Slowdown hits premium hotel segment,occupancy slumps

The slowdown in the global economy and the resulting lack of demand has seriously impacted the profitability of premium hotels in India,according to a report by Crisil Research....

The slowdown in the global economy and the resulting lack of demand has seriously impacted the profitability of premium hotels in India,according to a report by Crisil Research. Demand for rooms in the premium segment is expected to fall by 11 per cent in 2008-09 as compared with the previous year. Demand is set to further decline by 15.5 per cent in 2009-10. Simultaneously,inventories are expected to increase at a compounded annual growth rate CAGR of 9 per cent from 2007-08 to 2011-12 across twelve major cities. Occupancy rates might show their steepest decline in decades.

Crisil forecasts average room rates ARRs to fall by around 23 per cent in 2009-10 and decline further by around 18 per cent in 2010-11. With falling occupancy rates,hoteliers are expected to lower ARRs to attract customers. This downturn has been a result of overall global sluggishness in travel,visible since September when the global economy began to deteriorate, said Crisil Research head Sridhar Chandrashekar.

However,real estate developers and hoteliers perceive the slowdown as a short term trend that is expected in a cyclical business. This temporary slowdown will not affect our medium- to long-term perspective. We need to be prepared for the Commonwealth Games in 2010 and increase the number of options available in the market, said Ajay Midha,Director,Raheja SEZs Limited.

Navjit Ahluwalia,regional vice-president at Marriot Hotels,said,It is expected that business will take a hit when the economy is slow and threat of terror attacks is still on peoples minds. Occupancy rates were down to 10 per cent in the United States after the attacks of September 11. But this is a short-term impact which will improve with the global economy.

Yet,some changes are being contemplated by service providers. We are now foraying into markets for four-star and four-and-a-half star hotels rather than five-star and five-star super deluxe hotels,which we had contemplated earlier. Our plans will be launched over the next one-and-a-half to two years, added Midha.

Abour the expected fall in prices,Ahluwalia maintained that no proactive measures have been taken yet to reduce prices. But the possibility is not unlikely. The mix of customers for the premium segment has changed from being primarily international to primarily domestic. Our rates have adjusted according to this need and will further adjust according to demands of the market, said Ahluwalia.