Hotels resilient to slowdown, pin hopes on tax sops

Premium and mid-priced hotel segments have largely managed to beat economic slowdown thanks to lagging supply in the market and people keeping up with their discretionary travel spends.

The sector is certainly not on high growth trajectory but managing a reasonable expansion.

"We are into premium hotel space so have not been hit too hard. But India growth story of 10 per cent is missing. The growth is much lower," said Ankur Bhatia, Executive Director of Bird Group which runs Roseate brand of premium hotels in India and the UK.

Interestingly, the diversified travel conglomerate has seen better growth in the UK than in India which is counted among the fastest growing major economes.

As per a Kotak Securities report, luxury and high-end hotels account for 26 per cent of the overall 279,255 keys as of calendar year 2018 with economy hotels accounting for 14 per cent. The mid-priced and upscale account for bulk of the 60 per cent of the overall room keys.

Ajay Bakaya, Managing Director, Sarovar Hotels & Resorts said that when going gets tough it is the premium segment that gets affected first. The premium customers switch to mid-priced segment when they cut their discretionary travel spend and tighten the belts.

"July and August were very poor months for everyone. September was moderate and we are hoping October to be better. We are hoping things to get better as the season is approaching when there are weddings, foreign leisure travel, more inbound traffic and good weather means large number of events happening," Bakaya said.

He stressed that premium hotel segment is the first to be impacted by a slowdown and last to pick up.

The hotel industry has seen demand growing at a consistent 6.5 per cent CAGR over the past nine years, with supply growth lagging at 4.5 per cent CAGR between 2010 and 2018. Consequently, occupancy for hotels has improved from 60 per cent in 2010 to 65 per cent 2018.

With initial signs showing muted growth in hospitality sector, one of the largest job providers, the government has announced a slew of measures to boost demand and help the industry sail through the tough time. Besides cutting corporate tax to 22 per cent to help the industry overall, it has cut GST on hotel rooms across various tariff categories.

In its meeting last month, the GST Council reduced rates to 12 per cent from 18 per cent for rooms costing below Rs 7,500 a night and from 28 per cent to 18 per cent for rooms with tariff above Rs 7,500.

The move is set to provide impetus to demand in the hospitality sector resulting in savings of 5-8 per cent on all inclusive prices of rooms.

"However, improvement in underlying room rates and resilience of occupancy under current economic environment are more pertinent to the sector," said the Kotak research note to investors.

Luxury hotels with daily room rentals above Rs 7,500 will benefit most from the cut in GST rates.

(Nirbhay Kumar can be contacted at nirbhay.k@.in)

( With inputs from IANS )