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Wednesday , September 12 , 2012
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Hotels brace for hard times

Calcutta, Sept. 11: A slowing global economy is likely to take a toll on the operations of India’s premium hotels.

According to a Crisil Research study, operating margins of premium hotels will decline in 2013-14 on lower occupancy and room rates, attributed to the weak global trends and room expansion.

The research firm says, operating margins will go down to 16 per cent in 2013-14 against 24 per cent in 2011-12. “... expect profitability of premium hotels to plunge in 2012-13 and 2013-14. A decline in both occupancy rates and room rates will shrink operating margins. And rising costs will accentuate that pressure,” Crisil said in the report released today.

Crisil had undertaken a study across the National Capital Region and 11 cities — Mumbai, Calcutta, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Goa, Jaipur, Agra and Kochi — that collectively account for 80 per cent of the premium hotel rooms.

Profitability is expected to fall as annual demand growth for premium hotel rooms is likely to stay subdued at 7 per cent for 2012-13 and 2013-14 on account of the global slowdown affecting business and leisure travel.

With 14,500 rooms to be added to an existing 46,200 rooms by 2013-14, occupancy rates will fall from 64 per cent in 2011- 12 to 56 per cent in 2013-14, the study pointed out.

The increase in room inventory in the face of rising competition will result in room rates declining about 10 per cent. The average revenue per room will go down to Rs 3,900 per day in 2013-14 from Rs 5,000 per day in 2011-12.

In Calcutta, the average tariff per day is expected to decline to Rs 6,600 in 2012-13 and Rs 6,400 in 2013-14 from Rs 6,750.

“Operating margins will drop to their decadal lows in 2013-14. The margins had previously gone down to 16-17 per cent in 2002-03 and 2003-04 on account of the terror attack and severe acute respiratory syndrome (SARS) outbreak resulting in issuance of travel advisories and fall in demand. While there was a recovery to 30-35 per cent level after that, this time around the process would be slower,” said Binaifer Jehani, director, Crisil Research. “...a continued oversupply, at least till 2015-16, will maintain the pressure on profitability of premium hotels,” Jehani said.