Premium hotels' profitability to plunge, says Crisil

"Slowing demand growth, large-scale room additions will cause occupancy rates of premium hotels in these cities to slip," Crisil said.

Last Updated: Sep 11, 2012, 19:26 PM IST

New Delhi: Profitability of premium hotels in the country is set to plunge in 2012-13 as well as 2013-14 financial year on the back of declines in occupancy and room rates, according to the ratings agency Crisil.

"... Expect profitability of premium hotels (5-star and 5-star deluxe) 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 a report released on Tuesday.

Operating margins will drop to just over 16 percent in 2013-14, the lowest in 10 years, it added.
Crisil said it has assessed performance of premium hotel segment across twelve cities in the country which collectively account for 80 percent of the premium hotel rooms.

"Slowing demand growth, large-scale room additions will cause occupancy rates of premium hotels in these cities to slip," Crisil said.

The ratings company expects that 14,500 rooms to be added by 2013-14 to the existing 46,200 rooms. Occupancy rates of premium hotels will, therefore, fall from 64 percent in 2011-12 to 56 percent in 2013-14.

"As the increased room inventory intensifies competition and aggravates the demand-supply imbalance prevailing in the segment, room rates for premium hotels will dip by about 10 percent over this period," it added.

Crisil said the fall in both occupancy rates and room rates will lead to a sharp decline in revenue per available room (RevPAR) with Ahmedabad and Chennai among the worst affected.

The average RevPAR for premium hotels will plummet from Rs 5,000 per day in 2011-12 to Rs 3,900 per day in 2013-14.

"...A continued oversupply, at least till 2015-16, will maintain the pressure on profitability of premium hotels," Crisil Director Binaifer Jehani said in a statement.

PTI