Rising room supply likely to keep hotel rates flat this fiscal

Hotel room rates are expected to remain flat at last year's levels during 2010-11, despite some moderate increases planned by industry players for the October season, coinciding with Commonwealth Games. One of the reasons for this is the new room supply to be added during the next one year, which will keep occupancy and room rates for the industry under pressure.

According to a Crisil report, the industry closed 2009-10 at an estimated average room rate (ARR) of Rs 9,255 (pan-India), with an occupancy rate at 63.9% during the period. Room supply is expected to grow at a compounded average gross rate (CAGR) of 10% during 2009-10 and 2011-12, resulting in the addition of over 7,000 rooms.

Among all cities, Bangalore was the worst impacted with a drop of 33% in ARRs during 2009-10 to an estimated Rs 8,231 from Rs 12,227 last year. The city is mainly driven by business travel and, of late, has been seen as overrated. This year, Bangalore is expected to see some recovery in rates on the back of improved business environment. Crisil forecasts an ARR of Rs 8,378 for Bangalore for 2010-11.

Industry players are expecting a rise of just around 10% in room rates for the peak season and feel the current summer season will be a tough one for the industry.

“The summer season will be a difficult one for the industry due to the additional supply that comes in, that too, this being the first summer season after the financial crisis," said Trident Hotels president Rattan Keswani.

He added that sentiments in the market are strong and October season is expected to bring back the confidence into the market.

"Though it would not be as strong as in 2006-07, it will be good enough," he said. Hotel Leelaventure senior vice-president Rajiv Kaul adds: "The fourth quarter of 2009-10 has ended on a high note and we expect rates to be at sustainable levels."

He added that there will be a 10-15% revision in rates by hoteliers in October, the peak season.

Typically, the hotel industry revises rates every October, but last year, many players had shied away from revising peak season rates as occupancies were at low levels.

For the first three months of 2010, foreign arrivals have seen strong growth with January showing 17% growth, February 10% and March 13%. This is over a drop of 17% in January 2009, 10% in February'09 and 8% in March'09. Ministry of tourism secretary Sujit Banerjee has said that the forex earning has grown by 15% during January-March.