Hotel occupancy to remain low till FY24

Forum Gandhi Mumbai | Updated on April 18, 2021

Hotelivate sees 18.9% jump in FY22, but says the Covid surge makes forecasting difficult

The hospitality industry could be staring at a lull for at least the next two fiscal years. According to Hotelivate’s Indian Hospitality — The Sstats and Pulse Report, hotel occupancy may breach the 65 per cent threshold only by FY24, and pre-Covid average daily rate (ADRs) may be achieved by FY25.

Hotelivate, a consultancy firm, has forecast that FY22 will see a hike of a mere 18.9 per cent nationwide occupancy compared to FY21, which closed on March 31, 2021 with 33.8 per cent hotel rooms occupied. This is a de-growth of at least five years in hotel occupancy.

‘Tough year again’

“FY22 may be tough, again! It will most certainly be a better year than FY21 though. With Covid cases rising in large numbers yet again, the first (and possibly second) quarter of FY22 are likely to remain under severe pressure. Forecasting in these uncertain times remains extremely challenging,” said Achin Khanna, MRICS Managing Partner, Strategic Advisory and Kush Anand, Analyst, Strategic Advisory, who co-authored the report.

FY22 is likely to clock about 52.7 per cent occupancy at an ADR of ₹5,016, while these numbers for FY23 are likely to be 64.9 per cent occupancy at ₹5,618. “These estimates, especially for FY22, may need a downward correction if the recent surge in Covid cases witnessed over the past 10 days continues through Q1 of this new fiscal,” the hospitality industry consultancy firm cautioned.

New supply

While FY23 occupancy may appear to be lower than the pre-Covid occupancy of 65.4 per cent (FY20), the absolute amount of room nights sold will be higher, given the new supply that is likely to open by the end of FY23.

However, “it is expected that occupancy will breach the 65 per cent threshold only by FY24, while we are of the view that pre-Covid ADRs may be achieved by FY25,” the duo added.

However, percentage growth in supply over five-years, paints a different picture. Similar to the aviation industry — which is dominated by the low-cost carriers — the hospitality industry, too, seems to be tilting towards economy and midscale spaces.

The fact that while growth in supply when viewed in total rooms opened appears to have a similar quantum across positioning, the growth when viewed as the number of hotels opened is clearly more in the economy and midscale space. Smaller inventory assets in these positioning (largely in secondary and tertiary towns) is what has been (and will be) fuelling new supply growth.

Published on April 18, 2021

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