An insight into Indian hospitality industry’s cyclical nature of trade and what the future holds
By Ac h i n Khanna
Numbers! They have an intriguing way of making people create an opinion. It has often been said that numbers don’t lie. What can be minced in words becomes bare in numbers. While quantifying the past is clearly important, if one would like to assess how it may have shaped the present or will impact the future, it is very important to note that it’s not just the numbers that tell you the facts. It’s the story behind these numbers that really matters
HVS India has been tracking the performance of the Indian hotel sector since the mid nineteen nineties. We have therefore collated a substantial amount of data regarding the average rates, occupancies and supply-demand dynamics over the past 18 years. While we have presented this information as part of our annual Trends & Opportunities report for several years now, it may help to scrutinize the story behind these numbers and analyse some of the key take-aways that present themselves to us.
1996/97to 2001/02: The DownCycle
Those familiar with the very nature of the hotel sector are also aware of
the fact that this business is cyclical. The hotel sector went through a rough patch from the late nineties to the early two thousands. It was the early stages of supply growth and as India began to find its feet in it’s recently privatisation focused and open economy format, development of hotels across the major cities started to take place at a steady pace. Moreover, the Pokharan Nuclear tests led to sanctions against India and the Kargil war also caused a
decline in the overall sentiment. As branded/organized supply grew from about 18,000 rooms in 1996/97 to 26,000 rooms by 2001/02, nationwide occupancy declined from 63% to the mid fifties
during this period. The 9/11 attacks in the USA acted as the final nail in the coffin and these six years ended at a dismal nationwide occupancy of 51.6%. A year on year 7% increase in supply translated to a 1% decline in ARR and a 4% decline in occupancy on a CAGR basis.
The key take away here is that the correlation between supply growth and both ARR as well as occupancy changes was negative. What this means is that increase in branded hotel inventory had a negative impact on nationwide occupancies and average rates on a compounded basis during this six year period; as supply pressure had clearly outpaced demand growth, even though absolute demand (occupied room-nights per day) did grow by 3% CAGR. The outcome in terms of hotel performances could be qualified as a downcycle.
2002/03 to 2007/08: TheUpCycle
Two significant global events took place in fiscal year 2003. The SARS epidemic hit China in November 2002 and outbound travel to Southeast Asia as well as China declined for the next couple of years. America declared war on Iraq in March 2003 and the entire Middle East felt the pressure of reduced travel as well. Indians, who travelled to these two destinations for leisure started to look inwards and for the first time we saw a notable increase in domestic travel as a result
. This fueled roomnight demand across destinations. (This trend has only grown with time and in fact, the hotel sector owes a
debt of gratitude to the domestic traveller today). The key take away here is that the correlation between supply growth
and both ARR as well as occupancy changes was positive. What this means is that increase in branded hotel inventory had a positive impact on nationwide occupancies and average rates on a compounded basis during this six year period. Absolute demand (occupied roomnights per day) also grew by 16% CAGR. This was clearly an upcycle. This was also the period where India’s economy saw strong year on year growth as is evident in the growth of the country’s real GDP
from 2002/03 to 2007/08 being north of 8% on an average. In fact,the last three years in this cycle saw more than 9% growth in year on year GDP numbers. Earlier, the Atal Behari Vajpayee led NDA government had focused on infrastructure during its tenure and subsequently, various national and state highway projects took shape in this period. Keeping pace with the larger economy’s growth focus, India’s branded hotel inventorytouched almost 47,000 rooms by2007/08. The fact that inventory grew at a CAGR of 12% and occupancies rose by 4% while ARRsaveraged 20% growth on a CAGR
basis from 2002/03 to 2007/08
The story behind the numbers
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An insight into Indian hospitality industry’s cyclical nature of trade and what the future holds
By Ac h i n Khanna
Numbers! They have an intriguing way of making people create an opinion. It has often been said that numbers don’t lie. What can be minced in words becomes bare in numbers. While quantifying the past is clearly important, if one would like to assess how it may have shaped the present or will impact the future, it is very important to note that it’s not just the numbers that tell you the facts. It’s the story behind these numbers that really matters
HVS India has been tracking the performance of the Indian hotel sector since the mid nineteen nineties. We have therefore collated a substantial amount of data regarding the average rates, occupancies and supply-demand dynamics over the past 18 years. While we have presented this information as part of our annual Trends & Opportunities report for several years now, it may help to scrutinize the story behind these numbers and analyse some of the key take-aways that present themselves to us.
1996/97to 2001/02: The DownCycle
Those familiar with the very nature of the hotel sector are also aware of
the fact that this business is cyclical. The hotel sector went through a rough patch from the late nineties to the early two thousands. It was the early stages of supply growth and as India began to find its feet in it’s recently privatisation focused and open economy format, development of hotels across the major cities started to take place at a steady pace. Moreover, the Pokharan Nuclear tests led to sanctions against India and the Kargil war also caused a
decline in the overall sentiment. As branded/organized supply grew from about 18,000 rooms in 1996/97 to 26,000 rooms by 2001/02, nationwide occupancy declined from 63% to the mid fifties
during this period. The 9/11 attacks in the USA acted as the final nail in the coffin and these six years ended at a dismal nationwide occupancy of 51.6%. A year on year 7% increase in supply translated to a 1% decline in ARR and a 4% decline in occupancy on a CAGR basis.
The key take away here is that the correlation between supply growth and both ARR as well as occupancy changes was negative. What this means is that increase in branded hotel inventory had a negative impact on nationwide occupancies and average rates on a compounded basis during this six year period; as supply pressure had clearly outpaced demand growth, even though absolute demand (occupied room-nights per day) did grow by 3% CAGR. The outcome in terms of hotel performances could be qualified as a downcycle.
2002/03 to 2007/08: TheUpCycle
Two significant global events took place in fiscal year 2003. The SARS epidemic hit China in November 2002 and outbound travel to Southeast Asia as well as China declined for the next couple of years. America declared war on Iraq in March 2003 and the entire Middle East felt the pressure of reduced travel as well. Indians, who travelled to these two destinations for leisure started to look inwards and for the first time we saw a notable increase in domestic travel as a result
. This fueled roomnight demand across destinations. (This trend has only grown with time and in fact, the hotel sector owes a
debt of gratitude to the domestic traveller today). The key take away here is that the correlation between supply growth
and both ARR as well as occupancy changes was positive. What this means is that increase in branded hotel inventory had a positive impact on nationwide occupancies and average rates on a compounded basis during this six year period. Absolute demand (occupied roomnights per day) also grew by 16% CAGR. This was clearly an upcycle. This was also the period where India’s economy saw strong year on year growth as is evident in the growth of the country’s real GDP
from 2002/03 to 2007/08 being north of 8% on an average. In fact,the last three years in this cycle saw more than 9% growth in year on year GDP numbers. Earlier, the Atal Behari Vajpayee led NDA government had focused on infrastructure during its tenure and subsequently, various national and state highway projects took shape in this period. Keeping pace with the larger economy’s growth focus, India’s branded hotel inventorytouched almost 47,000 rooms by2007/08. The fact that inventory grew at a CAGR of 12% and occupancies rose by 4% while ARRsaveraged 20% growth on a CAGR
basis from 2002/03 to 2007/08
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