The Hindu Business Line : Hospitality sector gets a boost from buoyant economy

Among the highlights of the performance was the sharp growth in occupancies and average room rates in second-tier cities such as Indore, Jaipur, and Agra; the flood of investment in the sector by both hoteliers and new entrants; and interest in the budget hotel segment.

Mumbai , Dec. 31

THE year 2005 has been one of record numbers for the hospitality industry. Whether occupancies, average room rates (ARRs) or stock performance, the industry could not have asked for a better run.

The hospitality industry grew sharply on the back of a buoyant economy, sustained tourism growth and the fact that there were no major natural disasters that could have impacted growth. Improved access and convenience of travel, especially by air, have also aided growth in the segment.

The highlights of the year's performance include the sharp growth in occupancies and ARRs in second-tier cities such as Indore, Jaipur, and Agra; the flood of investment in the sector by both hoteliers and new entrants; and interest in the budget hotel segment.

Second-tier cities lead in occupancies, ARRs: Despite the increase in the number of hotel rooms in the country, the demand-supply mismatch remains quite large. This is evident from the increase in ARRs by 24 per cent over the previous year. Coupled with a rise in occupancies, the overall RevPAR (revenue per available room) grew by 29 per cent at Rs 4,167.

According to a report by CRISInfac, for the 11 months to November 2005, Hyderabad, with an occupancy rate of 85 per cent, led in terms of the growth in average occupancy. It was followed by Kolkata (with occupancy of 73 per cent), Jaipur (62 per cent), and Agra (56 per cent).

ARRs in Pune posted the sharpest growth in the country at 45 per cent, followed by Bangalore (40 per cent), Hyderabad (33 per cent), and Delhi (32 per cent).

Ms Binaifer Jehani at CrisInfac attributes the record numbers in the second-tier cities to the spread of the IT and IteS industries in these cities.

Hyderabad topped the list in the overall growth in RevPAR at 45 per cent followed by Agra (43 per cent), Jaipur (40 per cent), and Delhi and Kolkata (37 per cent).

Stocks outperform the market: Strong fundamentals combined with a conducive environment for tourism growth saw hotel stocks outperform the rest of the market.

According to the head of research at a stock broking firm, investor interest in the sector has been aided by the increased visibility and confidence in the sector. Further, the sustained growth in inbound tourist arrivals and the opening up of the aviation sector and cheaper travel options had helped the hotel industry. He forecast that the hotel stocks were likely to outperform other stocks next year also.

The success of the sector is luring a lot more investors. Besides the traditional players, entrepreneurs, NRIs are also tying up with hotel operators to enter the sector.

A real estate consultant here pointed out that several builders had entered the segment with multi-use property developments that combined commercial real estate with hotels and even multiplexes. Adarsh Builders, which has tied up with Shangri-La for a property in Bangalore, and Clover Developers in Pune, reflect the arrival of developers into the hospitality segment.

The consultant sees investments continuing to flow into the sector over the next two-three years.

Budget segment picks up: The year also saw the expansion of the budget or the value-for-money segment. While Indian Hotels Company Ltd launched the indiOne brand in 2004, Savera launched its HomeTel brand earlier this month. Besides, the Accor group also plans to launch its budget brand, Ibis, in the country soon.

An official with a consultancy firm said the budget hotel segment would cater to the demand for clean, functional rooms from the mid-level business traveller. This segment was still underserved and was also likely to draw a lot of investor interest going forward, she said.