Reported By:
| Edited By: Ashish K Tiwari |Source: DNA |Updated: Mar 18, 2018, 06:23 AM IST
Profit margins at India’s premium hotels (five-star, five-star deluxe and above) are set to shrink to levels last seen during the 9/11 attack and Sars outbreak as economic slowdown, market glut and and rising costs show no signs of abatement, finds a study.
As per Crisil Research that analysed 12 cities that account for 80% of India’s premium hotel rooms, annual demand growth for premium hotel rooms is likely to stay subdued at 7% in 2012-13 and 2013-14.
Binaifer Jehani, director, Crisil Research, said, “The slowing demand growth will coincide with large additions of rooms. We expect 14,500 new rooms to be added by 2013-14 to the existing 46,200 rooms as a result occupancy levels of premium hotels will fall from 64% in 2011-12 to 56% in 2013-14.”
Slowing demand growth, rising costs and large-scale room additions will lead to decline in occupancy levels and average room rates, crimping the margins to just over 16% in the next fiscal, a lowest level seen during Sars outbreak and 9/11 attack.
“Margins had dropped to 16-17% during that period as travel advisories were issued by various countries, sparking a drastic fall in demand. However, the fall was temporary and margins recovered to their earlier levels of 30-35%. This time around though, the recovery will be slower. A continued oversupply, at least till 2015-16, will pressure profitability of premium hotels,” Jehani said, adding that operating margins will dip from around 24% in 2011-12 to slightly over 16% in 2013-14.
However, Dilip Puri, managing director - India and regional vice president - South Asia, Starwood Asia Pacific Hotels & Resorts Pte Ltd, said, “While there is pressure on margins, I do not believe they will plunge to levels as indicated in the report. Increased room inventory has already depressed average room rates for premium hotels, which are set to further dip by 10% through the next fiscal.
The average revenue per available room, which is the revenue from rooms occupied divided by the number of rooms available, will fall from Rs5,000 per day in 2011-12 to Rs3,900 in 2013-14, said Crisil.
