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5-star Hotels in India Suffer from Low Demand

News Five-star hotels in India will see their revenues cut down in two years because of the decreased demand – this information has been published in the report by Crisil Research. The decrease can be seen in both ADR and occupancy, and this is a really bad sign. If luxury hotels of the country keep operating under the same pressure, in 2013-2014 their operating margin will fall by 16%. This will be the lowest result in 10 years.

There is one more problem in the segment of luxury accommodation in India. While demand is not growing, there are some really large scale room additions. Given that the global economic crisis has its impact on both leisure and business travel, the prospect doesn’t look very optimistic. It is forecasted that the annual growth of demand for premium hotel rooms will add approximately 7% in 2012-2014. At the same time, as many as 14,500 new guestrooms will be added to the luxury segment in 2013-2014. Currently, there are 46,200 luxury guestrooms in the country. Because of this infusion the occupancy of premium hotels will fall from 64% in 2012 to 56% in 2013.

Because of this demand-supply imbalance ADR of premium hotels will lose approximately 10%. Because of the fall in occupancy and the average room rate RevPAR will also suffer greatly. Hotels in Chennai and Ahmedabad are expected to feature the decline of RevPAR of 20%. Hotels in Jaipur, Bengaluru, NCR, Kochi, and Hyderabad will lose a bit less – 15% a year. Hotels in Goa and Agra will be in better position thanks to limited room additions.

At the same time energy costs are expected to rise significantly in 2013-2014. Together with a shortage of educated personnel operating margins will fall from 24% to 16%. As the oversupply will not stop until 2015-2016, next several years will be definitely not easy for premium hotels in India.


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