Hospitality industry revenue, margins likely to return to pre-COVID levels this fiscal year: ICRA

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According to ratings agency ICRA, hospitality industry revenues and margins are expected to return to pre-COVID levels in 2022-23 despite the potential impact on demand in the event of further waves of the pandemic.

Domestic leisure travel and passenger travel will be the main drivers of demand, although there will be a gradual recovery in business travel and foreign tourist arrivals (FTA), ICRA said in a communicated.

Pan-India, upscale hotel occupancy is expected to be 68-70% for FY23, he said, adding that the average room rate (ARR) is expected to hover between 5,600 and 5,800 ₹.

“Improved operating leverage along with continued cost optimization measures will support hotel margins and accrued expenses,” the agency said.

Notwithstanding the potential demand impact of new waves of COVID, if any, CIFAR said it expects industry revenues and margins to return to pre-COVID levels in during fiscal year 23.

CIFAR Vice President and Sector Head Vinutaa S said the hospitality industry had a strong start to FY23, with 56-58% occupancy at upscale hotels. range in the first quarter of the fiscal year.

It rose from 40 to 42 percent in FY22 and was closer to pre-COVID occupancy of 60 to 62 percent in the first quarter of FY20, she added.

“Pan India ARR stood at around ₹4,600-4,800 in the first quarter of FY2023 from ₹4,200-4,400 in FY2022. It still remains at a discount of 16 18% from pre-COVID levels on average, although a few high-end hotels and leisure destinations have seen ARRs climb to levels above pre-COVID levels in recent months,” said Ms. Vinutaa.

The recovery in demand was helped by leisure, transients, MICE/weddings and the gradual recovery of business travel and foreign tourist arrivals, while some cities also saw traffic from events specific.

MICE refers to meetings, incentive trips, conferences and exhibitions.

“While leisure destinations and gateway cities have seen healthy occupancy, cities largely dependent on business travellers, such as Bengaluru and Pune, will take a few more months to recover,” she added.

Ms. Vinutaa said that although the first quarter of FY23 was among the best quarters since the start of the pandemic, revenue per available room remained 20-22% below pre-COVID levels and at about 45-50% reduction from the peak in FY09.

For midscale hotels, the recovery has been slower, due to reliance on business travel. In addition, cost inflation may also affect demand for midscale hotels, she said.

CIFAR currently has a stable outlook on the industry, Ms. Vinutaa.

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