Hotels: No respite from external events

Well all is still not well for the hotel sector. The June quarter results clearly indicate that the sector continues to reel under pressure. Sluggish demand coupled with decline in occupancy and room rates has impacted the profits of hotel majors across the country.

As per HVS Consulting & Valuation Services, a global hotel consulting and valuation firm, there was a sharp 25-35% decline in room rates of deluxe upmarket hotels and around 10-20% YoY fall in the mid-market segment rates. Room rates have seen a sharp decline during the quarter, as the effort was on to fill empty rooms. With the quarter being an off season, the performance suffered further.

Some cheer but...

Post the terror attacks late last year, growth in foreign tourist arrivals remained negative till May 2009. However, some pick up was seen in June and July. The foreign tourist arrivals grew minutely by 0.3% and 0.7% respectively, on a year-on-year basis. This we believe is because during the same time last year, the financial crisis had deepened which affected the travel. Also as per Crisil, leisure destinations like Goa and Jaipur have shown some growth in room rates. Occupancy in Goa went up to 61% in June 2009, as compared to 56% in the same month last year. However, while the leisure destinations saw a rise in occupancy, business destinations (generally the cash cows) witnessed a decline, which is worrying for the hotel players.

Now swine flu looms large

Even as the sector was hoping for better days ahead, the swine flu scare struck in the last few weeks, which further added to the existing woes. The hotel companies have seen cancellation of 10-15% in the inbound tourists segment. Besides, in the short term, domestic tourism will be affected in states like Maharashtra and Karnataka where incidents of flu have been reported. This coupled with the second quarter also being a traditionally a low-season period, near term outlook for the sector does not look bright.

Economic slowdown and terror attacks had hit the sector last year, while this year, the ongoing slowdown and now swine flu continue to haunt the industry. The hotel companies are therefore now banking on the Commonwealth Games (CWG) 2010 to be played in Delhi. With more than 100,000 visitors expected for the games, hotel chains and travel agents are expecting a 25% increase in room rentals.

While the long term fundamentals remain strong, as seen earlier, the sector is highly dependent on external factors which could possibly mar its performance.