India’s hospitality industry has enjoyed robust growth for the past few years buoyed by growing business and leisure travel owing to a favourable economic atmosphere. The premium segment hotel market size has grown at an impressive 27 per cent CAGR from approximately Rs 43 billion in 2003-04 to Rs 112 billion in 2007-08. At present, the premium segment accounts for around 60 per cent of the hotel industry’s revenues. However, the astronomical growth rates seen in select business destinations are now a thing of the past. Lower corporate travel expenditures and the fallout of the financial crisis emanating from the US will trigger a downward spiral in RevPARs across business destinations. A large number of rooms poised to enter the market will further dampen RevPARs as hoteliers reduce ARRs to attract customers. The only positive for the industry is that a fair number of projects may be delayed or even suspended given the rising interest costs, liquidity crunch and pessimistic business sentiment for the sector. We believe this will partially cushion the fall in revenues as some potential competitors abandon plans to enter the market. Leisure destinations too are likely to suffer on account of an anticipated slowdown in foreign tourist bookings.
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