It was a Saturday evening. Posh cars jostle for space at the portico of upscale Hilton hotel in Chennai. The lavish lobby was buzzing with people. There was little elbow room in the roof-top ‘Q Bar’. “This place is usually sold out during weekends,” says Parag Sawhney, General Manager of the hotel, with a hint of pride. “In fact, all our F&B outlets have been doing well.”

Hilton’s focus is on driving revenue from all fronts – rooms, food and beverage and conferences and events. This helps the hotel drive higher profitability, Sawhney adds.

Shoban Kumar, Executive Assistant Manager of Park Hyatt in Chennai, has a similar thing to say. “We witnessed phenomenal success as far as our F&B business is concerned.” The hotel also had a “fair share of occupancy in our rooms” in the last couple of months, he adds, echoing the views of several other hotel managers in the country.

Some improvement The hospitality sector has begun to see some improvement in the October-December quarter. Hospitality companies expect the trend to get stronger in the coming year. Slowing economic growth and a glut in supply of new rooms (planned during the boom years of 2006-2007) had led to lower occupancy rates in the post-crisis years. The official count of branded/organised hotel rooms crossed one lakh during 2014, creating a huge mismatch between demand and supply in the market.

Challenging year Overall, 2014 was quite a challenging year for the industry. According to veterans, the average occupancy during the year stood at 55-60 per cent, though some hotel chains outperformed the market in certain pockets.

“But overall, I would say 2014 was as good or as bad as the previous year,” says Virender Razdan, General Manager, ITC Windsor, Bengaluru.

Luring customers However, this down cycle has taught hoteliers to realign their cost structures, optimise operational efficiencies and adopt flexible business models. Many hotel owners and operators remodelled their existing properties with new facilities such as stylish bars and other F&B outlets, free hotel-wide Wi-Fi connections to customers, plush interiors and fitness areas. Besides, hotels offered huge discounts, announced happy hours and free wine tasting events, aimed at luring the millennial. Hyatt even announced a flat discount on its daily room rate, as a ‘Monsoon Flash Sale’ in July this year. The chain sold its rooms at a 50 per cent discount for bookings made between August 1 and 15, for stay between August 1 and October 31, and again from December 16 to January 10, 2015.

Profitability concern But profitability remained a concern. In a tough macroeconomic environment marked by high inflation, rising interest rates, currency volatility and tepid demand, big hotel companies incurred losses during the year. Several of them shelved expansion plans, and resorted to asset sales.

“This is only a temporary phenomenon. As the economy improves and business houses resume travelling, the industry will bounce back,” says Kumar of Hyatt.

With no immediate new supply in the pipeline, the market is optimistic about the new year. “Having been successful in a rather difficult year, we are optimistic of continuing our winning streak into the new year by adding new customers and increasing occupancies. Additional attention will be towards talent development, augmenting our restaurants, and driving catering business through weddings and large conventions,” says Sawhney.

According to Rajeev Menon, Area Vice-President (India, Maldives, Malaysia and Australia), Marriott International Inc, “Marriott had a pretty good year in 2014. We expect 2015 to be much better. I genuinely believe it will be a better year for the industry. With revenue per available room started moving in the right direction, on a broad scale, profitability should improve.”

Given the current demand-supply dynamics, stable political situation and the likelihood of overall economic growth, the Indian hospitality sector is on the cusp of a much expected growth trajectory, he added.

A senior executive of a home-grown hotel brand, however, has a different opinion. If the room rates do not stabilise now, at least at the current levels, it could turn out to be disastrous. The current discounts are self-inflicted by hoteliers. The practice of undercutting could be a serious threat to the industry, he says.

Rising costs “Thanks to rising pay-roll and utility costs, growth in profitability is still a distant dream.” However, he admitted that volumes are looking better, and 2015 seems to be more promising.

Overall, the tide finally seems to be turning.

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