Mumbai five-star hotels reeled under pressure in March

Five-star hotels operating in the commercial capital - Mumbai - have witnessed pressure during March 2011 as compared with the same period last year.

A business performance data compiled by Crisil Research indicated a southward trend in revenue per available room (RevPAR) for hotels in South Mumbai while north Mumbai hotels managed a very marginal increase, despite decline in average room rates (ARRs).

In fact, Mumbai and Agra were the only hospitality markets among other cities such as Delhi, Bangalore, Goa, Chennai, Kolkata and Jaipur that experienced decline in ARRs.

“The south Mumbai hospitality market witnessed a decline from last year’s occupancy levels resulting into a downward pressure on ARRs due to competition, which lead to RevPARs declining 12% on a year-on-year (y-o-y) basis.

However, despite an increase in ORs, saw downward pressure on ARRs, which declined 5% (y-o-y), due to additional inventory and competitive business scenario,” said Ajay Dsouza, head of research, Crisil Research. The business performance data compiled by Crisil pertains to five-star and five-star deluxe hotels only.

Occupancy levels in south Mumbai hotels declined from 70% in March 2010 to 65% in March 2011, while the north Mumbai hospitality market witnessed an increase in occupancy from 64% in March 2010 to 68% in March 2011. “Though south Mumbai witnessed a decline in occupancy levels, it is most likely a temporary dip rather than a signal of declining demand,” said Dsouza.

The average room rate in both south and north Mumbai markets was down 5% from Rs11,050 to Rs10,508 in March 2011 and Rs8,932 in March 2010 to Rs8,511 in March 2011 respectively. The decline in room rates significantly impacted RevPAR for south Mumbai hotels, down from Rs7,715 to Rs6,805 in March 2011.

Despite decrease in ARRs, hotels in north Mumbai saw a marginal 1% increase in RevPAR from Rs5,716 in March 2010 to Rs5,787 March 2011, mainly owing to increased occupancy levels. RevPAR is total room revenues divided by total room inventory of a hotel — irrespective of the number of rooms occupied. It shows how much the whole asset is actually earning.

Officials from Taj and Oberoi groups with very significant hotel room inventory in south were not available for comment. A detailed questionnaire sent to representatives of both the companies remained unanswered at the time of going to print. However, requesting anonymity, a senior official from one of the groups said business has progressed well and hotels did register growth in the said period, though it wasn’t very significant.

“The south Mumbai market saw new room supply as Taj’s Palace Wing and The Oberoi got re-introduced at various stages in 2010. While there was initial pressure, new inventory has got absorbed and room rates have stabilised. I’d say a decent growth was registered in March 2011 vis-a-vis same period last year,” said the
official.

In April and May, the official said that the new fiscal has started on a very positive note. “We see the momentum continuing in the coming months, except for the monsoons which traditionally is a lean season. However, meetings / conferences and weddings will make it up to a large extent,” he said.

Echoing the sentiments were hoteliers in north Mumbai. Rajiv Kaul, president of The Leela Palaces, Hotels & Resorts, said, “Occupancies are certainly holding up and we are seeing 10-15% improvement in business on a year-on-year basis. The situation is very much true for all our operational hotels in the country.”

On the outlook going forward, industry experts are of the opinion that hotels in most destinations have managed to arrest the downward trend in ARRs seen over the last couple of years and some destinations have even seen a substantial increase.

“Overall most destinations are likely to continue to see improved demand over last year. While there will be a decline in occupany and ARRs in coming months, it will be more due to seasonal reasons (end of the tourist season). Having said that, increasing costs and competition will place pressure on profitability,” Dsouza cautioned.