Hospitality industry set to grow; key metrics to continue rising in FY24: Report

The hospitality industry, which suffered a significant setback due to the pandemic in the past two years, has experienced a reversal of fortunes in the fiscal year 2023 and is now steadily heading towards its growth path. According to a new report by CareEdge Ratings, the domestic hospitality sector's demand outlook is positive, indicating a promising future for the industry.

Thanks to the strong recovery in occupancy and average rates, the hospitality sector's RevPAR (revenue per available room) is expected to reach Rs 4,000-Rs 4,100 by the end of FY23, representing marginal growth over FY19 levels (Rs 3,984). The average daily room rate (ARR) drove the RevPAR recovery, with weddings and domestic leisure travel contributing significantly to the ARR increase in FY23. The sector's ARR should continue to rise in FY24, boosted by India's G-20 presidency, the ICC Cricket World Cup, and the resumption of foreign inbound travel, along with robust domestic leisure travel, the sector's ARR should continue to inch higher in FY24, boosting RevPAR. CareEdge estimates that RevPAR should grow 3-5 per cent over FY23 levels.

All key performance indicators, including RevPAR, ARR, and occupancy rate, are higher than pre-pandemic levels, indicating that the industry is on its way back to profitability. Domestic hotel players are now in a better position to resume pending projects and start new ones, thanks to increased revenues and accruals cushioned by the players' cost restructuring. This, in turn, will increase supply in the sector.

"The key announcements in the Union Budget 2023-24, promoting the tourism industry through active participation of state and public-private partnerships, will further provide demand impetus for the sector and act as a booster dose. This, in turn, will create more demand for the hospitality sector, supporting occupancy levels. Additionally, the focus on increased regional connectivity and additional airports, as announced, will promote tourism throughout the country and be a positive development for the sector," said Ravleen Sethi, Associate Director at CareEdge Ratings.

The shrinking supply-demand gap, caused by lower supplies in the previous two years due to the pandemic, has resulted in higher occupancy in the current fiscal year, giving players more pricing power. In FY24, the average hotel occupancy in India is expected to be between 67-69 per cent, with an ARR of Rs 6,200-Rs 6,400.