The year 2021 has been nothing short of a roller coaster ride for the Indian hotel sector, full of hope and opportunities but also uncertainty as new variants of the virus acted as temporary roadblocks on the road to recovery. While the year began on a positive note with a surge in domestic leisure travel fueled by a steady drop in active cases and the start of the country’s vaccination program, the recovery was quickly hampered by new restrictions and lockdowns imposed in response to the country’s second wave.
However, it was not a case of the dreaded déjà vu, as hoteliers proactively focused on alternative customer segments and ancillary revenue streams to weather the storm, building on the learnings from the previous year and dealing with the pandemic that refuses to end. As a result, the Indian hotel sector has been recovering faster than expected.
Hotel occupancy, which had been severely impacted by the COVID-19 related travel
restrictions in 2020, began a strong recovery in the third quarter of 2021. Domestic leisure travel growth, significant pent-up demand, the partial resumption of business travel in the country, as well as wedding and social events have all contributed to this recovery.
Small-to-medium-sized domestic MICE events also made a comeback, fueling demand for
hotels. The sector ended the year with an India wide occupancy of 42-45%, up 10-13 percentage points over the previous year. Driven by the strong recovery in demand, average rates also began to improve after the second wave, progressively approaching pre-COVID levels. The robust growth in occupancy and average room rates (ARR) resulted in a 24-27% increase in RevPAR to ₹1,800 – ₹2,100 in 2021.
Leisure markets continued to drive the recovery, with even smaller leisure markets in the country such as Haridwar, Corbett, and hill stations in Himachal Pradesh, Uttarakhand and Jammu and Kashmir, to name a few, recording all time high occupancy and ARRs. Some leisure markets such as Goa surpassed pre-pandemic levels of performance by the end of the year. Luxury and upper upscale properties performed exceedingly well in these markets given that the upwardly mobile were unable to take any overseas vacations.
In 2021, hotel companies continued to grow their development pipelines, resulting in over 24% rise in brand signings by keys compared to the previous year. During the year, 135 new hotels with 12,359 rooms entered the branded hotel market, while 58 hotels with 3,108 rooms were rebranded.
Hoteliers continued to focus on leisure destinations, as well as Tier 3 & 4 cities, having recognized the enormous potential of domestic tourism, which has gained long overdue industry respect in the aftermath of the pandemic.
After a truly spectacular performance in the last quarter of 2021, the year 2022 has started on a challenging note, with subdued demand in the first few weeks of the year because of the emergence of Omicron cases in the country. This has been followed by the Ukraine-Russia conflict which is expected to have a negative impact on the country’s economic growth in the long run. However, we expect domestic travel demand will continue to be strong during the year as people have embraced the new ‘normal’ of travel in uncertain times.
The Union Budget 2022 considered some of the recommendations made by industry stakeholders to the government at various forums, among which the extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023, and the expansion of
the guarantee cover, with the additional corpus exclusively earmarked for the hospitality and related segments, will bring some much needed but short-term respite to hospitality players.
Moreover, the government’s greater focus on large-scale infrastructure development,
including roads, railways, airports, ports, and waterways, will aid long-term growth in the tourism and hospitality sectors. We believe that travel will witness an impressive bounce back, and the sector will soon be able to put the pandemic’s destruction behind it, and smart investors are making their investment plans accordingly.
