Budget hoteliers on a rough ride, lose to five-star cousins
SPIRALLING land prices in India and hardening interest rates have seen penny-conscious budget hoteliers go slow on development in the metro markets. While growth in premium hotel (five-star deluxe) rooms has been 6% over the last 5 years, two-star and one-star categories have seen a negative growth of 7% and 10%, respectively. Higher profitability and revenues that accrue from a five-star hotel as compared to a two- or one-star hotel, have seen many hoteliers upgrade their two- or one-star hotels to four- and five-star category over the last few years . Despite all the interest generated by mid-market and budget hotel development, developers in India still like to associate themselves with five-star deluxe brands because of the ‘snob value’ attached to it, say industry sources. The hospitality industry is currently witnessing unprecedented growth and the increase in revenue and profitability of most of the premium hotels is an indication of this, said Binaifer Jehani, analyst, Cris Infac. Some of the new hotel properties are expected to add an additional 12,332 rooms in the luxury segment and 15,924 room in the five-star category out of a total 53,333 rooms in the various metro markets in the next three to four years. However, hoteliers say running five-star hotels isn’t as easy as setting up one. The luxury hotel segment is also characterised by its higher service orientation, which makes it particularly vulnerable to the manpower crunch, said Nitesh Shetty, managing director of Nitesh Estates. A huge demand-supply gap saw premium hotels room rates go up by over 20% in the last few years. While the average rate per five star deluxe hotel is around Rs 6,667, with occupancy levels ranging between 74% and 78%, in the two-star and one-star categories, the average room rate is around Rs 864 and Rs 556, respectively. With gestation period ranging between three and four years, most of the capacity expansion for the premium category is expected in 2007-08 and 2008-09. Analysts also indicate that room additions on the back of a strong tourist inflow, would ensure better margins and profitability. The hospitality industry is witnessing unprecedented growth and the increase in revenue and profitability of most of the premium hotels is an indication of this, said an official of a Mumbai-based premium hotel.
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