellers, so they will have set corporate rates. We do see some positive moves, as rack-rate (based on tariff card) buyers are also returning. On weekdays we are mostly running high 90s (% occupancy), and weekends or public holidays occupancies drop to low 60s,” Hoogewijs said.

Crisil Research said average RevPar for premium segment hotels in the six cities (Mumbai, Delhi, Kolkata, Pune, Bengaluru and Goa) increased 6.9%, from Rs 6,300 in January 2009 to Rs 6,700 in January 2010.

Average room rates were weak, falling 9.5% year on year to Rs 9,500 in January.

On the other hand, occupancies rose 10 percentage points to 70%.
“But room rates and occupancies are still below 2007-08 levels. In January 2008 average rates were Rs 12,600 and occupancies 79%,” said Sridhar Chandrasekhar, head of research, Crisil Research.    

Naresh Chandnani, vice president - sales, IHHR Hospitality (which runs the Ananda & Ista chain), said business has improved in January-February.

“Occupancy at Ista Hotels rose 20% to 23% while at Ananda it was up 20%. Overall there is a rise of 12-15% year to date. While Hyderabad saw a sharper increase, Bangalore sustained versus last year due to room supply exceeding demand,” Chandnani said.

Average room rates in city hotels in 2010 are lower than 2009 by around 20%, he said.    

The south Mumbai hospitality market - the epicentre of the business district, showed the sharpest improvement in occupancies at 79% for January as against 48% last year.

The decline last year was a result of terror attacks and a sizeable number of hotel rooms (between Taj and Oberoi properties) going out of circulation.

The outlook for coming months is very optimistic particularly because of revival in key sectors that require higher usage of hotels such as pharma, information technology, bio-technology and defence, to name a few.

“Sure the signs are positive but booking windows are becoming shorter and shorter. There is ample supply in cities so advance bookings are lower. Most people travelling now book a week or so before travel as opposed to booking months in advance,” said Chandnani.