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Hotels to hike room rates 4-15% starting October

While metros may see price hikes of 6% it would be 3-8% in other markets

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Come October 1, 2019, most hotel companies across the country will increase room rates as business season sets in for the Indian hospitality industry.

The hike in room rates is expected to be in the 4% to 15% range depending on location, category and brand. The price increase is part of the industry's annual exercise that comes into play starting October and reaches its peak by the year-end and begins to normalise in the first week of January.

Speaking to DNA, Patu Keswani, chairman and managing director, Lemon Tree Hotels Ltd, a leading player in the mid-priced hotel accommodation segment, said, prices will go up and there is no doubt about it. "By how much will be a function of the market, individual hotels and their micro-markets," said Keswani. Lemon Tree currently owns, operates and manages 57 hotels across 34 cities.

FINGERS CROSSED

  • There are concerns that certain markets may not be able to take up prices due to prevailing oversupply situation
     
  • Markets with a lot of demand from the auto and pharma industry will not be able to hike prices
     
  • Industry players said corporate tax cut and GST reduction would help in generating business

There are also concerns that certain markets may not be able to take up prices due to prevailing oversupply situation as a result of which demand hasn't picked up. Also, certain markets with a lot of demand for room nights come from the auto and pharma industry will not be able to hike prices.

"I think hotel companies will approach the price hike very carefully. While metros may see price increase by 6% or so, in other markets it could be between 3% and 8%, depending on the prevalent market conditions," said a top executive from a leading hospitality firm.

Hotel companies will look to increase room rates as they get a large part of their annual revenues from the upcoming three to four months, said Vishal Kamat, chief executive officer, Kamat Group of Hotels. "With the business season starting in a week from now, demand for hotel rooms is expected to increase. Also, cost of operations has increased, especially energy, food and raw material, and employee cost. These need to be balanced out and increased revenues from the business season will help the industry take care of the costs," he said, adding that hotels under Kamat Group will see 10-15% hike in room rates effective October 1.

Industry players said the government playing a catalyst is expected to play out very positively for the hospitality industry in general. Quality hotel brands will become more affordable now. "GST at 28% was pinching customers earlier as room rate of Rs 7,500 per night in Mumbai is not really premium pricing. That has now come down to 12% and 18%, making it more attractive. While 18% is still high, it's not a shocker as was the case with 28%, which is over one-third in taxes. Now corporate bookings can also be expected to increase and we are getting very positive feedback from our sales department post the GST rate cuts," said Kamat.

Overall market conditions have been very tough over the past two quarters with corporate sector cutting down on travel expenses. However, the reduction in corporate tax and GST rates is expected to improve market and consumer sentiments. Accordingly, companies would look to review their allocation for business-related travel and thereby increase demand for hotel rooms across key markets in the country. Similarly, the market is hopeful that consumers will actively participate in festive shopping and leisure travel during the upcoming holidays.

Himmat Anand, founder of Tree of Life Resorts & Hotels, said his chain of leisure properties will be increasing prices October 1, 2019, onwards. "I would think a price hike of anything between 4% and 6% on the outside, which will help manage the increased cost of operations that goes up every year. That should be the order of the day. Also, we would extend the benefit of the reduction in GST rates to our clients, try and activate more business to come in," said the founder of Tree of Life that operates resorts in Jaipur, Varanasi, Udaipur, Ranthambore, Kerala and Binsar Wildlife Sanctuary.

According to Anand, a lot of Indian leisure travellers are already starting to look at overseas destinations. And unless hoteliers make hotel room pricing in India attractive for them it would get very challenging. "Airfares in India are already so high comparatively. And if hotel room rates are also increased significantly, there will be hardly any domestic business left," said Anand.

While the industry, in general, will be looking to hike room rates, players like Cygnett Hotels & Resorts have decided otherwise. The mid-market hotel chain has seen a 66% occupancy level at an average room rate of Rs 3,050 and revenue per available room (RevPAR) of Rs 2,013 in this fiscal. Sarbendra Sarkar, managing director and founder, Cygnett Hotels & Resorts, said, "We were not planning to increase room rate as the market sentiments are already down. Accordingly, we will be continuing with the budgeted average daily rate across our hotels in the portfolio."

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