The Indian hotel industry's revenue per available rooms (RevPAR) is likely to grow by up to 9 percent in the next fiscal supported by stronger domestic demand, ICRA said in a report.
ICRA expects RevPar for Indian Hotel Industry to grow by 8-9 percent in FY18, aided by stronger domestic demand, strong flows in free trade agreement (FTA) and the return of pricing power across markets barring few micro-markets in NCR, Kolkata and Chennai.
The average room rates (ARR) grew by 2 percent during 9 months in FY17, while average occupancy grew by 2 percent, lower than ICRA's earlier estimates of 3-4 percent.
This under-performance in occupancy growth was due to the impact of demonetisation on leisure room demand during November-December 2016 (peak season for the industry) at few destinations, the rating agency said.
Contributed equally by growth in occupancies and ARRs, pan-India revenue per available rooms (RevPAR) for 9 months of FY17 has increased by 4 percent, ICRA said in the report.
"India has over 25,000 premium rooms under construction to be launched over the next 4 years, based on industry announcements. This will take the premium supply in the country to over one lakh rooms by FY20 in the 12 key cities we track," said ICRA Senior Group VP and Head - Corporate Ratings - Subrata Ray said.
He said, bulk of this supply, barring in Mumbai, is front-ended, that is sizable inventory will hit the market over the next 18 months (mainly in Bengaluru and Kolkata).
"While the supply growth, based on announcements, has been pegged at 8 percent annually over FY17-FY20, we expect actual supply growth to fall to around 6 percent given the delays in few projects and the typical lead time required for final approvals," he added.
Overall, ICRA expect that FTAs and spends still remain below potential, hence, there is further scope for strong year-on-year growth in FTA and foreign exchange earnings.
Domestic travel, going by domestic Revenue Passenger Kilometre (RPKM) trends, which has grown by more than 20 percent year-on-year during each of the last 13 months, continued to remain healthy.
While the business sentiments and discretionary spends were impacted temporarily by demonetisation in November 2016, the positive long-term impacts of the same coupled with scheduled roll out of goods and services tax (GST) in July 2017, will boost domestic economy and, hence, travel, it said.
Provisions announced in the Union Budget 2017-18 for the creation of five special tourism zones (STZs) and the launch of Incredible India 2.0 campaign are also expected to be long-term positive for the industry, ICRA opined.
ICRA estimates 4-5 percent growth in industry revenues for FY17, based on the actual performance of industry during 9 months FY17, where the revenues remained flat due to the demonetisation mainly in food and beverage and banqueting income (MICE) during the third quarter.
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