Rupee fall gives pricing power to hotel firms

Several domestic segments are reeling under the rupee fall, but the hotel industry is certainly rejoicing. The depreciating rupee is making hotel rooms cheaper for foreign tourists, who now have to shell out fewer dollars for the same tariff against a few months back. 

A foreign national today is paying only $180.31 ($1 = `55.46) for a day’s stay in five-star hotel room priced at `10,000 as compared to $195.08 ($1 = `51.26) in January.

Industry experts said if the dollar remains at the current level or appreciates for the next couple of quarters, it would make India as a destination cheaper for foreign tourists. This could also give hoteliers an opportunity to hike room rates in the September-February business season.

In a note on Tata Group’s Indian Hotels Co Ltd (IHCL), Saurabh Kumar and Gunjan Prithyani, analysts with JPMorgan, said the IHCL will benefit from rupee depreciation. IHCL is South Asia’s largest hotel operator with 12,200 guest rooms and 103 hotels.

“INR depreciation is equivalent to tariff reduction. It improves pricing power henceforth – a lower INR has in effect amounted to a US dollar tariff reduction for incoming tourists, who typically account for over 60% of demand in the luxury hotels category (5 star and above),” the JPMorgan analysts said.

Taking into consideration that the average room rates have gone nowhere over the last four years across most markets and on an inflation-adjusted basis tariffs are probably back to pre-2005 levels, the analysts said.

 “Fiscal 2012 occupancy levels at around 65% levels would suggest that pricing power isn’t back just yet, but we believe that at current tariffs demand should be price inelastic for an 8-10% hike in the second half,” they said.

However, hoteliers feel the currency impact will be felt only if demand for hotel rooms increases significantly, more so in the business season starting September.

Sanjeev Shukla, director-marketing, Four Seasons Hotel, Mumbai, said the overall demand situation at present is fairly subdued mainly because of the slowdown and other concerns.

“Going by the current rupee-dollar rate, India is already cheaper 20% from a year ago. However, it hasn’t really benefitted the trade largely because the key metros are largely business destinations and this time of the year is typically a low season. However, traditional tourist destinations such as the Golden Triangle (Delhi-Jaipur-Agra), Goa and Kerala would benefit,” said Shukla.

Industry players said since rupee has fallen against other currencies such as euro and Korean won too, tourists from those countries also stand to benefit.

However, this being a slack season, the traffic has been slow from these countries such as Spain and Portugal.

“It would be interesting to see how the winter will pan out when traditional leisure traffic from countries including US, France, Germany starts to move. How much the dollar will impact business is still a big question and would depend on the overall economic environment at that time of the year,” a senior official from a hospitality consulting firm said.