Indian Hospitality Sector – 1H2022 Performance Review

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The Indian hotel sector made steady progress in the first half of calendar year 2022 (1H2022). Nationwide occupancy was between 56-58%, 21-23 percentage points (pp) higher than 1H2021 and only 8-10pp lower than 1H2019. The strong recovery in demand is driving steady increases in average room rates, with hotels, particularly in the leisure sector, outperforming their pre-pandemic average rates. Business markets are also gradually improving with the return of business travel and big-ticket conferences and events. As a result, the country’s average rates in 1H2022 were 44-46% higher than in 1H2021, while still 7-9% lower than pre-pandemic levels. The strong recovery in occupancy and average rates drove India-wide RevPAR to reach INR 3,100-3,300, reflecting over 130% growth from HY2021.

The year 2022 began with new concerns about the pandemic as the country entered a third wave due to the emergence of a new, more virulent COVID strain, Omicron. The reintroduction of state travel restrictions has again upended India’s hospitality sector. Except for critical and urgent travel, other leisure and business travel plans have been put on hold as people exercised caution. Weak demand during the quarter resulted in an occupancy rate of 50%; however, the average rates continued to improve year on year and remained above the INR 5,000 mark.

Due to the lower severity and hospitalization rate of the Omicron variant compared to the earlier Delta strain, as well as the country’s higher vaccination rate, demand for travel to India began to revive in March 2022 Another factor that helped improve travel sentiment was the government’s swift response to curb the spread of the virus, as well as the rapid easing of restrictions when cases declined. After a two-year hiatus, India also resumed all scheduled international flights at full capacity at the end of March 2022. As a result, total air traffic in the country increased by 61% year-on-year between January and May 2022, reaching nearly 76% of traffic recorded between January and May 2019.

Source: HVS Research — Photo by HVS
Source: HVS Research — Photo by HVS

This upbeat travel sentiment helped India’s hospitality sector end the second quarter of 2022 on a high note. Nationwide hotel occupancy of 64.7% in the second quarter of 2022 was 1.2pp higher than in the second quarter of 2019. The faster-than-expected recovery in demand led to a significant improvement in average fares at INR 5,865, up 6% from Q2 2019, while RevPAR reached INR 3,793, up 8% from Q2 2019.

Despite the surge in demand, the sector is expected to be impacted by headwinds in the global economy in the second half of the year. Many countries are experiencing high inflation due to a combination of factors such as rising fuel prices, continued supply disruptions, high demand, and the Russian-Ukrainian war. As central banks around the world raise benchmark interest rates in an attempt to control the situation, inflation is expected to remain high in the near term, which could impact travel sentiment going forward. There are also growing fears that the United States and Europe will slide into recession by the end of the year. Rising tensions between China and Taiwan, as well as an increase in cases of Monkeypox around the world, which has been declared a global health emergency by the World Health Organization, are additional factors that may impact the global economy and the world travel and tourism industry. coming.

The global volatility would most likely have a negative impact on the Indian economy and the performance of the hotel market in the second half of the year. Rising raw material costs, high labor costs, and now higher borrowing costs due to rising interest rates will all weigh on hotel operations and the GOP, and businesses need to strengthen their flexibility and ability to adapt quickly to changing market conditions.

Mandeep S Lamba
President (South Asia), New Delhi
+91 (124) 488 5552
HVS

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