ICRA expects hotel industry revenues, margins to return to pre-COVID levels in FY23

The hotel industry’s revenues and margins are expected to return to pre-COVID levels in 2022-23 despite the potential impact on demand in case of further waves of the pandemic, according to rating 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.

Pan-India premium hotel occupancy is expected to be at 68-70 percent for FY2023, it said adding the average room rate (ARR) is expected to hover around Rs 5,600-5,800.

”The improved operating leverage along with sustenance of cost-optimization 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 FY2023.

ICRA Vice President and Sector Head Vinutaa S said the hotel industry witnessed a healthy start to FY2023, with 56-58 percent occupancy in premium hotels in the first quarter of FY23.

It was up from 40-42 percent in FY2022 and closer to pre-COVID occupancy of 60-62 percent in Q1 FY20, she added.

”Pan-India ARR stood at around Rs 4,600-4,800 in Q1 FY2023, as against Rs 4,200-4,400 in FY2022. It remains at a 16-18 percent discount to pre-COVID levels on an average, although a few high-end hotels and leisure destinations witnessed ARRs spike to higher than pre-COVID levels in the last few months,” Vinutaa S said.

The demand recovery was aided by leisure, transient passengers, MICE/weddings, and a gradual pickup in business travel and foreign tourist arrivals (FTAs), while some cities also 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 travelers, like Bengaluru and Pune will take a few more months to recover,” she added.

Vinutaa S said although Q1 FY2023 was among the best quarters since the onset of the pandemic, the RevPAR (Revenue per available room) remained at 20-22 percent lower than pre-COVID levels and about 45-50 percent discount from the FY2009 peak.

For mid-scale hotels, the recovery has been slower, due to the dependence on business travel. Further, cost inflation can also have a bearing on mid-scale hotel demand, she said.

ICRA currently has a stable outlook on the industry, Vintage S added.