Heatwaves burn a hole in hotels' revenue growth

ET Intelligence Group: Heatwave conditions and seasonality of the hotel business (demand is typically low in the quarter through June) have likely impacted revenue growth in May 2024.

According to a recent study by advisory firm HVS Anarock, the average revenue per available room of India's hotel industry in May grew a tepid 2-3% from a year earlier to '4,150. The average occupancy rate was flat close to 60%. These are despite air passenger traffic growing 4.4% sequentially to 13.7 million in May. In April, average revenue per available room grew 7-9% when compared to a year earlier.

Analysts believe prolonged heatwave conditions had impacted demand for rooms in some leisure destinations. According to a report by ICICI Securities, high temperatures in the northern part of India hurt demand in places like Rajasthan. However, there has been a recovery in demand in business hotels in cities such as Mumbai, Pune, Bengaluru, Chennai, Hyderabad and Delhi-NCR. Analysts expect even June 2024 to show similar trends in room rates. They estimate growth in bookings in the June quarter to remain muted at 4-5%, compared with a year earlier.

Due to seasonality of business, occupancy and room rates are likely to improve from the quarter staring July 1.

In the past few years, most well-placed hotels have focused on reducing costs. This is a reason why most hotels are expanding their room inventory through the management contract route - an asset-light model where the hotel operator manages a hotel property owned by a third party.

Among listed entities, Indian Hotels, Lemon Tree Hotels and Chalet Hotels are able to manage their costs well and will be able to record relatively superior revenue growth than their peers, as per analysts.