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The hotel industry's revenues and margins are expected to return to pre-Covid levels in FY23 despite potential impact on demand in case of further waves of Covid, according to ratings agency, ICRA.
Domestic leisure and transient travel will be the main demand drivers, although there will be a gradual recovery in business travel and foreign tourist arrivals (FTAs), ICRA said in a statement.
Premium hotel occupancy
Pan-India premium hotel occupancy is expected to be at 68-70 per cent for FY23, it said adding the average room rate (ARR) is expected to hover around ₹5,600-5,800.
"The improved operating leverage along with sustenance of cost-optimisation measures will support margins and accruals for hotels," it said.
Notwithstanding the potential impact on demand with further Covid waves, if any, ICRA said, it expects the industry's revenues and margins to return to pre-Covid levels in FY23.
ICRA Vice President and Sector Head, Vinutaa S said, the hotels industry witnessed a healthy start to FY23, with 56-58 per cent occupancy in premium hotels in Q1FY23.
It was up from 40-42 per cent in FY22 and closer to pre-Covid occupancy of 60-62 per cent in Q1FY20, she added.
"Pan-India ARR stood at around ₹4,600-4,800 in Q1FY23, as against ₹4,200-4,400 in FY22. It still remains at a 16-18 per cent discount to pre-Covid levels on an average, although a few high-end hotels and leisure destinations witnessed ARRs spike higher than pre-Covid levels in the last few months," Vinutaa S said.
Leisure, business travel pick up
The demand recovery was aided by leisure, transient passengers, MICE/weddings, and gradual pickup in business travel and foreign tourist arrivals (FTAs), while some cities witnessed traffic from specific events. MICE refers to meetings, incentives, conferences, and exhibitions.
"While leisure destinations and gateway cities witnessed healthy occupancy, cities largely dependent on business travellers, like Bengaluru and Pune, will take a few more months to recover," she added.
Vinutaa S said, although Q1FY23 was among the best quarters since the onset of Covid, the RevPAR (Revenue per available room) remained at 20-22 per cent lower than pre-Covid levels and at 45-50 per cent discount to the FY09 peak.
For mid-scale hotels, the recovery has been slower, due to the dependence on business travel. Further, cost inflation having a bearing on mid-scale hotel demand, she said.
ICRA currently has a stable outlook on the industry, Vinutaa S added.
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